UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to               

Commission file number 1-06155

SPRINGLEAF FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

Indiana	35-0416090
(State of Incorporation)	(I.R.S. Employer Identification No.)
601 N.W. Second Street, Evansville, IN	47708
(Address of principal executive offices)	(Zip Code)

(812) 424-8031

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x	Smaller reporting company ¨
(Do not check if a smaller reporting company)

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

At August 10, 2012, there were 10,160,016 shares of the registrant’s common stock, $.50 par value, outstanding.

TABLE OF CONTENTS

	Item		Page
Part I	1.	Financial Statements
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Comprehensive Loss	5
		Condensed Consolidated Statements of Shareholder’s Equity	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
	3.	Quantitative and Qualitative Disclosures About Market Risk	80
	4.	Controls and Procedures	81
Part II	1.	Legal Proceedings	81
	1A.	Risk Factors	81
	2.	Unregistered Sales of Equity Securities and Use of Proceeds	81
	3.	Defaults Upon Senior Securities	82
	4.	Mine Safety Disclosures	82
	5.	Other Information	82
	6.	Exhibits	82

AVAILABLE INFORMATION

Springleaf Finance Corporation (SLFC) files annual, quarterly, and current reports and other information with the Securities and Exchange Commission (the SEC). The SEC’s website, www.sec.gov, contains these reports and other information that registrants (including SLFC) file electronically with the SEC.

The following reports are available free of charge through our website, www.SpringleafFinancial.com (posted on the “About Us — Investor Information — Financial Information” section), as soon as reasonably practicable after we file them with or furnish them to the SEC:

·Annual Reports on Form 10-K;

·Quarterly Reports on Form 10-Q;

·Current Reports on Form 8-K; and

·any amendments to those reports.

In addition, our Code of Ethics for Principal Executive and Senior Financial Officers (the Code of Ethics) is posted on the “About Us — Investor Information — Corporate Governance” section of our website at www.SpringleafFinancial.com. We will post on our website any amendments to the Code of Ethics and any waivers that are required to be described.

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

2

Part I — FINANCIAL INFORMATION

Item 1.  Financial Statements

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
(dollars in thousands)	2012			2011
Assets
Net finance receivables:
Real estate loans (includes loans of consolidated VIEs of $2.5 billion in 2012 and $2.2 billion in 2011)	$	9,420,245		$	9,961,177
Non-real estate loans	2,583,922			2,685,039
Retail sales finance	282,572			369,903
Net finance receivables	12,286,739			13,016,119
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $3.7 million in 2012 and $2.1 million in 2011)	(91,673		)	(72,000		)
Net finance receivables, less allowance for finance receivable losses	12,195,066			12,944,119
Finance receivables held for sale	24,018			—
Investment securities	694,480			746,287
Cash and cash equivalents	1,322,315			477,469
Notes receivable from parent	537,989			537,989
Restricted cash (includes restricted cash of consolidated VIEs of $23.9 million in 2012 and $30.0 million in 2011)	66,590			61,952
Other assets	456,219			614,598
Total assets	$	15,296,677		$	15,382,414
Liabilities and Shareholder’s Equity
Long-term debt (includes debt of consolidated VIEs of $1.6 billion in 2012 and $1.2 billion in 2011)	$	12,952,919		$	12,885,392
Insurance claims and policyholder liabilities	327,353			327,857
Other liabilities	326,207			338,256
Deferred and accrued taxes	343,722			422,110
Total liabilities	13,950,201			13,973,615
Shareholder’s equity:
Common stock	5,080			5,080
Additional paid-in capital	245,518			236,076
Accumulated other comprehensive loss	(6,098		)	(25,538		)
Retained earnings	1,101,976			1,193,181
Total shareholder’s equity	1,346,476			1,408,799
Total liabilities and shareholder’s equity	$	15,296,677		$	15,382,414

See Notes to Condensed Consolidated Financial Statements.

3

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2012			2011			2012			2011
Interest income:
Finance charges	$	411,936		$	468,072		$	853,111		$	939,296
Finance receivables held for sale originated as held for investment	1,481			—			2,394			—
Total interest income	413,417			468,072			855,505			939,296
Interest expense	275,669			330,972			556,249			665,740
Net interest income	137,748			137,100			299,256			273,556
Provision for finance receivable losses	69,412			89,305			136,594			146,031
Net interest income after provision for finance receivable losses	68,336			47,795			162,662			127,525
Other revenues:
Insurance	31,774			29,809			61,323			58,295
Investment	6,572			9,978			15,631			17,757
Gain on early extinguishment of secured term loan	—			10,664			—			10,664
Other	(5,260		)	1,333			(22,137		)	(21,586		)
Total other revenues	33,086			51,784			54,817			65,130
Other expenses:
Operating expenses:
Salaries and benefits	73,635			92,859			161,141			186,188
Other operating expenses	77,772			105,958			144,234			180,434
Restructuring expenses	1,917			—			23,503			—
Insurance losses and loss adjustment expenses	14,616			137			27,150			12,732
Total other expenses	167,940			198,954			356,028			379,354
Loss before benefit from income taxes	(66,518		)	(99,375		)	(138,549		)	(186,699		)
Benefit from income taxes	(23,277		)	(40,081		)	(47,344		)	(72,226		)
Net loss	$	(43,241	)	$	(59,294	)	$	(91,205	)	$	(114,473	)

See Notes to Condensed Consolidated Financial Statements.

4

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2012			2011			2012			2011
Net loss	$	(43,241	)	$	(59,294	)	$	(91,205	)	$	(114,473	)
Other comprehensive (loss) income:
Net unrealized gains (losses) on:
Investment securities on which other-than- temporary impairments were taken	54			158			232			158
All other investment securities	2,824			9,534			11,165			13,348
Cash flow hedges*	(32,737		)	29,283			(16,987		)	92,729
Retirement plan liabilities adjustment	—			—			20,937			—
Foreign currency translation adjustments	(2,179		)	255			1,213			3,813
Income tax effect:
Net unrealized (gains) losses on:
Investment securities on which other-than- temporary impairments were taken	(19		)	(55		)	(81		)	(55		)
All other investment securities	(988		)	(3,337		)	(3,908		)	(4,672		)
Cash flow hedges	11,458			(10,250		)	5,945			(32,456		)
Retirement plan liabilities adjustment	(216		)	—			(7,544		)	—
Other comprehensive (loss) income, net of tax, before reclassification adjustments	(21,803		)	25,588			10,972			72,865
Reclassification adjustments included in net loss:
Net realized losses on investment securities	528			345			358			2,515
Cash flow hedges*	32,675			(27,830		)	12,670			(106,217		)
Income tax effect:
Net realized losses on investment securities	(185		)	(121		)	(125		)	(880		)
Cash flow hedges	(11,437		)	9,741			(4,435		)	37,176
Reclassification adjustments included in net loss, net of tax	21,581			(17,865		)	8,468			(67,406		)
Other comprehensive (loss) income, net of tax	(222		)	7,723			19,440			5,459
Comprehensive loss	$	(43,463	)	$	(51,571	)	$	(71,765	)	$	(109,014	)

*We revised our presentation from the prior period to reflect our cash flow hedges on a gross basis. In the prior year, these cash flow hedges were incorrectly presented on a net basis totaling a $1.5 million net gain for the three months ended June 30, 2011 and a $13.5 million net loss for the six months ended June 30, 2011. This revision had no impact on our other comprehensive income (loss) for the three and six months ended June 30, 2011.

See Notes to Condensed Consolidated Financial Statements.

5

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholder’s Equity

(Unaudited)

(dollars in thousands)	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholder’s Equity
Balance, January 1, 2011	$	5,080	$	225,576	$	(2,434	)	$	1,462,904		$	1,691,126
Capital contributions from parent and other	—		10,501		—			—			10,501
Change in net unrealized gains (losses):
Investment securities	—		—		10,414			—			10,414
Cash flow hedges	—		—		(8,768		)	—			(8,768		)
Foreign currency translation adjustments	—		—		3,813			—			3,813
Net loss	—		—		—			(114,473		)	(114,473		)
Dividends	—		—		—			(45,000		)	(45,000		)
Balance, June 30, 2011	$	5,080	$	236,077	$	3,025		$	1,303,431		$	1,547,613
Balance, January 1, 2012	$	5,080	$	236,076	$	(25,538	)	$	1,193,181		$	1,408,799
Capital contributions from parent and other	—		9,442		—			—			9,442
Change in net unrealized gains (losses):
Investment securities	—		—		7,641			—			7,641
Cash flow hedges	—		—		(2,807		)	—			(2,807		)
Retirement plan liabilities adjustments	—		—		13,393			—			13,393
Foreign currency translation adjustments	—		—		1,213			—			1,213
Net loss	—		—		—			(91,205		)	(91,205		)
Balance, June 30, 2012	$	5,080	$	245,518	$	(6,098	)	$	1,101,976		$	1,346,476

See Notes to Condensed Consolidated Financial Statements.

6

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)
Six Months Ended June 30,	2012			2011
Cash Flows from Operating Activities
Net loss	$	(91,205	)	$	(114,473	)
Reconciling adjustments:
Provision for finance receivable losses	136,594			146,031
Depreciation and amortization	106,807			145,060
Deferral of finance receivable origination costs	(21,396		)	(20,629		)
Deferred income tax benefit	(107,840		)	(128,890		)
Writedowns and net loss on sales of real estate owned	28,474			31,452
Writedowns on assets resulting from restructuring	5,246			—
Mark to market provision on finance receivables held for sale originated as held for investment	1,372			—
Net loss on sales of finance receivables held for sale originated as held for investment	591			—
Net loss on repurchases of debt	1,080			—
Gain on early extinguishment of secured term loan	—			(10,664		)
Net realized losses on investment securities	358			2,515
Change in other assets and other liabilities	31,703			63,101
Change in insurance claims and policyholder liabilities	(504		)	(21,883		)
Change in taxes receivable and payable	58,057			(7,960		)
Change in accrued finance charges	9,867			11,250
Change in restricted cash	(778		)	14,652
Other, net	5,310			(1,527		)
Net cash provided by operating activities	163,736			108,035
Cash Flows from Investing Activities
Finance receivables originated or purchased	(829,011		)	(835,575		)
Principal collections on finance receivables	1,367,129			1,416,437
Purchase of finance receivables from affiliates	(14,875		)	—
Sales and principal collections on finance receivables held for sale originated as held for investment	51,827			—
Investment securities purchased	(5,444		)	(56,582		)
Investment securities called, sold, and matured	64,425			62,949
Change in restricted cash	(3,859		)	256,329
Proceeds from sale of real estate owned	105,710			106,916
Other, net	(3,299		)	(8,596		)
Net cash provided by investing activities	732,603			941,878
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	640,451			2,119,594
Debt commissions on issuance of long-term debt	(4,012		)	(20,076		)
Repayment of long-term debt	(698,353		)	(2,827,437		)
Capital contributions from parent	10,500			10,500
Dividends	—			(45,000		)
Net cash used for financing activities	(51,414		)	(762,419		)
Effect of exchange rate changes	(79		)	523
Increase in cash and cash equivalents	844,846			288,017
Cash and cash equivalents at beginning of period	477,469			1,381,534
Cash and cash equivalents at end of period	$	1,322,315		$	1,669,551

See Notes to Condensed Consolidated Financial Statements.

7

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2012

Note 1.  Basis of Presentation

Springleaf Finance Corporation (SLFC or, collectively with its subsidiaries, whether directly or indirectly owned, the Company, we, us, or our) is a wholly-owned subsidiary of Springleaf Finance, Inc. (SLFI). SLFI is a direct wholly-owned subsidiary of AGF Holding Inc. (AGF Holding). AGF Holding is 80% owned by FCFI Acquisition LLC (FCFI), an affiliate of Fortress Investment Group LLC (Fortress), and 20% owned by AIG Capital Corporation, a direct wholly-owned subsidiary of American International Group, Inc. (AIG), a Delaware corporation.

On November 30, 2010, FCFI indirectly acquired an 80% economic interest in the Company (the FCFI Transaction). Because of the nature of the FCFI Transaction, the significance of the ownership interest acquired, and at the direction of our acquirer, we applied push-down accounting to SLFI and SLFC, and we revalued our assets and liabilities based on their fair values at the date of the FCFI Transaction in accordance with business combination accounting standards (push-down accounting).

We prepared our condensed consolidated financial statements using accounting principles generally accepted in the United States of America (U.S. GAAP). These statements are unaudited. The year-end condensed balance sheet data was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The statements include the accounts of SLFC and its subsidiaries, all of which are wholly owned. We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results, and the out-of-period adjustment recorded in the second quarter of 2012 discussed below. Ultimate results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date. You should read these statements in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. To conform to the 2012 presentation, we reclassified certain items in the prior period.

In second quarter 2012, we recorded an out-of-period adjustment, which decreased finance charge revenues by $13.9 million ($11.5 million of which related to 2011). The adjustment related to the correction of capitalized interest on purchased credit impaired finance receivables serviced by a third party. After evaluating the quantitative and qualitative aspects of this correction, management has determined that our previously issued quarterly and annual consolidated financial statements were not materially misstated and that the out-of-period adjustment is immaterial to our estimated full year results.

Note 2.  Risks and Uncertainties

We currently have a significant amount of indebtedness. Our liquidity position has been, and is likely to continue to be, negatively affected by unfavorable conditions in the consumer finance industry, the residential real estate market and the capital markets. In addition, SLFC’s and SLFI’s credit ratings are all non-investment grade, which have a significant impact on our cost of, and access to, capital. This, in turn, negatively affects our ability to manage our liquidity and our ability to refinance our indebtedness.

8

If current market conditions, as well as our financial performance, do not improve or further deteriorate, we may not be able to generate sufficient cash to service all of our debt. At June 30, 2012, we had $1.3 billion of cash and cash equivalents ($11.6 million of cash and cash equivalents related to our foreign subsidiary, Ocean Finance and Mortgages Limited (Ocean)), and during the six months ended June 30, 2012 we generated a net loss of $91.2 million and cash flows from operating and investing activities of $896.3 million. During the six months ended June 30, 2012, we repurchased $414.9 million of SLFC debt scheduled to mature in 2012 and 50.1 million Euro of SLFC debt scheduled to mature in 2013. We also made additional debt repurchases after quarter end. For the remainder of 2012, we are required to pay $2.0 billion to service the principal and interest due under the terms of our existing debt (excluding securitizations). Additionally, we have $1.5 billion of debt maturities and interest payments (excluding securitizations) due in the first half of 2013. In order to meet our debt obligations in 2012 and beyond, we are exploring a number of options, including additional debt financings, particularly new securitizations involving real estate and/or non-real estate loans, debt refinancing transactions, debt exchange offers, debt restructurings, portfolio sales, or a combination of the foregoing. In April 2012, our insurance subsidiaries received the necessary regulatory approvals to pay cash dividends of $150.0 million during 2012, and subsequently paid cash dividends totaling $150.0 million to SLFC in the second quarter of 2012. In April 2012, SLFC effected a private securitization transaction in which $371.0 million of mortgage-backed notes were sold for $367.8 million, after the price discount but before expenses. In August 2012, SLFC effected an additional private securitization transaction. See Note 21 for further information on this securitization transaction. As of June 30, 2012, the Company had unpaid principal balances of $2.4 billion of unencumbered real estate loans and $2.9 billion of unencumbered non-real estate loans.

The Company ceased its real estate lending effective January 1, 2012 to focus on its other consumer lending products, which have substantially higher yields. The Company also has the flexibility to manage the volume of finance receivable originations on a timely basis to preserve its liquidity for near-term obligations. In addition, SLFC will request payment of some or all of its note receivable from SLFI ($538.0 million outstanding at June 30, 2012), if needed, to meet its liquidity needs.

We cannot assure that additional debt financings, particularly new securitizations, debt refinancing transactions, debt exchange offers, debt restructurings, or portfolio sales will be available to us on acceptable terms, or at all. Our ability to support our operations and repay indebtedness will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, regulatory, and other factors that are beyond our control and cannot be predicted with certainty. We would be materially adversely affected if we were unable to repay or refinance our debt as it comes due.

We actively manage our liquidity and continually work on initiatives to address our liquidity needs. In connection with our liability management efforts, we or our affiliates from time to time have purchased, and may in the future purchase, portions of our outstanding indebtedness. Any such purchases may be made through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration as we or any such affiliates may determine. Our plans are dynamic and we may adjust our plans in response to changes in our expectations and changes in market conditions.

Based on our estimates and taking into account the risks and uncertainties of such plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due during the next twelve months, provided we are able to execute on capital raising or debt refinancing or restructuring plans. We are also incorporating into our business plans the need to generate liquidity to meet our debt payments into 2013.

It is possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of our significant judgments or estimates about the potential effects of these risks and uncertainties could prove to be materially incorrect.

9

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

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

·SLFI’s ability to pay some or all of its note payable to SLFC ($538.0 million at June 30, 2012), if needed by SLFC to meet its liquidity needs;

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

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

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

·our ability to comply with our debt covenants, including the borrowing base for SLFC’s $3.75 billion six-year secured term loan facility (secured term loan);

·the amount of cash expected to be received from our finance receivable portfolio through collections (including prepayments) and receipt of finance charges, which could be materially different than our estimates;

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

·reduced income due to the possible deterioration of the credit quality of our finance receivable portfolios.

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

·the effect of federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) (which, among other things, established a federal Consumer Financial Protection Bureau with broad authority to regulate and examine financial institutions), on our ability to conduct business or the manner in which we conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry;

·the potential for it to become increasingly costly and difficult to service our loan portfolio, especially our real estate loan portfolio (including costs and delays associated with foreclosure on real estate collateral), as a result of heightened nationwide regulatory scrutiny of loan servicing and foreclosure practices in the industry generally, and related costs that could be passed on to us in connection with the subservicing of our centralized mortgage loan portfolio;

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

·the potential for additional unforeseen cash demands or accelerations of obligations;

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

·the potential for declines in bond and equity markets;

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

·the potential loss of key personnel.

10

Note 3.  Restructuring

As part of our strategic review of our operations, we initiated the following during the first half of 2012:

·On February 1, 2012, we informed affected employees of our plan to close approximately 60 branch offices and immediately cease consumer lending and retail sales financing in 14 states where we do not have a significant presence and in southern Florida.

·On February 15, 2012, we reduced the workforce at our Evansville, Indiana headquarters by approximately 130 employees due to the cessation of real estate lending, the branch office closings, and the cessation of consumer lending and retail sales financing in 14 states and southern Florida.

·On March 2, 2012, we informed affected employees of our plan to consolidate certain branch operations and close approximately 150 branch offices in 25 states.

·On March 23, 2012, we informed affected employees of our plan to reduce the workforce of Ocean by approximately 60 employees due to our cessation of real estate lending in the United Kingdom.

·In the second quarter of 2012, we closed an additional 18 branch offices as a result of ceasing operations in 14 states during the first quarter of 2012.

As a result of these events, our workforce was reduced by approximately 690 employees in the first quarter of 2012 and 130 employees in the second quarter of 2012, and we incurred a pretax charge of $1.9 million for the three months ended June 30, 2012 and $23.5 million for the six months ended June 30, 2012.

Restructuring expenses and related asset impairment and other expenses by business segment were as follows:

(dollars in thousands)	Branch Segment		Centralized Real Estate Segment		Insurance Segment		All Other		Consolidated Total
Three Months Ended June 30, 2012
Restructuring expenses	$	1,357	$	—	$	—	$	560	$	1,917
At or for the Six Months Ended June 30, 2012
Restructuring expenses	$	20,091	$	—	$	82	$	3,330	$	23,503
Cumulative amounts incurred since inception	$	20,091	$	—	$	82	$	3,330	$	23,503
Total amount expected to be incurred*	$	20,091	$	—	$	82	$	3,330	$	23,503

*Includes cumulative amounts incurred and additional future amounts to be incurred that can be reasonably estimated at June 30, 2012.

11

Changes in the restructuring liability were as follows:

(dollars in thousands)	Severance Expenses			Contract Termination Expenses			Asset Writedowns			Other Exit Expenses (a)			Total Restructuring Expenses
Three Months Ended June 30, 2012
Balance at beginning of period	$	7,349		$	4,018		$	—		$	898		$	12,265
Amounts charged to expense	1,313			308			252			44			1,917
Amounts paid	(6,494		)	(2,717		)	—			(545		)	(9,756		)
Non-cash expenses	—			—			(252		)	—			(252		)
Balance at end of period	$	2,168		$	1,609		$	—		$	397		$	4,174
At or for the Six Months Ended June 30, 2012
Balance at beginning of period	$	—		$	—		$	—		$	—		$	—
Amounts charged to expense	11,600			5,840			5,246			817			23,503
Amounts paid	(9,432		)	(4,231		)	—			(620		)	(14,283		)
Non-cash expenses	—			—			(5,246		)	200			(5,046		)
Balance at end of period	$	2,168		$	1,609		$	—		$	397		$	4,174
Cumulative amounts incurred since inception	$	11,600		$	5,840		$	5,246		$	817		$	23,503
Total amount expected to be incurred (b)	$	11,600		$	5,840		$	5,246		$	817		$	23,503

(a)Primarily includes removal expenses for branch furniture and signs and fees for outplacement services. Also includes the impairment of the market value adjustment on leased branch offices from the FCFI Transaction.

(b)Includes cumulative amounts incurred and additional future amounts to be incurred that can be reasonably estimated at June 30, 2012.

At June 30, 2012, anticipated cash payments for restructuring expenses are expected to be paid in the following periods:

(dollars in thousands)	Severance Payments		Contract Termination Payments		Other Exit Payments		Total Restructuring Payments
Third quarter 2012	$	1,583	$	502	$	397	$	2,482
Fourth quarter 2012	529		351		—		880
2013+	56		819		—		875
Total	$	2,168	$	1,672	$	397	$	4,237

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Note 4.  Recent Accounting Standards

Accounting Standards Adopted in 2012

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. In October 2010, the Financial Accounting Standards Board (FASB) issued an accounting standard update (ASU), ASU 2010-26, that amends the accounting for costs incurred by insurance companies that can be capitalized in connection with acquiring or renewing insurance contracts. The new standard clarifies how to determine whether the costs incurred in connection with the acquisition of new or renewal insurance contracts qualify as deferred acquisition costs. The new standard is effective for interim and annual periods beginning on January 1, 2012 with early adoption permitted. Prospective or retrospective application is permitted. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued ASU 2011-03, which is an amendment to existing criteria for determining whether or not a transferor has retained effective control over securities sold under agreements to repurchase. A secured borrowing is recorded when effective control over the transferred financial assets is maintained, and a sale is recorded when effective control over the transferred financial assets has not been maintained. The amendment removes the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially agreed terms, even in the event of default by the transferee. The collateral maintenance implementation guidance related to this criterion also is removed. The collateral maintenance implementation guidance was a requirement of the transferor to demonstrate that it possessed adequate collateral to fund substantially all the cost of purchasing the replacement financial assets. The amendment is effective for us beginning January 1, 2012. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. In May 2011, the FASB and the International Accounting Standards Board jointly issued ASU 2011-04, resulting in a common fair value meaning between U.S. GAAP and IFRS and consistency of disclosures relating to fair value. The new standard is effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. In December 2011, the FASB issued ASU 2011-12, which defers the effective date of the presentation requirements of the accumulated other comprehensive income reclassification adjustments in ASU 2011-05. The amendments in this new standard are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income or loss on the components of net income and other comprehensive income for all periods presented. The new standard is effective for interim and annual periods beginning on January 1, 2012. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

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Accounting Standards to be Adopted in the Future

Disclosures about Offsetting Assets and Liabilities. In December 2011, the FASB issued ASU 2011-11, which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amendments in this new standard are effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. The amendments should be applied retrospectively for all prior periods presented. The adoption of this new standard is not expected to have a material effect on our consolidated financial condition, results of operations, or cash flows.

Testing Indefinite-Lived Assets for Impairment. In July 2012, the FASB issued ASU 2012-02, which will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test for an indefinite-lived intangible asset. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments in this new standard are effective for annual and interim impairment tests performed for interim and annual periods beginning on January 1, 2013. Early adoption is permitted. The adoption of this new standard is not expected to have a material effect on our consolidated financial condition, results of operations, or cash flows.

Note 5.  Finance Receivables

We have three portfolio segments as defined below:

·Real estate loans are secured by first or second mortgages on residential real estate, generally have maximum original terms of 360 months, and are usually considered non-conforming. Real estate loans may be closed-end accounts or open-end home equity lines of credit and are primarily fixed-rate products.

·Non-real estate loans are secured by consumer goods, automobiles, or other personal property or are unsecured, generally have maximum original terms of 60 months, and are usually fixed-rate, fixed-term loans.

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

14

Components of net finance receivables by portfolio segment were as follows:

	Real			Non-Real			Retail
(dollars in thousands)	Estate Loans			Estate Loans			Sales Finance			Total
June 30, 2012
Gross receivables	$	9,374,574		$	2,880,057		$	317,182		$	12,571,813
Unearned finance charges and points and fees	(8,481		)	(356,641		)	(37,233		)	(402,355		)
Accrued finance charges	53,248			32,537			2,626			88,411
Deferred origination costs	893			27,969			—			28,862
Premiums, net of discounts	11			—			(3		)	8
Total	$	9,420,245		$	2,583,922		$	282,572		$	12,286,739
December 31, 2011
Gross receivables	$	9,914,403		$	2,968,963		$	412,452		$	13,295,818
Unearned finance charges and points and fees	(12,641		)	(346,437		)	(46,142		)	(405,220		)
Accrued finance charges	58,455			35,388			3,599			97,442
Deferred origination costs	953			27,125			—			28,078
Premiums, net of discounts	7			—			(6		)	1
Total	$	9,961,177		$	2,685,039		$	369,903		$	13,016,119

Included in the table above are real estate finance receivables associated with the securitizations that remain on our balance sheet totaling $2.5 billion at June 30, 2012 and $2.2 billion at December 31, 2011. See Note 6 for further discussion regarding our securitization transactions. Also included in the table above are finance receivables totaling $4.9 billion at June 30, 2012 and $4.8 billion at December 31, 2011, which have been pledged as collateral for SLFC’s secured term loan.

Unused credit lines extended to customers by the Company totaled $136.7 million at June 30, 2012 and $188.1 million at December 31, 2011. All unused credit lines, in part or in total, can be cancelled at the discretion of the Company.

Fair Isaac Corporation (FICO) Credit Scores

There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including “prime,” “non-prime,” and “sub-prime.” While there are no industry-wide agreed upon definitions for these categorizations, many market participants utilize third-party credit scores as a means to categorize the creditworthiness of the borrower and his or her finance receivable. Our finance receivable underwriting process does not use third-party credit scores as a primary determinant for credit decisions. However, we do, in part, use such scores to analyze performance of our finance receivable portfolio.

We present below our net finance receivables and delinquency ratios grouped into the following categories based solely on borrower FICO credit scores at the date of origination or renewal:

·Prime:  Borrower FICO score greater than or equal to 660

·Non-prime:  Borrower FICO score of 620 through 659

·Sub-prime:  Borrower FICO score less than or equal to 619

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Many finance receivables included in the “prime” category in the table below might not meet other market definitions of prime loans due to certain characteristics of the borrowers, such as their elevated debt-to-income ratios, lack of income stability, or level of income disclosure and verification, as well as credit repayment history or similar measurements.

FICO-delineated prime, non-prime, and sub-prime categories for net finance receivables by portfolio segment and by class were as follows:

	Branch		Centralized		Branch Non-		Branch
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Retail		Other*		Total
June 30, 2012
Prime	$	902,613	$	2,748,193	$	492,559	$	113,675	$	—	$	4,257,040
Non-prime	994,264		768,243		590,766		40,841		—		2,394,114
Sub-prime	3,575,118		314,197		1,494,228		128,223		—		5,511,766
Other/FICO unavailable	357		145		5,801		367		117,149		123,819
Total	$	5,472,352	$	3,830,778	$	2,583,354	$	283,106	$	117,149	$	12,286,739
December 31, 2011
Prime	$	954,886	$	2,967,579	$	531,057	$	152,736	$	—	$	4,606,258
Non-prime	1,048,812		805,010		620,190		51,366		—		2,525,378
Sub-prime	3,739,535		326,856		1,525,410		164,943		—		5,756,744
Other/FICO unavailable	546		654		5,354		757		120,428		127,739
Total	$	5,743,779	$	4,100,099	$	2,682,011	$	369,802	$	120,428	$	13,016,119

*Primarily includes net finance receivables of our foreign subsidiary, Ocean.

FICO-delineated prime, non-prime, and sub-prime categories for delinquency ratios by portfolio segment and by class were as follows:

	Branch		Centralized		Branch Non-		Branch
	Real Estate		Real Estate		Real Estate		Retail		Other (a)		Total
June 30, 2012
Prime	3.41	%	7.93	%	1.33	%	1.80	%	N/M	(b)	6.16	%
Non-prime	5.32		13.10		1.94		3.32		N/M		7.17
Sub-prime	7.21		12.50		3.23		3.13		N/M		6.38
Other/FICO unavailable	78.76		—		2.15		1.66		4.40	%	8.86
Total	6.33	%	9.36	%	2.58	%	2.60	%	4.40	%	6.48	%
December 31, 2011
Prime	3.66	%	8.76	%	1.56	%	2.46	%	N/M		6.79	%
Non-prime	5.61		14.03		2.40		4.66		N/M		7.73
Sub-prime	7.26		15.05		3.82		4.36		N/M		6.77
Other/FICO unavailable	6.25		75.14		1.78		2.06		4.62	%	4.83
Total	6.37	%	10.31	%	3.05	%	3.58	%	4.62	%	6.95	%

(a)Primarily includes delinquency ratios of our foreign subsidiary, Ocean.

(b)Not meaningful

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Nonaccrual Finance Receivables

Our net finance receivables by performing and nonperforming (nonaccrual) by portfolio segment and by class were as follows:

	Branch		Centralized		Branch Non-		Branch
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Retail		Other*		Total
June 30, 2012
Performing	$	5,206,220	$	3,526,236	$	2,539,580	$	278,470	$	113,439	$	11,663,945
Nonperforming	266,132		304,542		43,774		4,636		3,710		622,794
Total	$	5,472,352	$	3,830,778	$	2,583,354	$	283,106	$	117,149	$	12,286,739
December 31, 2011
Performing	$	5,473,356	$	3,753,776	$	2,632,079	$	360,910	$	115,957	$	12,336,078
Nonperforming	270,423		346,323		49,932		8,892		4,471		680,041
Total	$	5,743,779	$	4,100,099	$	2,682,011	$	369,802	$	120,428	$	13,016,119

*Primarily includes net finance receivables of our foreign subsidiary, Ocean.

Delinquent Finance Receivables

Our delinquency by portfolio segment and by class was as follows:

	Branch		Centralized		Branch Non-		Branch
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Retail		Other*		Total
June 30, 2012
Net finance receivables:
30-59 days past due	$	102,950	$	74,734	$	32,500	$	4,822	$	1,512	$	216,518
60-89 days past due	53,444		39,284		18,057		2,599		1,246		114,630
90-119 days past due	40,952		27,803		13,434		1,904		921		85,014
120-149 days past due	32,466		21,353		10,000		1,222		744		65,785
150-179 days past due	22,498		19,218		6,857		712		627		49,912
180 days or more past due	170,216		236,168		13,483		798		1,418		422,083
Total past due	422,526		418,560		94,331		12,057		6,468		953,942
Current	5,049,826		3,412,218		2,489,023		271,049		110,681		11,332,797
Total	$	5,472,352	$	3,830,778	$	2,583,354	$	283,106	$	117,149	$	12,286,739
December 31, 2011
Net finance receivables:
30-59 days past due	$	96,367	$	79,258	$	33,110	$	7,157	$	1,629	$	217,521
60-89 days past due	58,255		58,380		20,770		4,169		1,105		142,679
90-119 days past due	46,231		41,879		16,317		3,543		1,088		109,058
120-149 days past due	36,790		36,720		12,965		2,750		810		90,035
150-179 days past due	30,635		29,226		9,225		1,716		626		71,428
180 days or more past due	156,767		238,498		11,426		883		1,947		409,521
Total past due	425,045		483,961		103,813		20,218		7,205		1,040,242
Current	5,318,734		3,616,138		2,578,198		349,584		113,223		11,975,877
Total	$	5,743,779	$	4,100,099	$	2,682,011	$	369,802	$	120,428	$	13,016,119

*Primarily includes delinquency and current receivables of our foreign subsidiary, Ocean.

17

In our branch business segment we advance the due date on a customer’s account when the customer makes a partial payment of 90% or more of the scheduled contractual payment. We do not advance the due date on a customer’s account further if the customer makes an additional partial payment of 90% or more of the scheduled contractual payment and has not yet paid the deficiency amount from a prior partial payment. We do not advance the customer’s due date on our centralized real estate business segment accounts until we receive full contractual payment.

We accrue finance charges on revolving retail finance receivables up to the date of charge-off at six months past due. We had $1.4 million of branch retail finance receivables more than 90 days past due at June 30, 2012, compared to $3.8 million at December 31, 2011. Our other portfolio segments by class (branch real estate, centralized real estate, and branch non-real estate) do not have finance receivables that were more than 90 days past due and still accruing finance charges.

Purchased Credit Impaired Finance Receivables

As a result of the FCFI Transaction, we evaluated the credit quality of our finance receivable portfolio in order to identify finance receivables that, as of the acquisition date, had evidence of credit quality deterioration. As a result, we identified a population of finance receivables for which it was determined that it is probable that we will be unable to collect all contractually required payments (purchased credit impaired finance receivables). We include the carrying amount (which initially was the fair value) of these purchased credit impaired finance receivables in net finance receivables, less allowance for finance receivable losses. Prepayments reduce the outstanding balance, contractual cash flows, and cash flows expected to be collected. Information regarding these purchased credit impaired finance receivables was as follows:

	June 30,		December 31,
(dollars in thousands)	2012		2011
Carrying amount, net of allowance	$	1,442,245	$	1,529,335
Outstanding balance	$	2,060,266	$	2,183,901
Allowance for purchased credit impaired finance receivable losses	$	—	$	—

We did not create an allowance for purchased credit impaired finance receivable losses in the second quarter of 2012 since the net carrying value of these purchased credit impaired finance receivables was less than the present value of the expected cash flows.

Changes in accretable yield for purchased credit impaired finance receivables were as follows:

	At or for the			At or for the			At or for the			At or for the
	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2012			2011			2012			2011
Balance at beginning of period	$	426,271		$	591,458		$	463,960		$	640,619
Additions	—			—			—			—
Accretion	(30,229		)	(41,766		)	(61,929		)	(77,361		)
Reclassifications from nonaccretable difference	—			15,490			—			15,490
Disposals	(6,581		)	(12,721		)	(12,570		)	(26,287		)
Balance at end of period	$	389,461		$	552,461		$	389,461		$	552,461

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FICO-delineated prime, non-prime, and sub-prime categories for purchased credit impaired finance receivables by portfolio segment and by class were as follows:

	Branch		Centralized
(dollars in thousands)	Real Estate		Real Estate		Other		Total
June 30, 2012
Prime	$	50,238	$	482,936	$	—	$	533,174
Non-prime	93,250		243,787		—		337,037
Sub-prime	464,797		107,197		—		571,994
Other/FICO unavailable	40		—		—		40
Total	$	608,325	$	833,920	$	—	$	1,442,245
December 31, 2011
Prime	$	53,283	$	519,710	$	—	$	572,993
Non-prime	98,642		258,745		—		357,387
Sub-prime	486,739		112,150		—		598,889
Other/FICO unavailable	66		—		—		66
Total	$	638,730	$	890,605	$	—	$	1,529,335

FICO-delineated prime, non-prime, and sub-prime categories for delinquency ratios for purchased credit impaired finance receivables by portfolio segment and by class were as follows:

	Branch		Centralized
	Real Estate		Real Estate		Other	Total
June 30, 2012
Prime	11.55	%	20.52	%	—	19.73	%
Non-prime	12.05		21.84		—	19.30
Sub-prime	15.21		18.78		—	16.50
Other/FICO unavailable	—		—		—	7.15
Total	14.42	%	20.68	%	—	18.33	%
December 31, 2011
Prime	14.13	%	23.90	%	—	23.08	%
Non-prime	14.24		25.09		—	22.37
Sub-prime	16.23		25.35		—	18.96
Other/FICO unavailable	40.75		—		—	44.08
Total	15.75	%	24.43	%	—	21.27	%

If the timing and/or amounts of expected cash flows on purchased credit impaired finance receivables were determined to be not reasonably estimable, no interest would be accreted and the finance receivables would be reported as nonaccrual finance receivables. However, since the timing and amounts of expected cash flows for our pools are reasonably estimable, interest is being accreted and the finance receivables are being reported as performing finance receivables. Our purchased credit impaired finance receivables as determined as of November 30, 2010 remain in our purchased credit impaired pools until liquidation. No finance receivables have been added to these pools subsequent to November 30, 2010. We do not reclassify modified purchased credit impaired finance receivables as Troubled Debt Restructurings (TDRs).

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TDR Finance Receivables

Information regarding TDR finance receivables (which are all real estate loans) by portfolio segment and by class was as follows:

	Branch		Centralized
(dollars in thousands)	Real Estate		Real Estate		Total
June 30, 2012
TDR gross finance receivables	$	243,050	$	247,209	$	490,259
TDR net finance receivables	$	244,126	$	247,789	$	491,915
Allowance for TDR finance receivable losses	$	34,690	$	13,170	$	47,860
December 31, 2011
TDR gross finance receivables	$	126,282	$	171,173	$	297,455
TDR net finance receivables	$	126,950	$	171,559	$	298,509
Allowance for TDR finance receivable losses	$	18,630	$	10,730	$	29,360

As a result of the FCFI Transaction, all TDR finance receivables that existed as of November 30, 2010 were reclassified to and are accounted for prospectively as purchased credit impaired finance receivables. We have no commitments to lend additional funds on our TDR finance receivables.

TDR average net receivables and finance charges recognized on TDR finance receivables by portfolio segment and by class were as follows:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
(dollars in thousands)	2012		2011		2012		2011
Branch
TDR average net receivables	$	208,448	$	78,321	$	172,788	$	61,475
TDR finance charges recognized	$	3,344	$	894	$	5,477	$	1,173
Centralized Real Estate
TDR average net receivables	$	230,571	$	60,197	$	209,355	$	43,554
TDR finance charges recognized	$	2,358	$	508	$	4,421	$	951
Total
TDR average net receivables	$	439,019	$	138,518	$	382,143	$	105,029
TDR finance charges recognized	$	5,702	$	1,402	$	9,898	$	2,124

20

Information regarding the financial effects of the TDR finance receivables by portfolio segment and by class was as follows:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
(dollars in thousands)	2012		2011		2012		2011
Branch
Number of TDR accounts	1,066		366		1,435		790
Pre-modification TDR net finance receivables	$	93,598	$	31,233	$	124,820	$	66,289
Post-modification TDR net finance receivables	$	96,966	$	31,445	$	128,705	$	69,172
Centralized Real Estate
Number of TDR accounts	287		316		541		474
Pre-modification TDR net finance receivables	$	45,896	$	35,081	$	88,546	$	63,507
Post-modification TDR net finance receivables	$	48,158	$	35,524	$	89,253	$	63,804
Total
Number of TDR accounts	1,353		682		1,976		1,264
Pre-modification TDR net finance receivables	$	139,494	$	66,314	$	213,366	$	129,796
Post-modification TDR net finance receivables	$	145,124	$	66,969	$	217,958	$	132,976

Net finance receivables that defaulted during the period that were modified as TDRs within the previous 12 months, from the earliest payment default date, by portfolio segment and by class were as follows:

	Three Months		Six Months
	Ended		Ended
	June 30,		June 30,
(dollars in thousands)	2012		2012
Branch
Number of TDR accounts	56		159
TDR net finance receivables*	$	5,579	$	14,103
Centralized Real Estate
Number of TDR accounts	55		123
TDR net finance receivables*	$	9,569	$	20,899
Total
Number of TDR accounts	111		282
TDR net finance receivables*	$	15,148	$	35,002

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

Home Affordable Modification Program (HAMP)

In third quarter 2009, MorEquity, Inc. (MorEquity), a wholly-owned subsidiary of SLFC, entered into a Commitment to Purchase Financial Instrument and Servicer Participation Agreement (the Agreement) with the Federal National Mortgage Association as financial agent for the United States Department of the Treasury, which provides for participation in the HAMP. MorEquity entered into the Agreement as the servicer with respect to our centralized real estate loans, with an effective date of September 1, 2009.

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On February 1, 2011, MorEquity entered into Subservicing Agreements for the servicing of its centralized real estate loans with Nationstar Mortgage LLC (Nationstar), a non-subsidiary affiliate. As a result of the subservicing transfer, the Agreement was terminated on May 26, 2011. Loans subserviced by Nationstar that are eligible for modification pursuant to HAMP guidelines are still subject to HAMP.

Note 6.  On-Balance Sheet Securitization Transactions and VIEs

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

On-Balance Sheet Securitization Transactions

On February 10, 2012, we sold certain previously retained subordinated trust certificates from our March 2010 securitization. The certificates had a face value of $215.6 million and were sold at 103.6% (before taxes and selling expenses and excluding accrued interest). Also on February 10, 2012, we sold a previously retained senior note from our September 2011 securitization. The note had a face value of $49.7 million and was sold at 99.3% (before taxes and selling expenses and excluding accrued interest). As a result of these transactions, we recorded $272.7 million of additional debt.

On April 20, 2012, SLFC effected a private securitization transaction in which SLFC caused Eleventh Street Funding LLC (Eleventh Street), a special purpose vehicle wholly owned by SLFC, to sell $371.0 million of mortgage-backed notes of Springleaf Mortgage Loan Trust 2012-1 (the Trust), with a 4.09% weighted average coupon, to certain investors. Eleventh Street sold the mortgage-backed notes for $367.8 million, after the price discount but before expenses. Approximately $42.6 million of the Trust’s subordinate mortgage-backed notes are currently retained by Eleventh Street.

In August 2012, SLFC effected a private securitization transaction. See Note 21 for further information on the securitization transaction.

One of our previous securitization transactions utilizes a third-party servicer to service the finance receivables. Although we have servicer responsibilities for the finance receivables for our other existing securitization transactions, Nationstar subservices the centralized real estate loans for the majority of our securitization transactions. In the case of each existing securitization transaction, the related finance receivables have been legally isolated and are only available for payment of the debt and other obligations issued in or arising from the applicable securitization transaction. The cash and cash equivalent balances relating to securitization transactions may be used only to support the on-balance sheet securitization transactions and are recorded as restricted cash. We hold the right to certain excess cash flows not needed to pay the debt and other obligations issued in or arising from our securitization transactions. The asset-backed debt has been issued by consolidated VIEs.

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Consolidated VIEs

We evaluated the securitization trusts and determined that these entities are VIEs of which we are the primary beneficiary; therefore, we consolidated such entities. We are deemed to be the primary beneficiaries of these VIEs because we have power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses and the right to receive benefits that are potentially significant to the VIE. Our power stems from having prescribed detailed servicing standards and procedures that the third-party servicer and Nationstar must observe (and which cannot be modified without our consent), and from our required involvement in certain loan workouts and disposals of defaulted loans or related collateral. Our retained subordinated and residual interest trust certificates expose us to potentially significant losses and potentially significant returns.

The asset-backed securities are backed by the expected cash flows from securitized real estate loans. Cash inflows from these real estate loans are distributed to investors and service providers in accordance with each transaction’s contractual priority of payments (waterfall) and, as such, most of these inflows must be directed first to service and repay each trust’s senior notes or certificates held principally by third-party investors. After these senior obligations are extinguished, substantially all cash inflows will be directed to the subordinated notes until fully repaid and, thereafter, to the residual interest that we own in each trust. We retain interests in these securitization transactions, including senior and subordinated securities issued by the VIEs and residual interests. We retain credit risk in the securitizations because our retained interests include the most subordinated interest in the securitized assets, which are the first to absorb credit losses on the securitized assets. We expect that any credit losses in the pools of securitized assets will likely be limited to our subordinated and residual retained interests. We have no obligation to repurchase or replace qualified securitized assets that subsequently become delinquent or are otherwise in default.

The carrying amounts of consolidated VIE assets and liabilities associated with our securitization trusts were as follows:

	June 30,		December 31,
(dollars in thousands)	2012		2011
Assets
Finance receivables	$	2,472,567	$	2,213,841
Allowance for finance receivable losses	3,718		2,095
Restricted cash	23,850		30,014
Liabilities
Long-term debt	$	1,631,632	$	1,200,845

Other than our retained subordinate and residual interests in the consolidated securitization trusts, we are under no obligation, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to these VIEs for the three and six months ended June 30, 2012 totaled $20.5 million and $41.1 million, respectively. Consolidated interest expense related to these VIEs for the three and six months ended June 30, 2011 totaled $15.0 million and $30.4 million, respectively.

Unconsolidated VIE

We have established a VIE that holds the junior subordinated debt. We are not the primary beneficiary, and we do not have a variable interest in this VIE. Therefore, we do not consolidate such entity. We had no off-balance sheet exposure to loss associated with this VIE at June 30, 2012 or December 31, 2011.

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Note 7.  Allowance for Finance Receivable Losses

Changes in the allowance for finance receivable losses and net finance receivables by portfolio segment and by class were as follows:

	Branch			Centralized			Branch Non-			Branch					Consolidated
(dollars in thousands)	Real Estate			Real Estate			Real Estate			Retail			All Other		Total
Three Months Ended June 30, 2012
Balance at beginning of period	$	23,968		$	11,260		$	38,801		$	1,113		$	—	$	75,142
Provision for finance receivable losses	36,760			9,229			20,529			2,894			—		69,412
Charge-offs	(26,803		)	(7,445		)	(26,374		)	(5,417		)	—		(66,039		)
Recoveries	1,956			126			8,475			2,601			—		13,158
Balance at end of period	$	35,881		$	13,170		$	41,431		$	1,191		$	—	$	91,673
Three Months Ended June 30, 2011
Balance at beginning of period	$	9,637		$	3,010		$	12,759		$	204		$	—	$	25,610
Provision for finance receivable losses	21,648			32,612			29,940			5,105			—		89,305
Charge-offs	(20,110		)	(30,618		)	(27,515		)	(7,954		)	—		(86,197		)
Recoveries	2,334			(14		)	9,012			3,080			—		14,412
Balance at end of period	$	13,509		$	4,990		$	24,196		$	435		$	—	$	43,130
Six Months Ended June 30, 2012
Balance at beginning of period	$	20,741		$	10,730		$	39,522		$	1,007		$	—	$	72,000
Provision for finance receivable losses	52,768			35,396			41,758			6,672			—		136,594
Charge-offs	(41,679		)	(33,333		)	(56,290		)	(11,925		)	—		(143,227		)
Recoveries	4,051			377			17,548			5,631			—		27,607
Transfers to finance receivables held for sale (a)	—			—			(1,107		)	(194		)	—		(1,301		)
Balance at end of period	$	35,881		$	13,170		$	41,431		$	1,191		$	—	$	91,673
Net finance receivables	$	5,472,352		$	3,830,778		$	2,583,354		$	283,106		$	117,149	$	12,286,739
Six Months Ended June 30, 2011
Balance at beginning of period	$	2,465		$	488		$	4,111		$	56		$	—	$	7,120
Provision for finance receivable losses	31,538			59,569			49,043			5,881			—		146,031
Charge-offs	(29,588		)	(55,204		)	(47,678		)	(12,247		)	—		(144,717		)
Recoveries (b)	9,094			137			18,720			6,745			—		34,696
Balance at end of period	$	13,509		$	4,990		$	24,196		$	435		$	—	$	43,130
Net finance receivables	$	6,016,368		$	4,366,933		$	2,572,018		$	403,651		$	117,414	$	13,476,384

(a)During the six months ended June 30, 2012, we decreased the allowance for finance receivable losses as a result of the transfers of $79.2 million of finance receivables from finance receivables held for investment to finance receivables held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future.

(b)Includes $5.0 million of recoveries ($2.9 million branch real estate loan recoveries, $1.9 million branch non-real estate loan recoveries, and $0.2 million branch retail sales finance recoveries) as a result of a settlement of claims relating to our February 2008 purchase of Equity One, Inc.’s consumer branch finance receivable portfolio.

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Included in the tables above are allowance for finance receivable losses associated with securitizations that remain on our balance sheet totaling $3.7 million at June 30, 2012 and $2.1 million at December 31, 2011. See Note 6 for further discussion regarding our securitization transactions.

After the FCFI Transaction, the recorded investment or carrying amount of finance receivables includes the impact of push-down adjustments. For the three and six months ended June 30, 2012, the carrying amount charged off for non-credit impaired loans subject to push-down accounting was $39.9 million and $94.8 million, respectively. For the three and six months ended June 30, 2011, the carrying amount charged off for non-credit impaired loans subject to push-down accounting was $53.4 million and $70.7 million, respectively.

For the three and six months ended June 30, 2012, the carrying amount charged off for purchased credit impaired loans subject to push-down accounting was $11.3 million and $19.3 million, respectively. For the three and six months ended June 30, 2011, the carrying amount charged off for purchased credit impaired loans subject to push-down accounting was $30.2 million and $67.5 million, respectively. These amounts represent additional impairment recognized, subsequent to the establishment of the pools of purchased credit impaired loans, related to loans that have been foreclosed and transferred to real estate owned status. Through June 30, 2012, we have not recognized any additional charges to the provision for finance receivable losses related to decreases in the expected cash flows for the remaining accounts in the credit impaired pools that incorporate pool assumptions, above the charges related to removal of foreclosed or charged-off accounts.

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The allowance for finance receivable losses and net finance receivables by portfolio segment and by impairment method were as follows:

	Real		Non-Real		Retail
(dollars in thousands)	Estate Loans		Estate Loans		Sales Finance		Total
June 30, 2012
Allowance for finance receivable losses for finance receivables:
Collectively evaluated for impairment	$	1,191	$	41,431	$	1,191	$	43,813
Acquired with deteriorated credit quality (purchased credit impaired finance receivables)	—		—		—		—
Individually evaluated for impairment (TDR finance receivables)	47,860		—		—		47,860
Total	$	49,051	$	41,431	$	1,191	$	91,673
Finance receivables:
Collectively evaluated for impairment	$	7,486,085	$	2,583,922	$	282,572	$	10,352,579
Purchased credit impaired finance receivables	1,442,245		—		—		1,442,245
TDR finance receivables	491,915		—		—		491,915
Total	$	9,420,245	$	2,583,922	$	282,572	$	12,286,739
December 31, 2011
Allowance for finance receivable losses for finance receivables:
Collectively evaluated for impairment	$	2,111	$	39,522	$	1,007	$	42,640
Purchased credit impaired finance receivables	—		—		—		—
TDR finance receivables	29,360		—		—		29,360
Total	$	31,471	$	39,522	$	1,007	$	72,000
Finance receivables:
Collectively evaluated for impairment	$	8,133,333	$	2,685,039	$	369,903	$	11,188,275
Purchased credit impaired finance receivables	1,529,335		—		—		1,529,335
TDR finance receivables	298,509		—		—		298,509
Total	$	9,961,177	$	2,685,039	$	369,903	$	13,016,119

Finance Receivables Collectively Evaluated for Impairment

Our three portfolio segments consist of a large number of relatively small, homogeneous accounts. We evaluate our three portfolio segments for impairment as groups. None of our accounts are large enough to warrant individual evaluation for impairment. We estimate our allowance for finance receivable losses for non-credit impaired accounts using the authoritative guidance for contingencies. We base our allowance for finance receivable losses primarily on historical loss experience using migration analysis and, effective September 30, 2011, a roll rate-based model applied to our three portfolio segments. We adopted the roll rate-based model because we believe it captures portfolio trends at a more detailed level. Both techniques are historically-based statistical models that attempt to predict the future amount of finance receivable losses. We adjust the amounts determined by these quantitative models for management’s estimate of the effects of model imprecision, any changes to underwriting criteria, portfolio seasoning, and current economic conditions, including levels of unemployment and personal bankruptcies.

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We use our internal data of net charge-offs and delinquency by portfolio segment as the basis to determine the historical loss experience component of our allowance for finance receivable losses. We use monthly bankruptcy statistics, monthly unemployment statistics, and various other monthly or periodic economic statistics published by departments of the U.S. government and other economic statistic providers to determine the economic component of our allowance for finance receivable losses.

Purchased Credit Impaired Finance Receivables

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

TDR Finance Receivables

We also establish reserves for TDR finance receivables, which are included in our allowance for finance receivable losses. The allowance for finance receivable losses related to our TDRs is calculated in homogeneous aggregated pools of individually evaluated impaired finance receivables that have common risk characteristics. We establish our allowance for finance receivable losses related to our TDRs by calculating the present value (discounted at the loan’s effective interest rate prior to modification) of all expected cash flows less the recorded investment in the aggregated pool. We use certain assumptions to estimate the expected cash flows from our TDRs. The primary assumptions for our model are prepayment speeds, default rates, and severity rates.

Note 8.  Finance Receivables Held for Sale

During the first quarter of 2012, we transferred $79.2 million of finance receivables from finance receivables held for investment to finance receivables held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. We marked these loans to lower of cost or fair value at the time of transfer and subsequently recorded additional losses at the time of sale resulting in total net losses for the three and six months ended June 30, 2012 of $0.1 million and $2.0 million, respectively, in other revenues. During the three and six months ended June 30, 2012, we sold finance receivables held for sale totaling $3.5 million and $48.1 million, respectively.

When we sell finance receivables, we establish a reserve for sales recourse in other liabilities, which represents our estimate of losses to be: (a) incurred by us on the repurchase of certain finance receivables that we previously sold; and (b) incurred by us for the indemnification of losses incurred by purchasers. We did not repurchase any loans during the three months ended June 30, 2012, compared to six loans repurchased for $1.3 million during the same period in 2011. We repurchased one loan for $0.1 million during the six months ended June 30, 2012, compared to nine loans repurchased for $1.8 million during the same period in 2011. In each period, we repurchased the loans because such loans were reaching the defined delinquency limits under the loan sale agreements. At June 30, 2012, there were no material unresolved recourse requests.

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The activity in our reserve for sales recourse obligations was as follows:

	At or for the		At or for the			At or for the		At or for the
	Three Months		Three Months			Six Months		Six Months
	Ended		Ended			Ended		Ended
	June 30,		June 30,			June 30,		June 30,
(dollars in thousands)	2012		2011			2012		2011
Balance at beginning of period	$	1,765	$	2,876		$	1,648	$	3,511
Provision for/(reduction in) recourse obligations	—		(264		)	117		(781		)
Recourse losses	—		(229		)	—		(347		)
Balance at end of period	$	1,765	$	2,383		$	1,765	$	2,383

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Note 9.  Investment Securities

Cost/amortized cost, unrealized gains and losses, and fair value of investment securities by type, which are classified as available-for-sale, were as follows:

										Other
										Than-
	Cost/									Temporary
	Amortized		Unrealized		Unrealized			Fair		Impairments
(dollars in thousands)	Cost		Gains		Losses			Value		in AOCI(L)
June 30, 2012
Fixed maturity investment securities:
Bonds:
U.S. government and government sponsored entities	$	34,045	$	2,578	$	—		$	36,623	$	—
Obligations of states, municipalities, and political subdivisions	175,875		5,479		(271		)	181,083		—
Corporate debt	306,812		8,003		(2,386		)	312,429		—
Mortgage-backed, asset-backed, and collateralized:
Residential mortgage-backed securities (RMBS)	117,034		7,394		(2		)	124,426		—
Commercial mortgage-backed securities (CMBS)	11,815		1,034		(258		)	12,591		—
Collateralized debt obligations (CDO)/Asset-backed securities (ABS)	16,502		919		(19		)	17,402		—
Total	662,083		25,407		(2,936		)	684,554		—
Preferred stocks	4,959		31		—			4,990		—
Other long-term investments*	5,375		—		(2,668		)	2,707		—
Common stocks	974		—		(58		)	916		—
Total	$	673,391	$	25,438	$	(5,662	)	$	693,167	$	—
December 31, 2011
Fixed maturity investment securities:
Bonds:
U.S. government and government sponsored entities	$	52,912	$	2,005	$	—		$	54,917	$	—
Obligations of states, municipalities, and political subdivisions	192,287		4,584		(484		)	196,387		—
Corporate debt	325,116		3,803		(5,609		)	323,310		—
Mortgage-backed, asset-backed, and collateralized:
RMBS	120,605		4,632		(23		)	125,214		—
CMBS	16,239		1,634		(597		)	17,276		—
CDO/ABS	18,303		267		(536		)	18,034		—
Total	725,462		16,925		(7,249		)	735,138		—
Preferred stocks	4,959		—		(163		)	4,796		—
Other long-term investments*	5,599		167		(1,639		)	4,127		—
Common stocks	841		—		(22		)	819		—
Total	$	736,861	$	17,092	$	(9,073	)	$	744,880	$	—

*Excludes interest in a limited partnership that we account for using the equity method ($1.3 million at June 30, 2012 and $1.4 million at December 31, 2011).

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Fair value and unrealized losses on investment securities by type and length of time in a continuous unrealized loss position were as follows:

	Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(dollars in thousands)	Value		Losses			Value		Losses			Value		Losses
June 30, 2012
Bonds:
Obligations of states, municipalities, and political subdivisions	$	5,517	$	(4	)	$	12,460	$	(267	)	$	17,977	$	(271	)
Corporate debt	27,766		(798		)	53,775		(1,588		)	81,541		(2,386		)
RMBS	8		(1		)	82		(1		)	90		(2		)
CMBS	—		(7		)	5,307		(251		)	5,307		(258		)
CDO/ABS	1,449		(19		)	—		—			1,449		(19		)
Total	34,740		(829		)	71,624		(2,107		)	106,364		(2,936		)
Other long-term investments	2,681		(2,666		)	27		(2		)	2,708		(2,668		)
Common stocks	102		(36		)	92		(22		)	194		(58		)
Total	$	37,523	$	(3,531	)	$	71,743	$	(2,131	)	$	109,266	$	(5,662	)
December 31, 2011
Bonds:
Obligations of states, municipalities, and political subdivisions	$	6,600	$	(20	)	$	19,633	$	(464	)	$	26,233	$	(484	)
Corporate debt	88,026		(2,600		)	65,261		(3,009		)	153,287		(5,609		)
RMBS	1,898		(17		)	90		(6		)	1,988		(23		)
CMBS	4,251		(546		)	1,006		(51		)	5,257		(597		)
CDO/ABS	13,414		(536		)	—		—			13,414		(536		)
Total	114,189		(3,719		)	85,990		(3,530		)	200,179		(7,249		)
Preferred stocks	4,797		(163		)	—		—			4,797		(163		)
Other long-term investments	2,617		(1,639		)	—		—			2,617		(1,639		)
Common stocks	99		(22		)	—		—			99		(22		)
Total	$	121,702	$	(5,543	)	$	85,990	$	(3,530	)	$	207,692	$	(9,073	)

Management reviews all securities in an unrealized loss position on a quarterly basis. We determine if it is probable that the security will recover and if we will collect all amounts due according to the contractual terms of the debt, which could be at maturity. We utilize the evaluation criteria supplied by our third-party valuation providers, which includes changes in the issuer’s credit status and the issuer’s ability to fulfill contractual obligations. For structured securities, this evaluation also includes analyses of the estimated net present value of expected future cash flows. Management considers factors such as our investment strategy, liquidity requirements, overall business plans, and recovery periods for securities in previous periods of broad market declines. For fixed-maturity securities with significant declines, management evaluates vendor-supplied credit analyses on a security-by-security basis, which includes consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts, and other market available data.

During the six months ended June 30, 2012, we recognized other-than-temporary impairment credit loss write-downs to investment revenues on corporate debt and RMBS totaling $0.7 million.

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As of June 30, 2012 and December 31, 2011, we had no investment securities which had been in an unrealized loss position of more than 25% for more than 12 months. As part of our credit evaluation procedures applied to investment securities, we consider the nature of both the specific securities and the general market conditions for those securities. Based on management’s analysis, we continue to believe that the expected cash flows from these investment securities will be sufficient to recover the amortized cost of our investment. We continue to monitor these positions for potential credit impairments.

Components of the other-than-temporary impairment charges on investment securities were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2012			2011			2012			2011
Total other-than-temporary impairment losses	$	(611	)	$	(298	)	$	(652	)	$	(2,227	)
Portion of loss recognized in accumulated other comprehensive loss	—			—			—			—
Net impairment losses recognized in net loss	$	(611	)	$	(298	)	$	(652	)	$	(2,227	)

Changes in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired investment securities were as follows:

	At or for the		At or for the			At or for the		At or for the
	Three Months		Three Months			Six Months		Six Months
	Ended		Ended			Ended		Ended
	June 30,		June 30,			June 30,		June 30,
(dollars in thousands)	2012		2011			2012		2011
Balance at beginning of period	$	3,766	$	1,929		$	3,725	$	—
Additions:
Due to other-than-temporary impairments:
Not previously impaired/impairment not previously recognized	—		264			—		2,193
Previously impaired/impairment previously recognized	611		34			652		34
Reductions:
Realized due to sales with no prior intention to sell	—		—			—		—
Realized due to intention to sell	—		—			—		—
Accretion of credit impaired securities	—		(39		)	—		(39		)
Balance at end of period	$	4,377	$	2,188		$	4,377	$	2,188

The fair values of investment securities sold or redeemed and the resulting realized gains, realized losses, and net realized gains (losses) were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2012			2011			2012			2011
Fair value	$	16,338		$	8,575		$	31,521		$	35,904
Realized gains	$	329		$	91		$	490		$	169
Realized losses	(247		)	(138		)	(335		)	(457		)
Net realized gains (losses)	$	82		$	(47	)	$	155		$	(288	)

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Contractual maturities of fixed-maturity investment securities at June 30, 2012 were as follows:

(dollars in thousands)	Fair		Amortized
June 30, 2012	Value		Cost
Fixed maturities, excluding mortgage-backed securities:
Due in 1 year or less	$	10,788	$	10,804
Due after 1 year through 5 years	184,940		181,472
Due after 5 years through 10 years	187,576		182,296
Due after 10 years	146,831		142,160
Mortgage-backed securities	154,419		145,351
Total	$	684,554	$	662,083

Actual maturities may differ from contractual maturities since borrowers may have the right to prepay obligations. The Company may sell investment securities before maturity to achieve corporate requirements and investment strategies.

Note 10.  Restricted Cash

Restricted cash at June 30, 2012 and December 31, 2011 included funds to be used for future debt payments relating to our securitization transactions (see Note 6) and escrow deposits.

Note 11.  Related Party Transactions

Affiliate Lending

In April 2010, Springleaf Financial Funding Company, a wholly-owned subsidiary of SLFC, entered into and fully drew down a $3.0 billion, five-year secured term loan pursuant to a credit agreement among Springleaf Financial Funding Company, SLFC, and most of the consumer finance operating subsidiaries of SLFC (collectively, the Subsidiary Guarantors), and a syndicate of lenders, various agents, and Bank of America, N.A, as administrative agent. In May 2011, the $3.0 billion secured term loan was refinanced to increase total borrowing to $3.75 billion with a new six-year term, significantly improved advance rates, and lower borrowing costs. Any portion of the secured term loan that is repaid (whether at or prior to maturity) will permanently reduce the principal amount outstanding and may not be reborrowed. Affiliates of Fortress and affiliates of AIG owned or managed lending positions in the syndicate of lenders totaling approximately $103.5 million at June 30, 2012 and $105.5 million at December 31, 2011.

SLFC’s note receivable from SLFI is payable in full on May 31, 2022, and SLFC may demand payment at any time prior to May 31, 2022. The note receivable from SLFI totaled $538.0 million at June 30, 2012 and December 31, 2011. Interest receivable on this note totaled $1.4 million at June 30, 2012 and $1.5 million at December 31, 2011. The interest rate for the unpaid principal balance is the prime rate. Interest revenue on notes receivable from SLFI totaled $4.3 million and $8.7 million for the three and six months ended June 30, 2012, respectively. Interest revenue on notes receivable from SLFI totaled $4.3 million and $8.6 million for the three and six months ended June 30, 2011, respectively. SLFC will request payment of some or all of its note receivable from SLFI, if needed, to meet its liquidity needs.

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Pension Plan

In January 2011, $216.0 million of our total plan assets were transferred from the AIG Retirement Plan to our tax-qualified defined benefit retirement plan (the Retirement Plan). The remaining $61.7 million of plan assets were transferred in April 2012.

Reinsurance Agreements

Merit Life Insurance Co. (Merit), a wholly-owned subsidiary of SLFC, enters into reinsurance agreements with subsidiaries of AIG, for reinsurance of various group annuity, credit life, and credit accident and health insurance where Merit reinsures the risk of loss. The reserves for this business fluctuate over time and in some instances are subject to recapture by the insurer. Reserves on the books of Merit for reinsurance agreements with subsidiaries of AIG totaled $49.2 million at June 30, 2012 and $49.7 million at December 31, 2011.

Derivatives

At June 30, 2012 and December 31, 2011, all of our derivative financial instruments were with AIG Financial Products Corp. (AIGFP), a subsidiary of AIG. See Note 13 for further information on our derivatives.

Subservicing and Refinance Agreements

Nationstar subservices the centralized real estate loans of MorEquity and two other subsidiaries of SLFC (collectively, the Owners), including certain securitized real estate loans. The Owners paid Nationstar fees for its subservicing and to facilitate the repayment of our centralized real estate loans through refinancings with other lenders as follows:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
(dollars in thousands)	2012		2011		2012		2011
Subservicing fees	$	2,528	$	2,726	$	5,145	$	4,884
Refinancing concessions	$	1,236	$	2,170	$	3,961	$	2,783

Investment Management Agreement

Logan Circle Partners, L.P., a non-subsidiary affiliate, provides investment management services for our investments. Costs and fees incurred for these investment management services totaled $0.3 million and $0.5 million for the three and six months ended June 30, 2012, respectively.

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Note 12.  Long-term Debt

Principal maturities of long-term debt (excluding projected securitization repayments by period) by type of debt at June 30, 2012 were as follows:

												Junior
			Medium		Euro		Secured					Subordinated
	Retail		Term		Denominated		Term					Debt
(dollars in thousands)	Notes		Notes		Notes (a)		Loan (b) (c)			Securitizations		(Hybrid Debt)			Total
	4.10%-		4.88%-		3.25%-					2.67%-
Interest rates (d)	9.00%		6.90%		4.13%		5.50		%	6.00%		6.00		%
Third quarter 2012	$	20,118	$	755,011	$	—	$	—		$	—	$	—		$	775,129
Fourth quarter 2012	42,889		830,080		—		—			—		—			872,969
First quarter 2013	41,742		—		562,606		—			—		—			604,348
Second quarter 2013	69,983		500,000		—		—			—		—			569,983
Remainder of 2013	45,454		—		644,250		—			—		—			689,704
2014	357,976		—		—		—			—		—			357,976
2015	47,679		750,000		—		—			—		—			797,679
2016	—		375,000		—		—			—		—			375,000
2017-2067	—		3,300,000		—		3,750,000			—		350,000			7,400,000
Securitizations (e)	—		—		—		—			1,617,965		—			1,617,965
Total principal maturities	$	625,841	$	6,510,091	$	1,206,856	$	3,750,000		$	1,617,965	$	350,000		$	14,060,753
Total carrying amount	$	572,876	$	5,696,982	$	1,113,125	$	3,766,771		$	1,631,632	$	171,533		$	12,952,919

(a)Euro denominated notes include Euro 449.9 million notes and Euro 500.0 million notes, shown here at the U.S. dollar equivalent at time of issuance.

(b)Issued by wholly-owned Company subsidiaries.

(c)Guaranteed by SLFC and by the Subsidiary Guarantors.

(d)The interest rates shown are the range of contractual rates in effect at June 30, 2012, which exclude the effects of the associated derivative instruments used in hedge accounting relationships, if applicable.

(e)Securitizations are not included in above maturities by period due to their variable monthly repayments.

The secured term loan is guaranteed by SLFC and by the Subsidiary Guarantors. In addition, other SLFC operating subsidiaries that from time to time meet certain criteria will be required to become Subsidiary Guarantors. The secured term loan is secured by a first priority pledge of the stock of Springleaf Financial Funding Company that was limited at the transaction date, in accordance with existing SLFC debt agreements, to approximately 10% of SLFC’s consolidated net worth.

As a result of the refinancing of SLFC’s secured term loan on May 10, 2011, certain creditors involved in the syndicate of lenders of the original loan remained in the syndicate of lenders of the refinanced loan (remaining creditors), while certain creditors involved in the original syndicate of lenders were no longer included in the syndicate of lenders of the refinanced loan (extinguished creditors). We accounted for this refinancing transaction as a modification of the secured term loan.

In May 2011, we recorded a $10.7 million gain on the early extinguishment of the original secured term loan, which represented the pro rata amount of the unamortized balance of the fair value adjustment on the debt no longer payable to the extinguished creditors. We deferred the remaining $20.1 million of the fair value adjustment on the debt for the remaining creditors, which was recognized on our balance sheet and is amortized over the new term using the interest rate method.

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Springleaf Financial Funding Company used the proceeds from the secured term loan to make intercompany loans to the Subsidiary Guarantors. The intercompany loans are secured by a first priority security interest in eligible loan receivables, according to pre-determined eligibility requirements and in accordance with a borrowing base formula. The Subsidiary Guarantors used proceeds of the loans to pay down their intercompany loans from SLFC. SLFC used the payments from Subsidiary Guarantors to, among other things, repay debt and fund operations.

Note 13.  Derivative Financial Instruments

SLFC uses derivative financial instruments in managing the cost of its debt by mitigating its exposures (interest rate and currency) in conjunction with specific long-term debt issuances and has used them in managing its return on finance receivables held for sale, but is neither a dealer nor a trader in derivative financial instruments. At June 30, 2012, SLFC’s derivative financial instruments (included in other assets) consisted of cross currency interest rate swap agreements. SLFC’s interest rate and equity-indexed swap agreements matured in 2011.

While all of SLFC’s cross currency interest rate swap agreements mitigate economic exposure of related debt, none of these swap agreements currently qualify as cash flow or fair value hedges under U.S. GAAP.

Fair value of derivative instruments presented on a gross basis by type were as follows:

	June 30, 2012						December 31, 2011
(dollars in thousands)	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Hedging Instruments
Cross currency interest rate	$	—	$	—	$	—	$	625,250	$	25,148	$	—
Non-Designated Hedging Instruments
Cross currency interest rate	1,232,853		37,557		197		644,250		54,279		—
Total derivative instruments	$	1,232,853	$	37,557	$	197	$	1,269,500	$	79,427	$	—

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The amount of gain (loss) for cash flow hedges recognized in accumulated other comprehensive income or loss, reclassified from accumulated other comprehensive income or loss into other revenues (effective and ineffective portion) and interest expense (effective portion), and recognized in other revenues (ineffective portion) were as follows:

				From AOCI(L) (a) (b) to									Recognized
				Other			Interest						in Other
(dollars in thousands)	AOCI(L)			Revenues (c)			Expense			Earnings (d)			Revenues
Three Months Ended June 30, 2012
Cross currency interest rate	$	(32,737	)	$	(32,596	)	$	(79	)	$	(32,675	)	$	(478	)
Three Months Ended June 30, 2011
Interest rate:
As previously stated	$	(715	)	$	(501	)	$	—		$	(501	)	$	(29	)
Adjustment	—			501			(501		)	—			—
As revised	(715		)	—			(501		)	(501		)	(29		)
Cross currency interest rate:
As previously stated	29,998			28,331			—			28,331			371
Adjustment	—			(1,931		)	1,931			—			—
As revised	29,998			26,400			1,931			28,331			371
Total	$	29,283		$	26,400		$	1,430		$	27,830		$	342
Six Months Ended June 30, 2012
Cross currency interest rate	$	(16,987	)	$	(12,746	)	$	76		$	(12,670	)	$	(426	)
Six Months Ended June 30, 2011
Interest rate:
As previously stated	$	(2,880	)	$	(977	)	$	—		$	(977	)	$	(2,553	)
Adjustment	—			977			(977		)	—			—
As revised	(2,880		)	—			(977		)	(977		)	(2,553		)
Cross currency interest rate:
As previously stated	95,609			107,194			—			107,194			831
Adjustment	—			(2,653		)	2,653			—			—
As revised	95,609			104,541			2,653			107,194			831
Total	$	92,729		$	104,541		$	1,676		$	106,217		$	(1,722	)

(a)Accumulated other comprehensive income (loss).

(b)In third quarter 2011, we corrected the omission of the effective portion of the valuation change of our interest rate and cross currency interest rate swaps that was recorded in accumulated other comprehensive income or loss and an equal amount that was reclassified to earnings for the three and six months ended June 30, 2011. This revision had no impact on the amount of AOCI(L) at June 30, 2011.

(c)See table below for the effective and ineffective components of other revenues reclassified from accumulated other comprehensive income or loss.

(d)Represents the total amounts reclassified from accumulated other comprehensive income or loss to other revenues and to interest expense for cash flow hedges as disclosed on our condensed consolidated statement of comprehensive loss.

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Other revenues reclassified from accumulated other comprehensive income or loss consisted of the following:

	Three Months			Three Months		Six Months			Six Months
	Ended			Ended		Ended			Ended
	June 30,			June 30,		June 30,			June 30,
(dollars in thousands)	2012			2011		2012			2011
Effective portion	$	(32,900	)	$	26,400	$	(13,050	)	$	104,541
Ineffective portion*	304			—		304			—
Total	$	(32,596	)	$	26,400	$	(12,746	)	$	104,541

*Ineffective portion consists of a gain related to our election to discontinue hedge accounting. See discussion below for further information on the de-designation of the Euro cross currency interest rate swap agreement.

During the three months ended June 30, 2012, we decreased the notional amount of a 500.0 million Euro cross currency interest rate swap agreement by 29.3 million Euro, and we elected to discontinue hedge accounting prospectively on the cash flow hedge. We continue to report the net gain related to the discontinued cash flow hedge in accumulated other comprehensive loss, which is being reclassified into earnings during the remaining contractual term of the agreement as the hedged transactions impact earnings. We accelerated the reclassification of amounts in accumulated other comprehensive loss to other revenues resulting in a gain of $0.3 million as a result of our election to discontinue hedge accounting.

We immediately recognize the portion of the gain or loss in the fair value of a derivative instrument in a cash flow hedge that represents hedge ineffectiveness in current period earnings in other revenues. We included all components of each derivative’s gain or loss in the assessment of hedge effectiveness.

At June 30, 2012, we expect the remaining $2.3 million deferred net gain on cash flow hedges to be reclassified from accumulated other comprehensive income or loss to earnings during the next twelve months.

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The amounts recognized in other revenues for non-designated hedging instruments were as follows:

(dollars in thousands)	Non-Designated Hedging Instruments
Three Months Ended June 30, 2012
Cross currency interest rate	$	(1,141	)
Three Months Ended June 30, 2011
Cross currency interest rate and interest rate	$	27,525
Equity-indexed	81
Total	$	27,606
Six Months Ended June 30, 2012
Cross currency interest rate	$	(4,581	)
Six Months Ended June 30, 2011
Cross currency interest rate and interest rate	$	51,412
Equity-indexed	161
Total	$	51,573

Derivative adjustments included in other revenues consisted of the following:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2012			2011			2012			2011
Mark to market (losses) gains	$	(40,585	)	$	20,804		$	(27,323	)	$	40,271
Net interest income	3,934			6,898			9,621			13,518
Credit valuation adjustment losses	(1,287		)	(96		)	(3,826		)	(2,216		)
Ineffectiveness (losses) gains	(478		)	342			(426		)	(1,722		)
Other	741			—			741			—
Total	$	(37,675	)	$	27,948		$	(21,213	)	$	49,851

SLFC is exposed to credit risk if counterparties to swap agreements do not perform. SLFC regularly monitors counterparty credit ratings throughout the term of the agreements. SLFC’s exposure to market risk is limited to changes in the value of swap agreements offset by changes in the value of the hedged debt. In compliance with the authoritative guidance for fair value measurements, our valuation methodology for derivatives incorporates the effect of our non-performance risk and the non-performance risk of our counterparties. Effective January 1, 2012, we made an accounting policy election to continue to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio in compliance with the new authoritative guidance for fair value measurements.

See Note 19 for information on how we determine fair value on our derivative financial instruments.

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Note 14.  Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss were as follows:

	June 30,			December 31,
(dollars in thousands)	2012			2011
Net unrealized gains on:
Investment securities	$	12,854		$	5,213
Cash flow hedges	1,511			4,318
Retirement plan liabilities adjustments	(21,828		)	(35,221		)
Foreign currency translation adjustments	1,365			152
Accumulated other comprehensive loss	$	(6,098	)	$	(25,538	)

Note 15.  Income Taxes

Benefit from income taxes decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to the decrease in the current year pretax loss and the increase in the valuation allowance on our state deferred tax assets in 2012.

At June 30, 2012, we had a valuation allowance on our state deferred tax assets of $17.7 million, net of a deferred federal tax benefit, and a valuation allowance of $5.6 million for our foreign United Kingdom operations. At June 30, 2012, we had a net deferred tax liability of $319.3 million. At December 31, 2011, we had a valuation allowance on our state deferred tax assets of $13.8 million, net of a deferred federal tax benefit, and a valuation allowance of $4.0 million for our foreign United Kingdom operations. At December 31, 2011, we had a net deferred tax liability of $415.9 million.

Note 16.  Supplemental Cash Flow Information

Supplemental disclosure of non-cash activities was as follows:

(dollars in thousands)
Six Months Ended June 30,	2012		2011
Transfer of finance receivables held for investment to finance receivables held for sale (prior to deducting allowance for finance receivable losses)	$	80,108	$	—
Transfer of finance receivables to real estate owned	$	95,015	$	121,700

Note 17.  Segment Information

We have three business segments: branch, centralized real estate, and insurance. We define our segments by types of financial service products we offer, nature of our production processes, and methods we use to distribute our products and to provide our services, as well as our management reporting structure.

In our branch business segment, we:

·originate and service secured and unsecured non-real estate loans;

·purchase and service retail sales contracts and provide revolving retail sales financing services arising from the retail sale of consumer goods and services by retail merchants; and

·service real estate loans secured by first or second mortgages on residential real estate, which may be closed-end accounts or open-end home equity lines of credit and are generally considered non-conforming.

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To supplement our lending and retail sales financing activities, we have historically purchased finance receivables originated by other lenders. We also offer credit and non-credit insurance and ancillary products to all eligible branch customers.

In our centralized real estate business segment, we originated or acquired a portfolio of residential real estate loans (until January 1, 2012), which was unrelated to our branch business. MorEquity services these real estate loans, all of which are subserviced by Nationstar, except for certain securitized real estate loans, which are serviced and subserviced by third parties.

In our insurance business segment, we write and reinsure credit life, credit accident and health, credit-related property and casualty, and credit involuntary unemployment insurance covering our customers and the property pledged as collateral through products that the branch business segment offers to its customers. We also offer non-credit insurance products.

The following table presents information about the Company’s segments as well as reconciliations to the condensed consolidated financial statement amounts.

				Centralized												Push-down
	Branch			Real Estate			Insurance			All						Accounting			Consolidated
(dollars in thousands)	Segment			Segment			Segment			Other			Adjustments			Adjustments			Total
Three Months Ended June 30, 2012
Revenues:
External:
Finance charges	$	303,394		$	68,508		$	—		$	3,660		$	—		$	36,374		$	411,936
Insurance	70			—			31,705			28			—			(29		)	31,774
Other	(3,074		)	(1,500		)	12,462			9,717			(852		)	(13,960		)	2,793
Intercompany	17,166			—			(12,628		)	(4,538		)	—			—			—
Pretax income (loss)	34,910			(469		)	10,709			(33,671		)	(276		)	(77,721		)	(66,518		)
Three Months Ended June 30, 2011
Revenues:
External:
Finance charges	$	319,400		$	81,353		$	—		$	180		$	—		$	67,139		$	468,072
Insurance	81			—			29,803			31			—			(106		)	29,809
Other	1,525			(9,829		)	13,295			(11,875		)	(9		)	28,868			21,975
Intercompany	16,012			—			(11,867		)	(4,145		)	—			—			—
Pretax income (loss)	250,879			(230,918		)	22,518			(69,227		)	6,231			(78,858		)	(99,375		)
Six Months Ended June 30, 2012
Revenues:
External:
Finance charges	$	613,216		$	140,185		$	—		$	8,351		$	—		$	91,359		$	853,111
Insurance	146			—			61,186			61			—			(70		)	61,323
Other	12,636			(33,697		)	25,813			3,234			2,477			(14,575		)	(4,112		)
Intercompany	33,861			25,983			(24,369		)	(35,475		)	—			—			—
Pretax income (loss)	55,804			(42,996		)	22,936			(98,336		)	(602		)	(75,355		)	(138,549		)
Six Months Ended June 30, 2011
Revenues:
External:
Finance charges	$	645,207		$	170,701		$	—		$	192		$	—		$	123,196		$	939,296
Insurance	167			—			58,309			49			—			(230		)	58,295
Other	3,150			(12,770		)	25,959			(47,282		)	(2,360		)	40,138			6,835
Intercompany	32,065			(437		)	(23,221		)	(8,407		)	—			—			—
Pretax income (loss)	89,908			(57,538		)	34,186			(151,439		)	4,709			(106,525		)	(186,699		)

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The “All Other” column includes:

·corporate revenues and expenses such as management and administrative revenues and expenses, interest expense on debt not allocated to the business segments, and derivatives adjustments and foreign exchange gain or loss on foreign currency denominated debt that are not considered pertinent in determining segment performance; and

·revenues and expenses from our foreign subsidiary, Ocean.

The “Adjustments” column includes:

·realized gains (losses) on investment securities and commercial mortgage loans;

·reclassification of writedowns on fixed assets from other revenues to restructuring expenses;

·interest expense related to re-allocations of debt among business segments; and

·provision for finance receivable losses due to redistribution of amounts provided for the allowance for finance receivable losses.

The push down accounting adjustments column includes the accretion or amortization of the valuation adjustments on the applicable revalued assets and liabilities resulting from the FCFI Transaction.

Note 18.  Benefit Plans

On January 1, 2011, we established the Retirement Plan and a 401(k) plan in which most of our employees are eligible to participate. The Retirement Plan is based on substantially the same terms as the AIG plan it replaced. In addition, we sponsor unfunded defined benefit plans for certain employees. We also provide postretirement health and welfare and life insurance plans. The Company’s employees in Puerto Rico participate in a defined benefit pension plan sponsored by CommoLoCo, Inc., our Puerto Rican subsidiary.

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The following table presents the components of net periodic benefit cost with respect to our defined benefit pension plans and other postretirement benefit plans:

(dollars in thousands)	Pension			Postretirement
Three Months Ended June 30, 2012
Components of net periodic benefit cost:
Service cost	$	3,727		$	77
Interest cost	4,791			71
Expected return on assets	(5,159		)	—
Amortization of net loss	24			—
Net periodic benefit cost	$	3,383		$	148
Three Months Ended June 30, 2011
Components of net periodic benefit cost:
Service cost	$	3,400		$	66
Interest cost	4,504			72
Expected return on assets	(4,239		)	—
Net periodic benefit cost	$	3,665		$	138
Six Months Ended June 30, 2012
Components of net periodic benefit cost:
Service cost	$	8,124		$	158
Interest cost	9,555			143
Expected return on assets	(10,371		)	—
Amortization of net loss	273			—
Curtailment credits	—			(110		)
Net periodic benefit cost	$	7,581		$	191
Six Months Ended June 30, 2011
Components of net periodic benefit cost:
Service cost	$	6,801		$	131
Interest cost	9,008			144
Expected return on assets	(8,478		)	—
Net periodic benefit cost	$	7,331		$	275

For the three and six months ended June 30, 2012, the Company contributed $0.2 million to its pension plans and expects to contribute an additional $0.5 million for the remainder of 2012. These estimates are subject to change, since contribution decisions are affected by various factors including our liquidity, asset dispositions, market performance, and management’s discretion.

Note 19.  Fair Value Measurements

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

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observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is listed on an exchange or traded over-the-counter or is new to the market and not yet established, the characteristics specific to the transaction, and general market conditions.

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

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted internal valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, currency rates, and other market-observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and other issue or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We assess the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, we may validate the reasonableness of fair values by comparing information obtained from the valuation service providers to other third-party valuation sources for selected securities. We also validate prices for selected securities obtained from brokers through reviews by members of management who have relevant expertise and who are independent of those charged with executing investing transactions.

FAIR VALUE HIERARCHY

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

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

Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

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

43

The following table summarizes the fair values and carrying values of our financial instruments and indicates the fair value hierarchy based on the level of inputs we utilized to determine such fair values:

							Total		Total
	Fair Value Measurements Using						Fair		Carrying
(dollars in thousands)	Level 1		Level 2		Level 3		Value		Value
June 30, 2012
Assets
Net finance receivables, less allowance for finance receivable losses	$	—	$	—	$	12,251,531	$	12,251,531	$	12,195,066
Finance receivables held for sale	—		—		24,018		24,018		24,018
Investment securities	196		669,959		24,325		694,480		694,480
Cash and cash equivalents	1,322,315		—		—		1,322,315		1,322,315
Notes receivable from parent	—		537,989		—		537,989		537,989
Cross currency interest rate derivatives	—		37,557		—		37,557		37,557
Commercial mortgage loans	—		—		100,880		100,880		115,201
Liabilities
Long-term debt	$	—	$	12,661,803	$	—	$	12,661,803	$	12,952,919
Cross currency interest rate derivatives	—		197		—		197		197

The following table summarizes the fair values and carrying values of our financial instruments:

	Total		Total
	Fair		Carrying
(dollars in thousands)	Value		Value
December 31, 2011
Assets
Net finance receivables, less allowance for finance receivable losses	$	12,930,174	$	12,944,119
Investment securities	746,287		746,287
Cash and cash equivalents	477,469		477,469
Notes receivable from parent	537,989		537,989
Cross currency interest rate derivatives	79,427		79,427
Commercial mortgage loans	100,640		121,287
Liabilities
Long-term debt	$	11,719,337	$	12,885,392

44

Fair Value Measurements — Recurring Basis

The following table presents information about our assets and liabilities measured at fair value on a recurring basis and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:

	Fair Value Measurements Using						Total Carried
(dollars in thousands)	Level 1		Level 2		Level 3		At Fair Value
June 30, 2012
Assets
Investment securities:
Bonds:
U.S. government and government sponsored entities	$	—	$	36,623	$	—	$	36,623
Obligations of states, municipalities, and political subdivisions	—		181,083		—		181,083
Corporate debt	—		312,429		—		312,429
RMBS	—		122,401		2,025		124,426
CMBS	—		4,727		7,864		12,591
CDO/ABS	—		7,706		9,696		17,402
Total	—		664,969		19,585		684,554
Preferred stocks	—		4,990		—		4,990
Other long-term investments (a)	—		—		2,707		2,707
Common stocks (b)	196		—		—		196
Total	196		669,959		22,292		692,447
Cash and cash equivalents in mutual funds	23,238		—		—		23,238
Cross currency interest rate derivatives	—		37,557		—		37,557
Total	$	23,434	$	707,516	$	22,292	$	753,242
Liabilities
Cross currency interest rate derivatives	$	—	$	197	$	—	$	197
December 31, 2011
Assets
Investment securities:
Bonds:
U.S. government and government sponsored entities	$	—	$	54,917	$	—	$	54,917
Obligations of states, municipalities, and political subdivisions	—		196,387		—		196,387
Corporate debt	—		320,510		2,800		323,310
RMBS	—		123,300		1,914		125,214
CMBS	—		9,332		7,944		17,276
CDO/ABS	—		9,118		8,916		18,034
Total	—		713,564		21,574		735,138
Preferred stocks	—		4,796		—		4,796
Other long-term investments (a)	—		—		4,127		4,127
Common stocks (b)	96		—		3		99
Total	96		718,360		25,704		744,160
Cash and cash equivalents in mutual funds	74,097		—		—		74,097
Cross currency interest rate derivatives	—		79,427		—		79,427
Total	$	74,193	$	797,787	$	25,704	$	897,684

(a)Other long-term investments excludes our interest in a limited partnership of $1.3 million at June 30, 2012 and $1.4 million at December 31, 2011 that we account for using the equity method.

(b)Common stocks excludes stocks not carried at fair value of $0.7 million at June 30, 2012 and December 31, 2011.

We had no transfers between Level 1 and Level 2 during the three or six months ended June 30, 2012.

45

The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended June 30, 2012:

									Purchases,
			Net (losses) gains included in:						sales,
	Balance at					Other			issues,			Transfers		Transfers		Balance
	beginning		Other			comprehensive			settlements			into		out of		at end of
(dollars in thousands)	of period		revenues			income (loss)			(a)			Level 3		Level 3		period
Three Months Ended June 30, 2012
Investment securities:
Bonds:
RMBS	$	1,848	$	40		$	199		$	(62	)	$	—	$	—	$	2,025
CMBS	8,367		(7		)	(318		)	(178		)	—		—		7,864
CDO/ABS	9,612		94			95			(105		)	—		—		9,696
Total	19,827		127			(24		)	(345		)	—		—		19,585
Other long-term investments (b)	3,486		—			(779		)	—			—		—		2,707
Total investment securities	$	23,313	$	127		$	(803	)	$	(345	)	$	—	$	—	$	22,292

(a)The detail of purchases, sales, issues, and settlements for the three months ended June 30, 2012 is presented in the table below.

(b)Other long-term investments excludes our interest in a limited partnership of $1.3 million at June 30, 2012 that we account for using the equity method.

The following table presents the detail of purchases, sales, issues, and settlements of Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended June 30, 2012:

(dollars in thousands)	Purchases		Sales		Issues		Settlements			Total
Three Months Ended June 30, 2012
Investment securities:
Bonds:
RMBS	$	—	$	—	$	—	$	(62	)	$	(62	)
CMBS	—		—		—		(178		)	(178		)
CDO/ABS	—		—		—		(105		)	(105		)
Total investment securities	$	—	$	—	$	—	$	(345	)	$	(345	)

46

The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended June 30, 2011:

									Purchases,
			Net (losses) gains included in:						sales,
	Balance at					Other			issues,			Transfers		Transfers		Balance
	beginning		Other			comprehensive			settlements			into		out of		at end of
(dollars in thousands)	of period		revenues			income			(a)			Level 3		Level 3		period
Three Months Ended June 30, 2011
Investment securities:
Bonds:
Corporate debt	$	2,800	$	(9	)	$	(47	)	$	—		$	—	$	—	$	2,744
RMBS	1,995		(2		)	123			(51		)	—		—		2,065
CMBS (b)	9,475		(286		)	(66		)	(388		)	—		—		8,735
CDO/ABS (b)	9,743		35			(109		)	(129		)	—		—		9,540
Total	24,013		(262		)	(99		)	(568		)	—		—		23,084
Other long-term investments (c)	7,488		—			(1,199		)	(901		)	—		—		5,388
Common stocks	3		—			—			—			—		—		3
Total investment securities	31,504		(262		)	(1,298		)	(1,469		)	—		—		28,475
Equity-indexed derivatives	1,731		(2		)	—			6			—		—		1,735
Total assets	$	33,235	$	(264	)	$	(1,298	)	$	(1,463	)	$	—	$	—	$	30,210

(a)   The detail of purchases, sales, issues, and settlements for the three months ended June 30, 2011 is presented in the table below.

(b)   Balance at beginning of period was adjusted to reflect a reclassification between CMBS and CDO/ABS.

(c)   Other long-term investments excludes our interest in a limited partnership of $1.8 million at June 30, 2011 that we account for using the equity method.

The following table presents the detail of purchases, sales, issues, and settlements of Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended June 30, 2011:

(dollars in thousands)	Purchases		Sales		Issues		Settlements			Total
Three Months Ended June 30, 2011
Investment securities:
Bonds:
RMBS	$	—	$	—	$	—	$	(51	)	$	(51	)
CMBS	—		—		—		(388		)	(388		)
CDO/ABS	—		—		—		(129		)	(129		)
Total	—		—		—		(568		)	(568		)
Other long-term investments	—		—		—		(901		)	(901		)
Total investment securities	—		—		—		(1,469		)	(1,469		)
Equity-indexed derivatives	—		—		—		6			6
Total assets	$	—	$	—	$	—	$	(1,463	)	$	(1,463	)

47

The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2012:

									Purchases,
			Net (losses) gains included in:						sales,
	Balance at					Other			issues,			Transfers		Transfers		Balance
	beginning		Other			comprehensive			settlements			into		out of		at end of
(dollars in thousands)	of period		revenues			income (loss)			(a)			Level 3		Level 3		period
Six Months Ended June 30, 2012
Investment securities:
Bonds:
Corporate debt	$	2,800	$	3		$	184		$	(2,987	)	$	—	$	—	$	—
RMBS	1,914		36			192			(117		)	—		—		2,025
CMBS	7,944		(11		)	283			(352		)	—		—		7,864
CDO/ABS	8,916		132			857			(209		)	—		—		9,696
Total	21,574		160			1,516			(3,665		)	—		—		19,585
Other long-term investments (b)	4,127		—			(484		)	(936		)	—		—		2,707
Common stocks	3		(5		)	2			—			—		—		—
Total investment securities	$	25,704	$	155		$	1,034		$	(4,601	)	$	—	$	—	$	22,292

(a)The detail of purchases, sales, issues, and settlements for the six months ended June 30, 2012 is presented in the table below.

(b)Other long-term investments excludes our interest in a limited partnership of $1.3 million at June 30, 2012 that we account for using the equity method.

The following table presents the detail of purchases, sales, issues, and settlements of Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2012:

(dollars in thousands)	Purchases		Sales		Issues		Settlements			Total
Six Months Ended June 30, 2012
Investment securities:
Bonds:
Corporate debt	$	—	$	—	$	—	$	(2,987	)	$	(2,987	)
RMBS	—		—		—		(117		)	(117		)
CMBS	—		—		—		(352		)	(352		)
CDO/ABS	—		—		—		(209		)	(209		)
Total	—		—		—		(3,665		)	(3,665		)
Other long-term investments	—		—		—		(936		)	(936		)
Total investment securities	$	—	$	—	$	—	$	(4,601	)	$	(4,601	)

48

The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2011:

									Purchases,
			Net (losses) gains included in:						sales,
	Balance at					Other			issues,			Transfers		Transfers		Balance
	beginning		Other			comprehensive			settlements			into		out of		at end of
(dollars in thousands)	of period		revenues			income			(a)			Level 3		Level 3		period
Six Months Ended June 30, 2011
Investment securities:
Bonds:
Corporate debt	$	3,110	$	(19	)	$	(247	)	$	(100	)	$	—	$	—	$	2,744
RMBS	1,623		(546		)	1,099			(111		)	—		—		2,065
CMBS (b)	9,627		(298		)	56			(650		)	—		—		8,735
CDO/ABS (b)	9,477		63			262			(262		)	—		—		9,540
Total	23,837		(800		)	1,170			(1,123		)	—		—		23,084
Other long-term investments (c)	6,432		—			2,154			(3,198		)	—		—		5,388
Common stocks	5		—			(2		)	—			—		—		3
Total investment securities	30,274		(800		)	3,322			(4,321		)	—		—		28,475
Equity-indexed derivatives	1,720		3			—			12			—		—		1,735
Total assets	$	31,994	$	(797	)	$	3,322		$	(4,309	)	$	—	$	—	$	30,210

(a)The detail of purchases, sales, issues, and settlements for the six months ended June 30, 2011 is presented in the table below.

(b)Balance at beginning of period was adjusted to reflect a reclassification between CMBS and CDO/ABS.

(c)Other long-term investments excludes our interest in a limited partnership of $1.8 million at June 30, 2011 that we account for using the equity method.

The following table presents the detail of purchases, sales, issues, and settlements of Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2011:

(dollars in thousands)	Purchases		Sales			Issues		Settlements			Total
Six Months Ended June 30, 2011
Investment securities:
Bonds:
Corporate debt	$	—	$	—		$	—	$	(100	)	$	(100	)
RMBS	—		—			—		(111		)	(111		)
CMBS	—		—			—		(650		)	(650		)
CDO/ABS	—		—			—		(262		)	(262		)
Total	—		—			—		(1,123		)	(1,123		)
Other long-term investments	—		(2,297		)	—		(901		)	(3,198		)
Total investment securities	—		(2,297		)	—		(2,024		)	(4,321		)
Equity-indexed derivatives	—		—			—		12			12
Total assets	$	—	$	(2,297	)	$	—	$	(2,012	)	$	(4,309	)

There were no unrealized gains or losses recognized in earnings on instruments held at June 30, 2012 or 2011.

49

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

The unobservable inputs and quantitative data used in our Level 3 valuations for our investment securities were developed and used in models created by our third-party valuation service providers. We applied the third party exception which allows us to omit certain quantitative disclosures about unobservable inputs. As a result, the weighted average ranges of the inputs are not applicable in the following table.

Quantitative information about Level 3 inputs for our assets measured at fair value on a recurring basis is as follows:

	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
RMBS	Discounted cash flows	Third party valuation	N/A*
CMBS	Discounted cash flows	Third party valuation	N/A
CDO/ABS	Discounted cash flows and consensus pricing	Third party valuation	N/A
Other long-term investments	Discounted cash flows and indicative valuations	Third party valuation	N/A

*Not applicable.

The fair values of the assets using significant unobservable inputs are sensitive and can be impacted by significant increases or decreases in any of those inputs. The unobservable inputs of our Level 3 assets measured on a recurring basis were as follows:

RMBS:

·evaluations of underlying collateral;

·prepayment risks and rates;

·probability of default;

·loss severity;

·discounts for lack of marketability and liquidity;

·capital structure and tranche position; and

·RMBS workout data, correlations, and recovery rates.

CMBS:

·evaluations of underlying collateral;

·prepayment risks and rates;

·probability of default;

·loss severity;

·discounts for lack of marketability and liquidity;

·capital structure and tranche position; and

·CMBS workout data, correlations, and recovery rates.

50

CDO/ABS:

·evaluations of underlying collateral;

·prepayment risks and rates;

·probability of default;

·loss severity;

·discounts for lack of marketability, calls, and liquidity; and

·capital structure and tranche position.

Other long-term investments:

·proprietary valuation and assumptions;

·firm structure;

·financial, operating, and company specific data;

·realization opportunities;

·potential exit strategies; and

·sector trends.

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

Fair Value Measurements — Nonrecurring Basis

We measure the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Assets measured at fair value on a non-recurring basis on which we recorded impairment charges were as follows:

	Fair Value Measurements Using
(dollars in thousands)	Level 1		Level 2		Level 3		Total
June 30, 2012
Assets
Real estate owned	$	—	$	—	$	106,963	$	106,963
Finance receivables held for sale	—		—		24,018		24,018
Total	$	—	$	—	$	130,981	$	130,981
December 31, 2011
Assets
Real estate owned	$	—	$	—	$	152,038	$	152,038
Other intangible assets	—		—		2,595		2,595
Total	$	—	$	—	$	154,633	$	154,633

51

Impairment charges recorded on assets measured at fair value on a non-recurring basis were as follows:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
(dollars in thousands)	2012		2011		2012		2011
Assets
Real estate owned	$	6,536	$	13,673	$	19,860	$	22,580
Finance receivables held for sale	—		—		1,371		—
Total	$	6,536	$	13,673	$	21,231	$	22,580

In accordance with the authoritative guidance for the accounting for the impairment of long-lived assets, we wrote down certain real estate owned reported in our branch and centralized real estate business segments to their fair value for the three and six months ended June 30, 2012 and 2011 and recorded the writedowns in other revenues. The fair values disclosed in the tables above are unadjusted for transaction costs as required by the authoritative guidance for fair value measurements. The amounts recorded on the balance sheet are net of transaction costs as required by the authoritative guidance for accounting for the impairment of long-lived assets.

In accordance with the authoritative guidance for the accounting for the impairment of finance receivables held for sale, we wrote down certain finance receivables held for sale reported in our branch business segment to their fair value for the six months ended June 30, 2012 and recorded the writedowns in other revenues.

The unobservable inputs and quantitative data used in our Level 3 valuations for our real estate owned and finance receivables held for sale were developed and used in models created by our third-party valuation service providers or valuations provided by external parties. We applied the third party exception which allows us to omit certain quantitative disclosures about unobservable inputs. As a result, the weighted average ranges of the inputs are not applicable in the following table.

Quantitative information about Level 3 inputs for our assets measured at fair value on a nonrecurring basis is as follows:

	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Real estate owned	Market approach	Third party valuation	N/A*
Finance receivables held for sale	Market approach	Negotiated prices with prospective purchasers	N/A

*    Not applicable.

52

FAIR VALUE MEASUREMENTS —

VALUATION METHODOLOGIES AND ASSUMPTIONS

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

Finance Receivables

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

Real Estate Owned

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

Finance Receivables Held for Sale

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

Investment Securities

We utilized third-party valuation service providers to measure the fair value of our investment securities (which consist primarily of bonds), and we maximized the use of observable inputs and minimized the use of unobservable inputs. Whenever available, we obtained quoted prices in active markets for identical assets at the balance sheet date to measure investment securities at fair value. We generally obtained market price data from exchange or dealer markets.

We estimated the fair value of fixed maturity investment securities not traded in active markets by referring to traded securities with similar attributes, using dealer quotations and a matrix pricing methodology, or discounted cash flow analyses. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, prepayment rates and other relevant factors. For fixed maturity investment securities that are not traded in active markets or that are subject to transfer restrictions, we adjusted the valuations to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

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Cash and Cash Equivalents

We estimated the fair value of cash and cash equivalents using quoted prices where available and industry standard valuation models using market-based inputs when quoted prices were unavailable.

Notes Receivable from Parent

The fair value of the notes receivable from parent approximated the fair value because the note is payable on a demand basis prior to its due date on May 31, 2022 and the interest rate on this note adjusts with changing market interest rates.

Commercial Mortgage Loans

We utilized third-party valuation service providers to estimate the fair value of commercial mortgage loans using projected cash flows discounted at an appropriate rate based upon market conditions.

Derivatives

Our derivatives are not traded on an exchange. The valuation model used by our third-party valuation service provider to calculate fair value of our derivative instruments includes a variety of observable inputs, including contractual terms, interest rate curves, foreign exchange rates, yield curves, credit curves, measure of volatility, and correlations of such inputs. Valuation adjustments may be made in the determination of fair value. These adjustments include amounts to reflect counterparty credit quality and liquidity risk, as well as credit and market valuation adjustments. The credit valuation adjustment adjusts the valuation of derivatives to account for nonperformance risk of our counterparty with respect to all net derivative assets positions. The credit valuation adjustment also accounts for our own credit risk in the fair value measurement of all net derivative liabilities’ positions, when appropriate. The market valuation adjustment adjusts the valuation of derivatives to reflect the fact that we are an “end-user” of derivative products. As such, the valuation is adjusted to take into account the bid-offer spread (the liquidity risk), as we are not a dealer of derivative products.

Long-term Debt

Where market-observable prices are not available, we estimated the fair values of long-term debt using projected cash flows discounted at each balance sheet date’s market-observable implicit-credit spread rates for our long-term debt and adjusted for foreign currency translations.

Note 20.  Legal Contingencies

In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation arising in connection with its activities. Some of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. While the Company has identified below certain legal actions where the Company believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that have not yet been notified to the Company or are not yet determined to be probable or reasonably possible.

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

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

For certain other legal actions, other than the action referred to in the following paragraphs, the Company can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but does not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on the Company’s consolidated financial statements as a whole.

Discussed below is a description of each legal action in which it is reasonably possible that the Company may incur, on an individual basis, a material loss that can be reasonably estimated. Based on currently available information, the Company believes the estimate of the aggregate range of reasonably possible losses for such actions, in excess of amounts accrued, is from $0 to $45 million at June 30, 2012.

King v. American General Finance, Inc., Case No. 96-CP-38-595, in the Court of Common Pleas for Orangeburg County, South Carolina. In this lawsuit, filed in 1996, the plaintiffs assert class claims against our South Carolina operating entity for alleged violations of S.C. Code § 37-10-102(a), which requires, inter alia, a lender making a mortgage loan to ascertain the preference of the borrower as to an attorney who will represent the borrower in closing the loan. On July 29, 2011, the Court issued an interim order granting the plaintiffs’ motion for summary judgment and holding that Springleaf Financial Services of South Carolina, Inc. (SLFSSC), formerly American General Finance, Inc., violated the statute. The order states that the class consists of 9,157 members who were involved in 5,497 transactions. The statute provides for a penalty range of $1,500 to $7,500 per class member, to be determined by the judge. SLFSSC timely submitted a motion to alter, amend or reconsider the Court’s interim order on summary judgment. The Court denied that motion on February 22, 2012. On October 14, 2011, the Court conducted a hearing on the issues of attorney fees and penalties. The plaintiffs requested approximately $68.7 million in penalties and approximately $24.5 million in attorney fees, plus interest. On May 21, 2012, the Court issued an Order awarding the plaintiffs approximately $27.5 million in penalties and approximately $10.9 million in attorney fees. The Court denied the plaintiffs’ request for prejudgment interest. Both sides timely filed motions for reconsideration. On July 19, 2012, the Court granted the plaintiffs’ motion for reconsideration and increased the penalties to approximately $45.8 million and attorney fees to approximately $12.7 million. The Company plans to pursue all available avenues to appeal the decision and will continue to litigate this case vigorously.

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Note 21.  Subsequent Events

Renegotiated Derivative Contract

In July 2012, SLFC decreased the notional amount of the remaining 470.7 million Euro of cross currency interest rate swap by 287.7 million Euro related to SLFC’s Euro denominated debt maturing in January 2013. The Euro proceeds received from the reduction are being held in Euros for future payment of long-term debt principal and interest of Euro denominated debt. In July 2012, SLFI posted $60.0 million of cash collateral with AIGFP as security for SLFC’s two remaining Euro swap positions with AIGFP and agreed to act as guarantor for the swap positions.

On-Balance Sheet Securitization Transaction

On August 8, 2012, SLFC effected a private securitization transaction in which SLFC caused Twelfth Street Funding LLC (Twelfth Street), a special purpose vehicle wholly owned by SLFC, to sell $750.8 million of mortgage-backed notes of Springleaf Mortgage Loan Trust 2012-2 (the Trust), with a 3.59% weighted average yield, to certain investors. Twelfth Street sold the mortgage-backed notes for $749.7 million, after the price discount but before expenses. Approximately $107.7 million of the Trust’s subordinate mortgage-backed notes are to be retained by SLFC initially.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and our other publicly available documents may include, and the Company’s officers and representatives may from time to time make, statements which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent only our belief regarding future events, many of which are inherently uncertain and outside of our control. These statements may address, among other things, our strategy for eventual growth, product development, regulatory approvals, market position, financial results and reserves. Our actual results and financial condition may differ from the anticipated results and financial condition indicated in these forward-looking statements. The important factors, many of which are outside of our control, that could cause our actual results to differ, possibly materially, include, but are not limited to, the following:

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

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

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

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

·the impacts of our securitizations and borrowings;

·our ability to comply with our debt covenants, including the borrowing base for SLFC’s secured term loan;

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

·changes in the competitive environment in which we operate, including the demand for our products, customer responsiveness to our distribution channels, and the formation of business combinations among our competitors;

·the effectiveness of our credit risk scoring models in assessing the risk of customer unwillingness or inability to repay;

·shifts in collateral values, delinquencies, or credit losses;

·shifts in residential real estate values;

·levels of unemployment and personal bankruptcies;

·additional costs, in excess of amounts accrued, for our United Kingdom subsidiaries resulting from the retroactive imposition of guidelines issued in August 2010 by the United Kingdom Financial Services Authority for sales of payment protection insurance that occurred after January 1, 2005, including refunds to customers;

·the potential for it to become increasingly costly and difficult to service our loan portfolio, especially our real estate loan portfolio (including costs and delays associated with foreclosure on real estate collateral), as a result of heightened nationwide regulatory scrutiny of loan servicing and foreclosure practices in the industry generally, and related costs that could be passed on to us in connection with the subservicing of our centralized mortgage loan portfolio;

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

·changes in federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Act (which, among other things, established a federal Consumer Financial Protection Bureau with broad authority to regulate and examine financial institutions), that affect our ability to conduct business or the manner in which we conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as

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well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry;

·the effects of participation in the HAMP by subservicers of our loans;

·the costs and effects of any litigation or governmental inquiries or investigations involving us, particularly those that are determined adversely to us;

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

·changes in accounting standards or tax policies and practices and the application of such new policies and practices to the manner in which we conduct business;

·the undetermined effects of the FCFI Transaction, including the availability of support from our new owner and the effect of any changes to our operations, capitalization, or business strategies;

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

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

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

·war, acts of terrorism, riots, civil disruption, pandemics, or other events disrupting business or commerce.

We also direct readers to other risks and uncertainties discussed in other documents we file with the SEC. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.

EXECUTIVE OVERVIEW

As we focus on our efforts to return the Company to profitability, we are pursuing consumer lending that we believe will provide higher returns and more cost-effective operations during 2012 and beyond. Starting January 1, 2012, we ceased originating real estate loans nationwide. On February 1, 2012, we announced our plan to close approximately 60 branch offices and to immediately cease lending and retail sales financing in 14 states and southern Florida. On February 15, 2012, we reduced the workforce at our Evansville, Indiana headquarters by approximately 130 employees due to the cessation of real estate lending and the branch office closings. On March 2, 2012, we announced our plan to consolidate certain branch operations and close approximately 150 branch offices in 25 states. On March 23, 2012, we informed affected employees of our plan to reduce the workforce of Ocean by approximately 60 employees due to our cessation of real estate lending in the United Kingdom. In the second quarter of 2012, we closed an additional 18 branch offices as a result of ceasing operations in 14 states during the first quarter of 2012. As a result of these events, our workforce was reduced by approximately 690 employees in the first quarter of 2012 and 130 employees in the second quarter of 2012, and we incurred a pretax charge of $1.9 million for the three months ended June 30, 2012 and $23.5 million for the six months ended June 30, 2012.

Assuming the U.S. economy performs in a relatively positive manner, we expect our lending operations to maintain the improved credit quality of our non-real estate and retail sales finance portfolio that has been achieved over the past several quarters. With our mortgage portfolio liquidating and the continuing difficulty in the housing markets, we anticipate our credit quality ratios for real estate loans will likely remain under pressure.

We expect that our funding activities will include additional debt financings, particularly new securitizations, debt refinancing transactions, debt exchange offers, debt restructurings, portfolio sales, or a combination of the foregoing. However, there can be no assurance as to the sufficiency or availability of these funds. Should these sources of funding be insufficient or unavailable, there could be a material adverse effect on our liquidity, financial position, results of operations, and cash flows.

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In connection with our liability management efforts, during the first half of 2012, we repurchased $414.9 million of SLFC debt scheduled to mature in 2012 and 50.1 million Euro of SLFC debt scheduled to mature in 2013. We also made additional debt repurchases after quarter end.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for a discussion of our risks and uncertainties.

CAPITAL RESOURCES AND LIQUIDITY

We currently have a significant amount of indebtedness. Our liquidity position has been, and is likely to continue to be, negatively affected by unfavorable conditions in the consumer finance industry, the residential real estate market and the capital markets. In addition, SLFC’s and SLFI’s credit ratings are all non-investment grade, which have a significant impact on our cost of, and access to, capital. This, in turn, negatively affects our ability to manage our liquidity and our ability to refinance our indebtedness.

If current market conditions, as well as our financial performance, do not improve or further deteriorate, we may not be able to generate sufficient cash to service all of our debt. At June 30, 2012, we had $1.3 billion of cash and cash equivalents ($11.6 million of cash and cash equivalents related to our foreign subsidiary, Ocean), and during the six months ended June 30, 2012 we generated a net loss of $91.2 million and cash flows from operating and investing activities of $896.3 million. During the six months ended June 30, 2012, we repurchased $414.9 million of SLFC debt scheduled to mature in 2012 and 50.1 million Euro of SLFC debt scheduled to mature in 2013. We also made additional debt repurchases after quarter end. For the remainder of 2012, we are required to pay $2.0 billion to service the principal and interest due under the terms of our existing debt (excluding securitizations). Additionally, we have $1.5 billion of debt maturities and interest payments (excluding securitizations) due in the first half of 2013. In order to meet our debt obligations in 2012 and beyond, we are exploring a number of options, including additional debt financings, particularly new securitizations involving real estate and/or non-real estate loans, debt refinancing transactions, debt exchange offers, debt restructurings, portfolio sales, or a combination of the foregoing. In April 2012, our insurance subsidiaries received the necessary regulatory approvals to pay cash dividends of $150.0 million during 2012, and subsequently paid cash dividends totaling $150.0 million to SLFC in the second quarter of 2012. In April 2012, SLFC effected a private securitization transaction in which $371.0 million of mortgage-backed notes were sold for $367.8 million, after the price discount but before expenses. In August 2012, SLFC effected an additional private securitization transaction. See Note 21 of the Notes to Condensed Consolidated Financial Statements for further information on this securitization transaction. As of June 30, 2012, the Company had unpaid principal balances of $2.4 billion of unencumbered real estate loans and $2.9 billion of unencumbered non-real estate loans. In addition, SLFC will request payment of some or all of its note receivable from SLFI ($538.0 million outstanding at June 30, 2012), if needed, to meet its liquidity needs.

We cannot assure that additional debt financings, particularly new securitizations, debt refinancing transactions, debt exchange offers, debt restructurings, or portfolio sales will be available to us on acceptable terms, or at all. Our ability to support our operations and repay indebtedness will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, regulatory, and other factors that are beyond our control and cannot be predicted with certainty. We would be materially adversely affected if we were unable to repay or refinance our debt as it comes due.

We actively manage our liquidity and continually work on initiatives to address our liquidity needs. In connection with our liability management efforts, we or our affiliates from time to time have purchased, and may in the future purchase, portions of our outstanding indebtedness. Any such purchases may be made through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we or any such affiliates may determine. Our plans are dynamic and we may adjust our plans in response to changes in our expectations and changes in market conditions.

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Capital Resources

Our capital has varied primarily with the amount of our net finance receivables. We have historically based our mix of debt and equity, or “leverage,” primarily upon maintaining leverage that supports cost-effective funding.

(dollars in millions)
June 30,	2012				2011
	Amount		Percent		Amount		Percent
Long-term debt	$	12,952.9	91	%	$	14,527.1	90	%
Equity	1,346.5		9		1,547.6		10
Total capital	$	14,299.4	100	%	$	16,074.7	100	%
Net finance receivables	$	12,286.7			$	13,476.4

We have historically issued a combination of fixed-rate debt, principally long-term, and floating-rate debt, both long-term and short-term. Until September 2008, SLFC obtained our fixed-rate funding by issuing public or private long-term unsecured debt with maturities primarily ranging from three to ten years, and SLFC obtained most of our floating-rate funding by issuing and refinancing commercial paper and by issuing long-term, floating-rate unsecured debt. Since that time we have sold certain mortgage portfolios, entered into a significant secured term loan funding arrangement, and completed on-balance sheet securitizations. See Note 12 of the Notes to Condensed Consolidated Financial Statements for further information on SLFC’s secured term loan.

Historically, we targeted our leverage to be a ratio of 7.5x of adjusted debt to adjusted tangible equity, where adjusted debt equals total debt less 75% of our trust preferred securities (i.e., hybrid debt) and where adjusted tangible equity equals total shareholder’s equity plus 75% of hybrid debt and less goodwill, other intangible assets, and accumulated other comprehensive income or loss. Our method of measuring target leverage reflects SLFC’s issuance of $350.0 million aggregate principal amount of 60-year junior subordinated debentures following our acquisition of Ocean in January 2007. The debentures underlie the trust preferred securities sold by a trust sponsored by SLFC in a Rule 144A/Regulation S offering. SLFC can redeem the debentures at par beginning in January 2017. Based upon the “equity-like” terms of these junior subordinated debentures, our leverage calculation treated the hybrid debt as 75% equity and 25% debt.

Due to the Company’s and our former indirect parent’s liquidity positions, our primary capitalization efforts have been focused on improving liquidity, refinancing or retiring our outstanding indebtedness, and otherwise maintaining compliance with our debt agreements, and not on achieving a targeted leverage. Additionally, the application of push-down accounting significantly altered the presentation of many leverage calculation components and has thereby made our historical methods of leverage calculation less meaningful. Our adjusted tangible leverage at June 30, 2012 was 8.88x compared to 8.39x at December 31, 2011, and 8.96x at June 30, 2011. In calculating June 30, 2012 leverage, management deducted $1.2 billion of cash equivalents from adjusted debt, resulting in an effective adjusted tangible leverage of 8.08x. In calculating December 31, 2011 leverage, management deducted $271.3 million of cash equivalents from adjusted debt, resulting in an effective adjusted tangible leverage of 8.21x. In calculating June 30, 2011 leverage, management deducted $1.5 billion of cash equivalents from adjusted debt, resulting in an effective adjusted tangible leverage of 8.04x.

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Reconciliations of total debt to adjusted debt were as follows:

	June 30,			December 31,			June 30,
(dollars in millions)	2012			2011			2011
Total debt	$	12,952.9		$	12,885.4		$	14,527.1
75% of hybrid debt	(128.6		)	(128.6		)	(128.6		)
Adjusted debt	$	12,824.3		$	12,756.8		$	14,398.5

Reconciliations of equity to adjusted tangible equity were as follows:

	June 30,			December 31,			June 30,
(dollars in millions)	2012			2011			2011
Equity	$	1,346.5		$	1,408.8		$	1,547.6
75% of hybrid debt	128.6			128.6			128.6
Net other intangible assets	(37.1		)	(42.7		)	(65.4		)
Accumulated other comprehensive loss (income)	6.1			25.6			(3.0		)
Adjusted tangible equity	$	1,444.1		$	1,520.3		$	1,607.8

The debt agreements to which SLFC and its subsidiaries are a party include standard terms and conditions, including covenants and representations and warranties. These agreements also contain certain restrictions, including restrictions on the ability to create senior liens on property and assets in connection with any new debt financings and restrictions on the intercompany transfer of funds from certain subsidiaries to SLFC or SLFI, except for those funds needed for debt payments and operating expenses. SLFC subsidiaries that borrow funds through the $3.75 billion secured term loan are also required to pledge eligible finance receivables to support their borrowing under the secured term loan.

None of our debt agreements require SLFC or any subsidiary to meet or maintain any specific financial targets or ratios, except the requirement to maintain a certain level of pledged finance receivables under the secured term loan.

Under our debt agreements, certain events, including non-payment of principal or interest, bankruptcy or insolvency, or a breach of a covenant or a representation or warranty may constitute an event of default and trigger an acceleration of payments. In some cases, an event of default or acceleration of payments under one debt agreement may constitute a cross-default under other debt agreements resulting in an acceleration of payments under the other agreements.

As of June 30, 2012, we were in compliance with all of the covenants under our debt agreements.

Under our hybrid debt, SLFC, upon the occurrence of a mandatory trigger event, is required to defer interest payments to the junior subordinated debt holders (and not make dividend payments to SLFI) unless SLFC obtains non-debt capital funding in an amount equal to all accrued and unpaid interest on the hybrid debt otherwise payable on the next interest payment date and pays such amount to the junior subordinated debt holders. A mandatory trigger event occurs if SLFC’s (1) tangible equity to tangible managed assets is less than 5.5% or (2) average fixed charge ratio is not more than 1.10x for the trailing four quarters (where the fixed charge ratio equals earnings excluding income taxes, interest expense, extraordinary items, goodwill impairment, and any amounts related to discontinued operations, divided by the sum of interest expense and any preferred dividends).

Based upon SLFC’s financial results for the twelve months ended March 31, 2012, a mandatory trigger event occurred under SLFC’s hybrid debt with respect to the hybrid debt’s semi-annual payment due in July 2012 due to the average fixed charge ratio being 0.74x (while the equity to assets ratio was 8.90%). On July 11, 2012, SLFC issued one share of SLFC common stock to SLFI for $10.5 million to satisfy the July 2012 interest payments required by SLFC’s hybrid debt.

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Liquidity

Principal sources and uses of cash were as follows:

(dollars in millions)
Six Months Ended June 30,	2012		2011
Principal sources of cash:
Net collections/originations and purchases of finance receivables	$	523.2	$	580.9
Operations	163.7		108.0
Capital contributions	10.5		10.5
Total	$	697.4	$	699.4
Principal uses of cash:
Net repayment/issuances of debt	$	61.9	$	727.9
Dividends paid	—		45.0
Total	$	61.9	$	772.9

The principal factors that could decrease our liquidity are customer non-payment, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. In addition, a prolonged decline in originations would negatively impact our long-term liquidity. We intend to support our liquidity position by utilizing the following strategies:

·managing originations and purchases of finance receivables and maintaining disciplined underwriting standards and pricing for such loans;

·pursuing additional debt financings, particularly new securitizations, debt refinancing transactions, debt exchange offers, debt restructurings, portfolio sales, or a combination of the foregoing; and

·from time to time we or our affiliates may purchase portions of our outstanding indebtedness through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we or any such affiliates may determine. During the six months ended June 30, 2012, we repurchased $414.9 million of SLFC debt scheduled to mature in 2012 and 50.1 million Euro of SLFC debt scheduled to mature in 2013. We also made additional debt repurchases after quarter end.

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

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 4 of the Notes to Condensed Consolidated Financial Statements for discussion of recently issued accounting pronouncements.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:

·allowance for finance receivable losses;

·purchased credit impaired finance receivables;

·push-down accounting;

·fair value measurements; and

·valuation allowance on deferred tax assets.

For a discussion of these critical accounting estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have been no significant changes to our critical accounting estimates during the six months ended June 30, 2012.

OFF-BALANCE SHEET ARRANGEMENTS

We have no material off-balance sheet arrangements as defined by SEC rules. We had no off-balance sheet exposure to losses associated with unconsolidated VIEs at June 30, 2012 or December 31, 2011.

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SELECTED LOAN PORTFOLIO SEGMENT INFORMATION

See Note 17 of the Notes to Condensed Consolidated Financial Statements for a description of our business segments.

The following statistics are derived from the Company’s segment reporting. We report our segment statistics using the historical basis of accounting. We believe the following segment statistics are relevant to the reader because they are used by management to analyze and evaluate the performance of our business segments. “All Other” includes push-down accounting adjustments and other items that are not identified as part of our business segments and are excluded from our segment reporting. Selected statistics for the business segments (which are reported on a historical basis of accounting) were as follows:

					At or for the			At or for the
	Three Months		Three Months		Six Months			Six Months
	Ended		Ended		Ended			Ended
	June 30,		June 30,		June 30,			June 30,
(dollars in millions)	2012		2011		2012			2011
Net finance receivables:
Branch real estate loans					$	6,233.9		$	6,910.6
Centralized real estate					4,770.4			5,671.0
Branch non-real estate loans					2,608.8			2,638.5
Branch retail sales finance					295.5			434.2
Total segment net finance receivables					13,908.6			15,654.3
All other					(1,621.9		)	(2,177.9		)
Net finance receivables					$	12,286.7		$	13,476.4
Yield:
Branch real estate loans	8.87	%	8.89	%	8.83		%	8.92		%
Centralized real estate	5.68		5.65		5.71			5.87
Branch non-real estate loans	23.81		22.77		23.71			22.73
Branch retail sales finance	14.40		14.15		14.18			14.27
Total segment yield	10.63		10.15		10.60			10.22
All other effect on yield	2.71		3.65		3.00			3.51
Total yield	13.34	%	13.80	%	13.60		%	13.73		%
Charge-off ratio:
Branch real estate loans	1.69	%	2.95	%	1.97		%	2.65		%
Centralized real estate	2.45		2.11		2.22			1.87
Branch non-real estate loans	2.89		3.72		3.23			3.96
Branch retail sales finance	4.03		5.97		4.22			6.25
Total segment charge-off ratio	2.22		2.86		2.34			2.69
All other effect on charge-off ratio	(0.52	)	(0.76	)	(0.51		)	(1.10		)
Total charge-off ratio	1.70	%	2.10	%	1.83		%	1.59		%
Delinquency ratio:
Branch real estate loans					6.33		%	5.93		%
Centralized real estate					9.36			9.23
Branch non-real estate loans					2.58			3.06
Branch retail sales finance					2.60			3.61
Total segment delinquency ratio					6.49			6.51
All other effect on delinquency ratio					(0.01		)	0.05
Total delinquency ratio					6.48		%	6.56		%

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FICO Credit Scores

There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including “prime,” “non-prime,” and “sub-prime.” While there are no industry-wide agreed upon definitions for these categorizations, many market participants utilize third-party credit scores as a means to categorize the creditworthiness of the borrower and his or her finance receivable. Our finance receivable underwriting process does not use third-party credit scores as a primary determinant for credit decisions. However, we do, in part, use the following scores to analyze performance of our finance receivable portfolio:

·Prime:  Borrower FICO score greater than or equal to 660

·Non-prime:  Borrower FICO score of 620 through 659

·Sub-prime:  Borrower FICO score less than or equal to 619

See Note 5 of the Notes to Condensed Consolidated Financial Statements for our net finance receivables and delinquency ratios classified into these FICO-delineated categories. Management believes the primary reason that prime real estate loans of our centralized business segment have a significantly higher delinquency percentage as compared to prime, non-prime, and sub-prime real estate loans of our branch business segment is that the centralized business segment loans were made primarily through broker or correspondent channels and thereby established no face-to-face relationship with us, whereas substantially all of the branch business segment real estate loans were originated in the branch by our personnel whose future success is dependent on the future performance of those loans. Secondarily, but no less importantly, the centralized business segment loans are subserviced by third parties not necessarily related to us while branch business segment loans are almost always serviced by the persons who originated them and for whom the loan’s future performance is a measure of their job performance and compensation. Lastly, the loan-to-value (LTV) ratio for our centralized business segment is higher than the LTV ratio for our branch business segment. Borrowers with relatively minimal equity in their home may be less willing to continue making loan payments than borrowers with a greater proportion of equity.

Higher-risk Real Estate Loans

Certain types of our real estate loans, such as interest only real estate loans, sub-prime real estate loans, second mortgages, high LTV ratio mortgages, and low documentation real estate loans, can have a greater risk of non-collection than our other real estate loans. Interest only real estate loans contain an initial period where the scheduled monthly payment amount is equal to the interest charged on the loan. The payment amount resets upon the expiration of this period to an amount sufficient to amortize the balance over the remaining term of the loan. Sub-prime real estate loans are loans originated to a borrower with a FICO score at the date of origination or renewal of less than or equal to 619. Second mortgages are secured by a mortgage the rights of which are subordinate to those of a first mortgage. High LTV ratio mortgages have an original amount equal to or greater than 95.5% of the value of the collateral property at the time the loan was originated. Low documentation real estate loans are loans to a borrower that meets certain criteria which gives the borrower the option to supply less than the normal amount of supporting documentation for income.

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Additional information regarding these higher-risk real estate loans for our branch and centralized real estate business segments follows (our higher-risk real estate loans can be included in more than one of the types of higher-risk real estate loans):

			Delinquency		Average		Average
(dollars in millions)	Amount		Ratio		LTV		FICO
June 30, 2012
Branch higher-risk real estate loans:
Interest only (a)
Sub-prime	$	3,575.1	7.21	%	74.7	%	556
Second mortgages	$	639.2	6.38	%	N/A	(b)	602
LTV greater than 95.5% at origination	$	198.8	6.37	%	97.8	%	610
Low documentation (a)
Centralized real estate higher-risk loans:
Interest only	$	612.3	11.30	%	89.1	%	705
Sub-prime	$	314.2	12.50	%	77.6	%	586
Second mortgages	$	24.4	11.01	%	N/A		703
LTV greater than 95.5% at origination	$	1,320.0	8.06	%	99.4	%	708
Low documentation	$	237.3	13.56	%	76.4	%	662
December 31, 2011
Branch higher-risk real estate loans:
Interest only (a)
Sub-prime	$	3,739.5	7.26	%	74.6	%	557
Second mortgages	$	701.1	7.39	%	N/A		602
LTV greater than 95.5% at origination	$	210.5	6.15	%	97.8	%	611
Low documentation (a)
Centralized real estate higher-risk loans:
Interest only	$	660.4	12.03	%	89.0	%	706
Sub-prime	$	326.9	15.05	%	77.5	%	586
Second mortgages	$	27.0	7.20	%	N/A		704
LTV greater than 95.5% at origination	$	1,417.7	8.78	%	99.4	%	708
Low documentation	$	246.2	15.48	%	76.4	%	662

(a)Not applicable because these higher-risk loans were not offered by our branch business segment.

(b)Not available.

We held the first mortgage of borrowers on 4% of our second mortgage portfolio at June 30, 2012 and December 31, 2011. Our second mortgages may be closed-end accounts or open-end home equity lines of credit and are primarily fixed-rate products. At June 30, 2012 and December 31, 2011, 89% of our second mortgages were fixed-rate mortgages. At June 30, 2012, 66% of our second mortgages were open-end home equity lines of credit, compared to 65% at December 31, 2011. The maximum draw period for cash advances for unused credit lines is 120 months, but all unused credit lines, in part or in total, can be cancelled at our discretion at any time.

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Charge-off ratios for these higher-risk real estate loans for our branch and centralized real estate business segments were as follows:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2012		2011		2012		2011
Charge-off ratios:
Branch higher-risk real estate loans:
Interest only*
Sub-prime	1.97	%	2.46	%	2.31	%	2.23	%
Second mortgages	6.54	%	6.88	%	6.80	%	6.14	%
LTV greater than 95.5% at origination	3.23	%	3.96	%	2.90	%	3.28	%
Low documentation*
Centralized real estate higher-risk loans:
Interest only	2.40	%	3.18	%	2.84	%	3.05	%
Sub-prime	1.99	%	1.79	%	1.89	%	1.67	%
Second mortgages	1.00	%	0.14	%	2.25	%	0.87	%
LTV greater than 95.5% at origination	2.24	%	2.12	%	2.55	%	2.16	%
Low documentation	1.34	%	3.01	%	1.57	%	2.20	%

*Not applicable because these higher-risk loans are not offered by our branch business segment.

A decline in the value of assets serving as collateral for our real estate loans may impact our ability to collect on these real estate loans. The total amount of all real estate loans for which the estimated LTV ratio exceeds 100% at June 30, 2012 was $2.5 billion, or 27%, of total real estate loans. We update collateral valuations by applying the sequential change in the House Price Index as published quarterly by the Federal Housing Finance Agency at the Metropolitan Statistical Area or state level to update the LTV.

Allowance for Finance Receivable Losses

Our Credit Strategy and Policy Committee evaluates our finance receivable portfolio by non-real estate loans, retail sales finance, and real estate loans. Allowance for finance receivable losses is calculated for each of our portfolio segments. We allocated the allowance for finance receivable losses for real estate loans to each segment based upon delinquency. See Note 7 of the Notes to Condensed Consolidated Financial Statements for information on our allowance for finance receivable losses.

ANALYSIS OF FINANCIAL CONDITION

Finance Receivables

Risk Characteristics. Our customers in all portfolio segments (non-real estate loans, retail sales finance, and real estate loans) encompass a wide range of borrowers. In the consumer finance industry, they are described as prime or near-prime at one extreme and non-prime or sub-prime at the other. Our customers’ incomes are generally near the national median but our customers may vary from national norms as to their debt-to-income ratios, employment and residency stability, and/or credit repayment histories. In general, our customers have lower credit quality and require significant levels of servicing. As a result, we charge them higher interest rates to compensate us for such services and related credit risks.

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Despite our efforts to avoid losses on our portfolio segments, personal circumstances and national, regional, and local economic situations affect our customers’ willingness or ability to repay their obligations. The risk characteristics of each portfolio segment include the following:

Non-real estate loan portfolio and retail sales finance portfolio:

·elevated unemployment levels;

·high energy costs;

·other borrower indebtedness;

·major medical expenses; and

·divorce or death.

Real estate loan portfolio:

·adverse shifts in residential real estate values;

·elevated unemployment levels;

·high energy costs;

·other borrower indebtedness;

·major medical expenses; and

·divorce or death.

Occasionally, these events can be so economically severe that the customer files for bankruptcy.

Real Estate Owned

Changes in the amount of real estate owned were as follows.

	At or for the			At or for the			At or for the			At or for the
	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Balance at beginning of period	$	107.5		$	174.7		$	128.9		$	178.9
Properties acquired	44.6			64.0			95.0			121.7
Properties sold or disposed of	(55.8		)	(62.8		)	(114.2		)	(115.8		)
Net writedowns	(6.5		)	(13.7		)	(19.9		)	(22.6		)
Balance at end of period	$	89.8		$	162.2		$	89.8		$	162.2
Real estate owned as a percentage of real estate loans							0.95		%	1.55		%

Investments

Investments by type were as follows:

	June 30,		December 31,
(dollars in millions)	2012		2011
Investment securities	$	694.5	$	746.3
Commercial mortgage loans	115.2		121.3
Policy loans	1.5		1.5
Total	$	811.2	$	869.1

Our investment strategy is to optimize after-tax returns on invested assets, subject to the constraints of liquidity, diversification, and regulation. See Note 9 of the Notes to Condensed Consolidated Financial Statements for further information on investment securities.

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Asset/Liability Management

To reduce the risk associated with unfavorable changes in interest rates on our debt not offset by favorable changes in yield of our finance receivables, we monitor the anticipated cash flows of our assets and liabilities, principally our finance receivables and debt. We have funded finance receivables with a combination of fixed-rate and floating-rate debt and equity. We have based the mix of fixed-rate and floating-rate debt issuances, in part, on the nature of the finance receivables being supported.

We have historically issued fixed-rate, long-term unsecured debt as the primary source of fixed-rate debt and have also employed interest rate swap agreements to adjust our fixed/floating mix of total debt. Including the impact of interest rate swap agreements that effectively fix floating-rate debt or float fixed-rate debt, our floating-rate debt represented 33% of our borrowings at June 30, 2012, compared to 30% at June 30, 2011. Adjustable-rate net finance receivables represented 5% of our total portfolio at June 30, 2012 and 2011.

As a result of our limited access to capital markets, our restricted origination of finance receivables, and our sale or securitization of finance receivables, we have had limited direct control of our asset/liability mix. See “Capital Resources and Liquidity” for further information.

ANALYSIS OF OPERATING RESULTS

Net Loss

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Net loss	$	(43.2	)	$	(59.3	)	$	(91.2	)	$	(114.5	)
Amount change	$	16.1		$	(103.5	)	$	23.3		$	(171.2	)
Percent change	27		%	(234		)%	20		%	(302		)%
Return on average assets	(1.11		)%	(1.35		)%	(1.17		)%	(1.29		)%
Return on average equity	(12.54		)%	(14.80		)%	(13.11		)%	(14.00		)%
Ratio of earnings to fixed charges*	N/A			N/A			N/A			N/A

*Not applicable. Earnings did not cover total fixed charges by $66.5 million for the three months ended June 30, 2012 and $138.5 million for the six months ended June 30, 2012. Earnings did not cover total fixed charges by $99.4 million for the three months ended June 30, 2011 and $186.7 million for the six months ended June 30, 2011.

See the following pages for discussion of factors that affected the Company’s operating results.

See Note 17 of the Notes to Condensed Consolidated Financial Statements for information on the results of the Company’s business segments.

For a discussion of risk factors relating to our businesses, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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Factors that affected the Company’s operating results were as follows:

Finance Charges

Finance charges by portfolio segment were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Real estate loans	$	241.1		$	287.4		$	504.8		$	577.8
Non-real estate loans	156.9			160.5			318.2			320.1
Retail sales finance	13.9			20.2			30.1			41.4
Total	$	411.9		$	468.1		$	853.1		$	939.3
Amount change	$	(56.2	)	$	16.2		$	(86.2	)	$	18.4
Percent change	(12		)%	4		%	(9		)%	2		%
Average net receivables	$	12,410.0		$	13,599.0		$	12,600.6		$	13,776.1
Yield	13.34		%	13.80		%	13.60		%	13.73		%

Finance charges (decreased) increased due to the following:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Decrease in average net receivables	$	(38.6	)	$	(96.7	)	$	(73.9	)	$	(200.7	)
Change in yield	(17.6		)	112.9			(16.3		)	219.1
Increase in number of days	—			—			4.0			—
Total	$	(56.2	)	$	16.2		$	(86.2	)	$	18.4

Average net receivables and changes in average net receivables by portfolio segment were as follows:

(dollars in millions)
Three Months Ended June 30,	2012					2011
	Amount		Change			Amount		Change
Real estate loans	$	9,556.2	$	(1,094.8	)	$	10,651.0	$	(3,210.1	)
Non-real estate loans	2,550.2		17.3			2,532.9		(391.2		)
Retail sales finance	303.6		(111.5		)	415.1		(393.6		)
Total	$	12,410.0	$	(1,189.0	)	$	13,599.0	$	(3,994.9	)
Percent change			(9		)%			(23		)%

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(dollars in millions)
Six Months Ended June 30,	2012					2011
	Amount		Change			Amount		Change
Real estate loans	$	9,692.8	$	(1,101.2	)	$	10,794.0	$	(3,169.4	)
Non-real estate loans	2,579.4		35.8			2,543.6		(448.6		)
Retail sales finance	328.4		(110.1		)	438.5		(469.0		)
Total	$	12,600.6	$	(1,175.5	)	$	13,776.1	$	(4,087.0	)
Percent change			(9		)%			(23		)%

Average net receivables decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to the cessation of new originations of real estate loans as of January 1, 2012, our tighter underwriting guidelines, and liquidity management efforts, partially offset by an increase in non-real estate loans average net receivables as we pursue consumer lending that we believe will provide higher returns and more cost-effective operations.

Yield and changes in yield in basis points (bp) by portfolio segment were as follows:

Three Months Ended June 30,	2012				2011
	Yield		Change		Yield		Change
Real estate loans	10.15	%	(67	)bp	10.82	%	318	bp
Non-real estate loans	24.69		(70	)	25.39		373
Retail sales finance	18.35		(113	)	19.48		476
Total	13.34	%	(46	)	13.80	%	350

Six Months Ended June 30,	2012				2011
	Yield		Change		Yield		Change
Real estate loans	10.47	%	(32	)bp	10.79	%	309	bp
Non-real estate loans	24.75		(55	)	25.30		378
Retail sales finance	18.42		(60	)	19.02		412
Total	13.60	%	(13	)	13.73	%	335

Yield decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to lower finance charges resulting from the out-of-period adjustment described below, the increase in TDR net finance receivables (which result in reduced finance charges), and the lower non-real estate and retail sales finance yields which reflected the lapse of time since we applied push-down accounting to SLFC, partially offset by a higher proportion of non-real estate loans in our finance receivable portfolio, which have higher yields. As a result of the FCFI Transaction, we revalued our finance receivable portfolio based on its fair value on November 30, 2010, which had a greater impact on increasing our non-real estate loan and retail sales finance yields for the three and six months ended June 30, 2011 due to higher discount accretion.

In second quarter 2012, we recorded an out-of-period adjustment, which decreased finance charge revenues by $13.9 million ($11.5 million of which related to 2011). The adjustment related to the correction of capitalized interest on purchased credit impaired finance receivables serviced by a third party. After evaluating the quantitative and qualitative aspects of this correction, management has determined that our previously issued quarterly and annual consolidated financial statements were not materially misstated and that the out-of-period adjustment is immaterial to our estimated full year results.

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Finance Receivables Held for Sale Originated as Held for Investment Interest Income

Finance receivables held for sale originated as held for investment interest income were as follows:

	Three Months			Three Months			Six Months		Six Months
	Ended			Ended			Ended		Ended
	June 30,			June 30,			June 30,		June 30,
(dollars in millions)	2012			2011			2012		2011
Finance receivables held for sale originated as held for investment interest income	$	1.5		$	—		$	2.4	$	—
Amount change	$	1.5		$	(9.5	)	$	2.4	$	(20.4	)
Percent change	N/A		*	(100		)%	N/A		(100		)%

*Not applicable

See Note 8 of the Notes to Condensed Consolidated Financial Statements for a discussion of net finance receivables transferred to finance receivables held for sale and subsequent sales during 2012.

Interest Expense

The impact of using the swap agreements that qualify for hedge accounting under U.S. GAAP is included in interest expense and the related borrowing statistics below. Interest expense by type was as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Long-term debt	$	275.7		$	331.0		$	556.2		$	665.7
Amount change	$	(55.3	)	$	64.6		$	(109.5	)	$	142.3
Percent change	(17		)%	24		%	(16		)%	27		%
Average borrowings	$	13,028.2		$	14,623.2		$	13,017.2		$	14,690.5
Interest expense rate	8.44		%	9.03		%	8.52		%	9.05		%

Interest expense (decreased) increased due to the net of the following:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Decrease in average borrowings	$	(36.1	)	$	(42.4	)	$	(75.7	)	$	(99.8	)
Change in interest expense rate	(19.2		)	107.0			(33.8		)	242.1
Total	$	(55.3	)	$	64.6		$	(109.5	)	$	142.3

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Average borrowings and changes in average borrowings by type were as follows:

(dollars in millions)
Three Months Ended June 30,	2012					2011
	Amount		Change			Amount		Change
Long-term debt	$	13,028.2	$	(1,595.0	)	$	14,623.2	$	(2,709.0	)
Short-term debt	—		—			—		—
Total	$	13,028.2	$	(1,595.0	)	$	14,623.2	$	(2,709.0	)
Percent change			(11		)%			(16		)%

(dollars in millions)
Six Months Ended June 30,	2012					2011
	Amount		Change			Amount		Change
Long-term debt	$	13,017.2	$	(1,673.3	)	$	14,690.5	$	(2,523.1	)
Short-term debt	—		—			—		(940.1		)
Total	$	13,017.2	$	(1,673.3	)	$	14,690.5	$	(3,463.2	)
Percent change			(11		)%			(19		)%

Average borrowings decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to liquidity management efforts.

Interest expense rate and changes in interest expense rate in basis points by type were as follows:

Three Months Ended June 30,	2012				2011
	Rate		Change		Rate		Change
Long-term debt	8.44	%	(59	)bp	9.03	%	290	bp
Short-term debt	—		—		—		—
Total	8.44	%	(59	)	9.03	%	290
Six Months Ended June 30,	2012				2011
	Rate		Change		Rate		Change
Long-term debt	8.52	%	(53	)bp	9.05	%	329	bp
Short-term debt	—		—		—		N/M	*
Total	8.52	%	(53	)	9.05	%	329

*Not meaningful

Interest expense rate decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to the refinancing of SLFC’s $3.0 billion secured term loan into a $3.75 billion loan in May 2011 with a lower borrowing cost.

Our future interest expense rates will depend on our funding sources utilized, general interest rate levels and market credit spreads, which are influenced by our asset credit quality, SLFC’s and SLFI’s credit ratings, and the market perception of credit risk for the Company.

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SLFC’s and SLFI’s credit ratings were further downgraded in 2011 and 2012 and are all non-investment grade, which has a significant impact on our cost of, and access to, capital. This, in turn, negatively affects our ability to manage our liquidity and our ability to refinance our indebtedness.

The following table presents the credit ratings of SLFC as of August 10, 2012. On September 7, 2011, Fitch downgraded SLFC’s senior, long-term debt to “CCC” and removed it from “Negative Watch” status. On February 3, 2012, Standard & Poor’s lowered its rating on SLFC’s unsecured senior long-term debt from “B” to “CCC” and maintained its “Negative Outlook” status. On June 1, 2012 Moody’s downgraded its rating on SLFC’s unsecured senior long-term debt from “B3” to “Caa1” and lowered its status to “Negative Outlook.” These credit ratings may be changed, suspended, or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be withdrawn at our request. SLFC does not intend to disclose any future changes to, or suspensions or withdrawals of, these ratings except in its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

	Senior Long-term Debt
	Rating	Status
Moody’s	Caa1	Negative Outlook
Standard & Poor’s	CCC	Negative Outlook
Fitch	CCC	—

Provision for Finance Receivable Losses

							At or for the			At or for the
	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Provision for finance receivable losses	$	69.4		$	89.3		$	136.6		$	146.0
Amount change	$	(19.9	)	$	34.3		$	(9.4	)	$	(93.6	)
Percent change	(22		)%	63		%	(6		)%	(39		)%
Net charge-offs	$	52.9		$	71.8		$	115.6		$	110.0
Charge-off ratio	1.70		%	2.10		%	1.83		%	1.59		%
Charge-off coverage	0.43		x	0.15		x	0.40		x	0.20		x
60 day+ delinquency							$	933.8		$	1,043.7
Delinquency ratio							6.48		%	6.56		%
Allowance for finance receivable losses							$	91.7		$	43.1
Allowance ratio							0.75		%	0.32		%

Provision for finance receivable losses decreased for the three months ended June 30, 2012 when compared to the same period in 2011 primarily due to lower net charge-offs for the three months ended June 30, 2012.

Provision for finance receivable losses decreased for the six months ended June 30, 2012 when compared to the same period in 2011 primarily due to lower increases to the allowance for finance receivable losses for the six months ended June 30, 2012, partially offset by higher net charge-offs for the six months ended June 30, 2012.

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Net charge-offs and changes in net charge-offs by portfolio segment were as follows:

(dollars in millions)
Three Months Ended June 30,	2012					2011
	Amount		Change			Amount		Change
Real estate loans	$	33.2	$	(15.2	)	$	48.4	$	(41.7	)
Non-real estate loans	16.9		(1.6		)	18.5		(26.7		)
Retail sales finance	2.8		(2.1		)	4.9		(14.6		)
Total	$	52.9	$	(18.9	)	$	71.8	$	(83.0	)

(dollars in millions)
Six Months Ended June 30,	2012					2011
	Amount		Change			Amount		Change
Real estate loans	$	71.6	$	(3.9	)	$	75.5	$	(120.7	)
Non-real estate loans	37.7		8.7			29.0		(71.3		)
Retail sales finance	6.3		0.8			5.5		(37.4		)
Total	$	115.6	$	5.6		$	110.0	$	(229.4	)

Charge-off ratios and changes in charge-off ratios in basis points by portfolio segment were as follows:

Three Months Ended June 30,	2012				2011
	Ratio		Change		Ratio		Change
Real estate loans	1.38	%	(43	)bp	1.81	%	(79	)bp
Non-real estate loans	2.66		(27	)	2.93		(323	)
Retail sales finance	3.62		(102	)	4.64		(467	)
Total	1.70	%	(40	)	2.10	%	(142	)

Six Months Ended June 30,	2012				2011
	Ratio		Change		Ratio		Change
Real estate loans	1.47	%	8	bp	1.39	%	(142	)bp
Non-real estate loans	2.91		64		2.27		(439	)
Retail sales finance	3.75		128		2.47		(670	)
Total	1.83	%	24		1.59	%	(220	)

Total charge-off ratio decreased for the three months ended June 30, 2012 when compared to the same period in 2011 primarily due to our collection and underwriting efforts, partially offset by the liquidating real estate loan portfolio and the lapse of time since we applied push-down accounting to SLFC. Total charge-off ratio increased for the six months ended June 30, 2012 when compared to the same period in 2011 primarily due to the liquidating real estate loan portfolio and the lapse of time since we applied push-down accounting to SLFC, partially offset by our collection and underwriting efforts. As a result of the FCFI Transaction, we revalued our finance receivable portfolio based on its fair value on November 30, 2010, which had a greater impact on reducing the charge-off ratio for the three and six months ended June 30, 2011.

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Charge-off coverage, which compares the allowance for finance receivable losses to annualized net charge-offs, increased for the three months ended June 30, 2012 when compared to the same period in 2011 primarily due to higher allowance for finance receivable losses and lower net charge-offs. Charge-off coverage increased for the six months ended June 30, 2012 when compared to the same period in 2011 primarily due to higher allowance for finance receivable losses, partially offset by higher net charge-offs.

Delinquency and changes in delinquency by portfolio segment were as follows:

(dollars in millions)
June 30,	2012					2011
	Amount		Change			Amount		Change
Real estate loans	$	850.2	$	(87.4	)	$	937.6	$	(60.7	)
Non-real estate loans	75.0		(13.9		)	88.9		(39.5		)
Retail sales finance	8.6		(8.6		)	17.2		(29.3		)
Total	$	933.8	$	(109.9	)	$	1,043.7	$	(129.5	)

Delinquency ratios and changes in delinquency ratios in basis points by portfolio segment were as follows:

June 30,	2012				2011
	Ratio		Change		Ratio		Change
Real estate loans	7.61	%	13	bp	7.48	%	43	bp
Non-real estate loans	2.58		(49	)	3.07		(103	)
Retail sales finance	2.60		(101	)	3.61		(218	)
Total	6.48	%	(8	)	6.56	%	8

The total delinquency ratio at June 30, 2012 decreased when compared to June 30, 2011 primarily due to decreases in non-real estate loan and retail sales finance delinquency ratios reflecting our tighter underwriting guidelines, partially offset by an increase in real estate loan delinquency ratio reflecting real estate loan liquidations.

Our Credit Strategy and Policy Committee evaluates our finance receivable portfolio to determine the appropriate level of the allowance for finance receivable losses. We believe the amount of the allowance for finance receivable losses is the most significant estimate we make. In our opinion, the allowance is adequate to absorb losses inherent in our existing portfolio. The increase in the allowance for finance receivable losses at June 30, 2012 when compared to June 30, 2011 was primarily due to the increase in TDR net finance receivables and the increase in allowance for financial receivable losses for non-real estate loans. The allowance for finance receivable losses at June 30, 2012 included $47.9 million related to TDRs, compared to $12.4 million at June 30, 2011. See Note 5 of the Notes to Condensed Consolidated Financial Statements for further information on our TDRs.

The increase in the allowance ratio at June 30, 2012 when compared to June 30, 2011 was primarily due to a decline in finance receivables and increases to the allowance for finance receivable losses through the provision for finance receivable losses.

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Insurance Revenues

Insurance revenues were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Earned premiums	$	31.7		$	29.8		$	61.1		$	58.2
Commissions	0.1			—			0.2			0.1
Total	$	31.8		$	29.8		$	61.3		$	58.3
Amount change	$	2.0		$	(1.6	)	$	3.0		$	(4.6	)
Percent change	7		%	(5		)%	5		%	(7		)%

Earned premiums increased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to an increase in credit earned premiums and non-credit net written premiums. The increase in credit earned premiums was primarily due to an increase in involuntary unemployment, accident and health, and life insurance written premiums.

Investment Revenue

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Investment revenue	$	6.6		$	10.0		$	15.6		$	17.8
Amount change	$	(3.4	)	$	(0.6	)	$	(2.2	)	$	(0.5	)
Percent change	(34		)%	(6		)%	(12		)%	(3		)%

Investment revenue was affected by the following:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Average invested assets	$	909.2		$	984.1		$	936.1		$	988.3
Average invested asset yield	3.21		%	4.08		%	3.60		%	4.00		%
Net realized losses on investment securities	$	(0.5	)	$	(0.3	)	$	(0.4	)	$	(2.5	)

Gain on Early Extinguishment of Secured Term Loan

As a result of the refinancing of SLFC’s secured term loan on May 10, 2011, we recorded a $10.7 million gain on its early extinguishment for the three and six months ended June 30, 2011. See Note 12 of the Notes to Condensed Consolidated Financial Statements for further information.

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Other Revenues

Other revenues were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Derivative adjustments*	$	(37.7	)	$	27.9		$	(21.2	)	$	49.9
Foreign exchange gains (losses) on foreign currency denominated debt	36.1			(16.9		)	16.2			(55.9		)
Net writedowns on real estate owned	(6.5		)	(13.7		)	(19.9		)	(22.6		)
Interest revenue — notes receivable from SLFI	4.3			4.3			8.7			8.6
Net loss on sales of real estate owned	(3.2		)	(4.3		)	(8.6		)	(8.9		)
Net loss on repurchases of debt	(1.6		)	—			(1.1		)	—
Other	3.3			4.0			3.8			7.3
Total	$	(5.3	)	$	1.3		$	(22.1	)	$	(21.6	)
Amount change	$	(6.6	)	$	(1.8	)	$	(0.5	)	$	(104.7	)
Percent change	(495		)%	(57		)%	(3		)%	(126		)%

*See table below for the components of the derivative adjustments.

Derivative adjustments included in other revenues consisted of the following:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Mark to market (losses) gains	$	(40.5	)	$	20.8		$	(27.3	)	$	40.3
Net interest income	3.9			6.9			9.6			13.5
Credit valuation adjustment losses*	(1.3		)	(0.1		)	(3.8		)	(2.2		)
Ineffectiveness (losses) gains	(0.5		)	0.3			(0.4		)	(1.7		)
Other	0.7			—			0.7			—
Total	$	(37.7	)	$	27.9		$	(21.2	)	$	49.9

*The credit valuation adjustment losses on our non-designated cross currency derivative resulted from the measurement of credit risk using credit default swap valuation modeling. If we do not exit these derivatives prior to maturity, the credit valuation adjustment will result in no impact to earnings over the life of the agreements. We currently do not anticipate exiting these derivatives for the foreseeable future.

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Operating Expenses

Operating expenses were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Salaries and benefits	$	73.6		$	92.9		$	161.1		$	186.2
Other operating expenses	77.8			105.9			144.3			180.4
Total	$	151.4		$	198.8		$	305.4		$	366.6
Amount change	$	(47.4	)	$	15.1		$	(61.2	)	$	2.5
Percent change	(24		)%	8		%	(17		)%	1		%
Operating expenses as a percentage of average net receivables	4.88		%	5.85		%	4.85		%	5.32		%

Salaries and benefits decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to having fewer employees in 2012.

Other operating expenses decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to lower professional services expenses and amortization of other intangible assets resulting from the write off of Ocean trade names and customer relationships intangible assets in fourth quarter 2011. The decrease in other operating expenses for the three and six months ended June 30, 2012 also reflected our fewer branch offices.

We expect to realize cost savings resulting from lower salaries and benefit expenses and other operating expenses during 2012 and beyond resulting from the branch office closings and workforce reductions during the first quarter of 2012.

Operating expenses as a percentage of average net receivables decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to lower operating expenses, partially offset by the decline in average net receivables.

Restructuring Expenses

We recorded restructuring expenses of $1.9 million for the three months ended June 30, 2012 and $23.5 million for the six months ended June 30, 2012. The branch office closings and workforce reductions were the result of our efforts to return to profitability. However, there can be no assurance that these efforts will be effective. See Note 3 of the Notes to Condensed Consolidated Financial Statements for further information on the restructuring expenses.

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Insurance Losses and Loss Adjustment Expenses

Insurance losses and loss adjustment expenses were as follows:

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Claims incurred	$	14.3		$	15.1		$	29.0		$	30.2
Change in benefit reserves	0.3			(15.0		)	(1.8		)	(17.5		)
Total	$	14.6		$	0.1		$	27.2		$	12.7
Amount change	$	14.5		$	(11.1	)	$	14.5		$	(14.1	)
Percent change	N/M		*	(99		)%	113		%	(53		)%

*    Not meaningful

In second quarter 2011, we recorded an out-of-period adjustment related to prior periods, which decreased change in benefit reserves by $14.2 million for the three and six months ended June 30, 2011. This adjustment related to the correction of a benefit reserve error related to a closed block of annuities.

Benefit from Income Taxes

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions)	2012			2011			2012			2011
Benefit from income taxes	$	(23.3	)	$	(40.1	)	$	(47.3	)	$	(72.2	)
Amount change	$	16.8		$	13.9		$	24.9		$	32.9
Percent change	42		%	26		%	34		%	31		%
Pretax loss	$	(66.5	)	$	(99.4	)	$	(138.5	)	$	(186.7	)
Effective income tax rate	34.99		%	40.33		%	34.17		%	38.69		%

Benefit from income taxes decreased for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to the decrease in the current year pretax loss and the increase in the valuation allowance on our state deferred tax assets in 2012.

At June 30, 2012, we had a valuation allowance on our state deferred tax assets of $17.7 million, net of a deferred federal tax benefit, and a valuation allowance of $5.6 million for our foreign United Kingdom operations. At June 30, 2012, we had a net deferred tax liability of $319.3 million.

The lower effective income tax rate for the three and six months ended June 30, 2012 when compared to the same periods in 2011 reflected the impact of recording a valuation allowance on our state deferred tax assets.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes to our market risk since December 31, 2011.

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Item 4.  Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including its Chief Executive Officer and its Chief Financial Officer, evaluates the effectiveness of our disclosure controls and procedures as of the end of each quarter and year using the framework and criteria established in “Internal Control — Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on an evaluation of the disclosure controls and procedures as of June 30, 2012, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective and that the condensed consolidated financial statements fairly present our consolidated financial position and the results of our operations for the periods presented.

(b)Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.  Legal Proceedings.

See Note 20 of the Notes to Condensed Consolidated Financial Statements in Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

See “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 for a discussion of our risk factors. There have been no material changes to our risk factors during the three months ended June 30, 2012.

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

None.

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Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

Item 6.  Exhibits.

Exhibits are listed in the Exhibit Index beginning on page 84 herein.

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Signature

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

		SPRINGLEAF FINANCE CORPORATION
				(Registrant)
Date:	August 10, 2012	By	/s/ Donald R. Breivogel, Jr.
			Donald R. Breivogel, Jr.
			Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

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Exhibit Index

Exhibit
3.1	Amended and Restated Articles of Incorporation of Springleaf Finance Corporation (formerly American General Finance Corporation), as amended to date. Incorporated by reference to Exhibit (3a.) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
3.2	Amended and Restated By-laws of Springleaf Finance Corporation, as amended to date. Incorporated by reference to Exhibit (3b.) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
12	Computation of Ratio of Earnings to Fixed Charges
31.1	Rule 13a-14(a)/15d-14(a) Certifications of the President and Chief Executive Officer of Springleaf Finance Corporation
31.2	Rule 13a-14(a)/15d-14(a) Certifications of the Senior Vice President and Chief Financial Officer of Springleaf Finance Corporation
32	Section 1350 Certifications
101*	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Shareholder’s Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

*As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Section 11 and 12 of the Securities and Exchange Act of 1933 and Section 18 of the Securities and Exchange Act of 1934.

84