UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2011

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

For the transition period from to .

Commission file number 2-82985

SPRINGLEAF FINANCE, INC.

(Exact name of registrant as specified in its charter)

Indiana		35-1313922
(State of incorporation)		(I.R.S. Employer Identification No.)

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

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes x No ¨

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

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o. Not applicable.

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 o		Accelerated filer o

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

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

All of the registrant’s common stock is held by AGF Holding Inc. The registrant is indirectly owned by certain investment funds managed by affiliates of Fortress Investment Group LLC (80% economic interest) and American International Group, Inc. (20% economic interest).

At March 19, 2012, there were 2,000,000 shares of the registrant’s common stock, $.50 par value, outstanding.

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TABLE OF CONTENTS

Item			Page

Part I	1.	Business	3

	1A.	Risk Factors	20

	1B.	Unresolved Staff Comments	38

	2.	Properties	38

	3.	Legal Proceedings	38

	4.	Mine Safety Disclosures	38

Part II	5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	39

	6.	Selected Financial Data	40

	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

	7A.	Quantitative and Qualitative Disclosures About Market Risk	88

	8.	Financial Statements and Supplementary Data	89

	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	*

	9A.	Controls and Procedures	195

	9B.	Other Information	196

Part III	10.	Directors, Executive Officers and Corporate Governance	197

	11.	Executive Compensation	203

	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	219

	13.	Certain Relationships and Related Transactions, and Director Independence	221

	14.	Principal Accountant Fees and Services	224

Part IV	15.	Exhibits and Financial Statement Schedules	225

* Item 9 is not included in this report, as no information was required by Item 304 of Regulation S-K.

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AVAILABLE INFORMATION

Springleaf Finance, Inc. (SLFI) 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 SLFI) 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.

PART I

Item 1. Business.

GENERAL

Springleaf Finance, Inc. (SLFI or, collectively with its subsidiaries, whether directly or indirectly owned, the Company, we, us, or our) was incorporated in Indiana in 1974 to become the parent holding company of Springleaf Finance Corporation (SLFC). SLFC was incorporated in Indiana in 1927 as successor to a business started in 1920.

Until November 30, 2010, SLFI was a direct wholly-owned subsidiary of AIG Capital Corporation (ACC), which is a direct wholly-owned subsidiary of American International Group, Inc. (AIG), a Delaware corporation. On August 10, 2010, AIG and FCFI Acquisition LLC (FCFI), an affiliate of Fortress Investment Group LLC (Fortress), announced a definitive agreement (Stock Purchase Agreement) whereby FCFI would indirectly acquire an 80% economic interest in SLFI from ACC (the FCFI Transaction). Through an integrated series of transactions pursuant to the terms of the Stock Purchase Agreement and the related transfer agreement, AIG formed and initially capitalized a new holding company, AGF Holding Inc. (AGF Holding), as a subsidiary of ACC. ACC contributed all of the outstanding shares of SLFI to AGF Holding on November 30, 2010 immediately prior to the FCFI Transaction. AIG then caused ACC to sell to FCFI 80% of the outstanding shares of AGF Holding. AIG, through ACC, retained 20% of the outstanding shares of AGF Holding and, indirectly, a 20% economic interest in SLFI.

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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 as the acquired businesses. 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). Accordingly, a new basis of accounting was established and, for accounting purposes, the old entity (the Predecessor Company) was terminated and a new entity (the Successor Company) was created. This distinction is made throughout this Annual Report on Form 10-K through the inclusion of a vertical black line between the Successor Company and the Predecessor Company columns.

The financial information for 2010 includes the financial information of the Successor Company for the one month ended December 31, 2010 and of the Predecessor Company for the eleven months ended November 30, 2010. These separate periods are presented to reflect the new accounting basis established for our Company as of November 30, 2010.

As a result of the application of push-down accounting, the bases of the assets and liabilities of the Successor Company are not comparable to those of the Predecessor Company, nor would the income statement items for the one month ended December 31, 2010 and for the year ended December 31, 2011 have been the same as those reported if push-down accounting had not been applied. Additionally, key ratios of the Successor Company are not comparable to those of the Predecessor Company, nor are they comparable to other institutions due to the new accounting basis established. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 for further information on the FCFI Transaction.

SLFI is a financial services holding company whose principal subsidiary is SLFC, which is a Securities and Exchange Commission (SEC) registrant. SLFC is a financial services holding company with subsidiaries engaged in the consumer finance and credit insurance businesses. We conduct the credit insurance business to supplement our consumer finance business through Merit Life Insurance Co. (Merit) and Yosemite Insurance Company (Yosemite), which are both wholly-owned subsidiaries of SLFC.

At December 31, 2011, the Company had 1,118 branch offices in 40 states, Puerto Rico, and the U.S. Virgin Islands; foreign operations in the United Kingdom; and approximately 5,800 employees. Our executive offices are located in Evansville, Indiana.

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Continued challenging economic conditions and other factors, including high unemployment and the troubled residential real estate market, have negatively affected the markets in which we conduct our business.

· As of January 1, 2012, the Company ceased new originations of real estate loans so that it could focus on its other consumer lending products and its insurance operations.

· 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. The states affected are: Arizona, Delaware, Iowa, Kansas, Maryland, Michigan, Montana, Nebraska, Nevada, New Jersey, New York, South Dakota, Utah, and Wyoming. Customer accounts in the affected areas will be serviced by our other branches in those states or by other service centers. As a result of the initial branch closings, we expect to incur a pretax charge in the first quarter of 2012 of approximately $5.3 million (revised subsequent to our Form 8-K filing dated February 1, 2012). Also as a result of the branch office closings, our workforce was immediately reduced by approximately 200 employees (revised subsequent to our Form 8-K filing dated February 1, 2012).

· 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 closings, and the cessation of consumer lending and retail sales financing in 14 states and southern Florida. As a result of the headquarters workforce reduction, we expect to incur a pretax charge in the first quarter of 2012 of approximately $2.7 million.

· On March 2, 2012, we informed affected employees of our plan to immediately consolidate certain branch operations and close approximately 150 branch offices in 25 states. The states affected are: Alabama, California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia and Wisconsin. Customer accounts in the affected areas will be serviced by our other branches in those states or by other service centers. As a result of these branch closings, we expect to incur a pretax charge in the first quarter of 2012 of approximately $12.5 million. Also as a result of these branch office closings, our workforce was immediately reduced by approximately 360 employees.

· On March 2, 2012, the Company sold approximately 13,100 non-real estate and retail sales finance receivable accounts in Delaware, New Jersey, and Maryland with a carrying value of $45.0 million pursuant to a letter of intent to sell dated January 27, 2012. The receivables were sold at a loss of $0.4 million.

The branch closings and staff reductions described above are the result of our efforts to return to profitability. However, there can be no assurance that these efforts will be effective. In addition, we have retained Alvarez & Marsal North America, LLC and Houlihan Lokey Capital, Inc. to assist us with identifying ways to streamline our operations and reduce costs and to provide financial advisory services.

SEGMENTS

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.

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We report our segment totals using the historical basis of accounting because management analyzes each business segment on a historical basis. However, in order to reconcile to our 2010 total consolidated financial statement amounts, we are presenting our 2010 segment totals at or for the one month ended December 31, 2010 and for the eleven months ended November 30, 2010. See Note 26 of the Notes to Consolidated Financial Statements in Item 8 for reconciliations of segment totals to consolidated financial statement amounts.

Branch Business Segment

The branch business segment is the core of the Company’s operations. Through its 1,118 branch offices and its centralized support operations, the 4,660 employees of the branch business segment serviced 1.0 million real estate loans, non-real estate loans, and retail sales finance accounts totaling $9.7 billion at December 31, 2011.

Our branch customers encompass a wide range of borrowers. In the consumer finance industry, they are described as prime or near-prime at one extreme and non-prime or sub-prime at the other. These customers’ incomes are generally near the national median but vary, as do their debt-to-income ratios, employment and residency stability, and credit repayment histories. In general, branch customers have lower credit quality than our centralized real estate customers and require significant levels of servicing and, as a result, we charge them interest rates higher than our centralized real estate customers to compensate us for such services and related credit risks.

Structure and Responsibilities. Branch personnel originate non-real estate loans, purchase retail sales finance contracts from retail merchants, offer credit and non-credit insurance and ancillary products to the loan customers, and service these receivables. Branch managers establish retail merchant relationships, identify portfolio acquisition opportunities, manage finance receivable credit quality, and are responsible for branch profitability. Branch managers also hire and train the branch staff and supervise their work. The Company coordinates branch staff training through centrally developed training programs to maintain quality customer service.

Prior to January 1, 2012, our branch personnel also originated real estate loans. Although the Company has ceased its real estate lending as of January 1, 2012, we continue to service these real estate loans and may still be making advances for a period of time for certain existing lines of credit.

We continuously review the performance of our individual branches and the markets they serve, as well as economic conditions. During 2011, we closed 52 branch offices. Customers of closed branch offices are primarily serviced by our other nearby offices.

Products and Services. Non-real estate loans are secured by consumer goods, automobiles, or other personal property or are unsecured, and are generally fixed-rate, fixed-term loans with maximum original terms of 60 months. We also offer unsecured lines of credit to customers that meet the criteria in our credit risk policies.

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We purchase retail sales contracts and provide revolving retail sales financing services arising from the retail sale of consumer goods and services by retail merchants. 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. We refer to retail sales contracts and revolving retail collectively as “retail sales finance.”

Real estate loans are secured by first or second mortgages on residential real estate (including manufactured housing), generally have maximum original terms of 360 months, and are usually considered non-conforming. At December 31, 2011, $765.3 million, or 12% of our branch real estate loans, were second mortgages. Real estate loans may be closed-end accounts or open-end home equity lines of credit and are primarily fixed-rate products. At December 31, 2011, $431.5 million, or 7% of our branch real estate loans, were adjustable-rate mortgages. Our real estate loans do not contain any borrower payment options that allow the loan principal balance to increase through negative loan amortization. The home equity lines of credit generally have a predetermined period during which the borrower may take advances. After this draw period, all advances outstanding under the line of credit convert to a fixed-term repayment period, usually over an agreed upon period between 15 and 30 years.

We offer credit life, credit accident and health, credit related property and casualty, credit involuntary unemployment, and non-credit insurance and ancillary products to all eligible branch customers. Insurance companies (including Merit and Yosemite) and/or financial services companies issue these products which we describe under “Insurance Business Segment.”

Customer Development. We solicit finance receivable customers through a variety of channels including mail, E-commerce, and telephone calls.

We solicit new prospects, as well as current and former customers, through a variety of mail offers. Our data warehouse is a central, proprietary source of information regarding current and former customers. We use this information to tailor offers to specific customer segments. In addition to internal data, we purchase prospect lists from major list vendors based on predetermined selection criteria. Mail solicitations include invitations to apply and guaranteed loan offers.

E-commerce provides another source of new customers. Our website includes a brief, user-friendly credit application that, upon completion, is automatically routed to the branch office nearest the consumer. We have established E-commerce relationships with a variety of search engines to bring prospects to our website. Our website also has a branch office locator feature so potential customers can find the branch office nearest to them and can contact branch personnel directly.

New customer relationships also begin through our alliances with approximately 13,500 retail merchants across the United States. After a customer utilizes the merchant’s retail sales financing option, we may purchase that retail sales finance obligation. We then contact the customer using various marketing methods to invite the customer to discuss his or her overall credit needs with our consumer lending specialists. Any resulting loan may pay off the customer’s retail sales finance obligation, along with his or her debts with other creditors, into one consolidated loan with us. During 2011, our retail merchants increased from 8,500 to 13,500, reflecting the enrollment of new dealer operating agreements primarily resulting from our new promotional revolving retail program that we implemented in early 2011.

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Our consumer lending specialists, who, where required, are licensed to offer insurance and ancillary products, explain our credit and non-credit insurance and ancillary products to the customer. The customer then determines whether to purchase any of these products.

Account Servicing. Establishing and maintaining customer relationships is very important to us. Branch personnel contact our current customers through solicitation or collection phone calls to assess customers’ current financial situations to determine if they desire additional funds. Centralized support operations personnel contact our retail sales finance customers through solicitation or collection calls. Solicitation and collection efforts are opportunities to help our customers solve their temporary financial problems and to maintain our customer relationships.

Selected Financial Information. Amount, number, and average size of total net finance receivables originated and renewed by portfolio segment for the branch business segment (which are reported on a historical basis of accounting) were as follows:

	Successor Company				Predecessor Company
	Year Ended December 31, 2011		One Month Ended December 31, 2010		Eleven Months Ended November 30, 2010		Year Ended December 31, 2009

Branch originated and renewed

Amount (in thousands):
Real estate loans	$	142,346	$	8,316	$	121,347	$	281,430
Non-real estate loans	2,532,676		186,025		1,947,261		2,051,461
Retail sales finance	162,560		7,088		77,913		687,880
Total	$	2,837,582	$	201,429	$	2,146,521	$	3,020,771

Number:
Real estate loans	1,953		68		1,203		3,959
Non-real estate loans	676,635		55,329		533,827		524,264
Retail sales finance	51,442		2,495		23,649		214,338
Total	730,030		57,892		558,679		742,561

Average size (to nearest dollar):
Real estate loans	$	72,886	$	122,294	$	100,870	$	71,086
Non-real estate loans	3,743		3,362		3,648		3,913
Retail sales finance	3,160		2,840		3,295		3,209

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Amount, number, and average size of net finance receivables by portfolio segment for the branch business segment (which are reported on a historical basis of accounting) were as follows:

	Successor Company				Predecessor Company
	December 31, 2011		December 31, 2010		December 31, 2009

Branch net finance receivables

Amount (in thousands):
Real estate loans	$	6,566,436	$	7,291,091	$	7,980,604
Non-real estate loans	2,723,937		2,728,114		3,186,577
Retail sales finance	390,640		538,366		1,130,155
Total	$	9,681,013	$	10,557,571	$	12,297,336

Number:
Real estate loans	123,063		136,022		149,335
Non-real estate loans	780,441		776,696		843,258
Retail sales finance	124,402		188,985		436,435
Total	1,027,906		1,101,703		1,429,028

Average size (to nearest dollar):
Real estate loans	$	53,358	$	53,602	$	53,441
Non-real estate loans	3,490		3,512		3,779
Retail sales finance	3,140		2,849		2,590

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Selected financial data for the branch business segment (which are reported on a historical basis of accounting) were as follows:

	Successor Company				Predecessor Company
	At or for the Year Ended December 31, 2011		At or for the One Month Ended December 31, 2010		At or for the Eleven Months Ended November 30, 2010		At or for the Year Ended December 31, 2009

Branch yield:
Real estate loans	8.87	%	8.94	%	9.00	%	9.41	%
Non-real estate loans	22.90		22.09		21.71		20.44
Retail sales finance	14.14		14.12		14.61		12.11

Total	12.82	%	12.60	%	12.64	%	12.56	%

Branch charge-off ratio:
Real estate loans	3.03	%	4.24	%	3.29	%	3.36	%
Non-real estate loans	3.92		5.75		6.15		8.31
Retail sales finance	5.71		12.62		9.41		5.60

Total	3.39	%	5.07	%	4.46	%	4.91	%

Branch delinquency ratio:
Real estate loans	6.35	%	6.03	%	N/A	*	7.52	%
Non-real estate loans	3.05		3.84		N/A		5.05
Retail sales finance	3.58		5.01		N/A		5.78

Total	5.24	%	5.38	%	N/A		6.68	%

* Not applicable. The Consolidated Balance Sheets in Item 8 are presented at December 31, 2011 and 2010; therefore, balance sheet information at November 30, 2010 is not applicable.

Centralized Real Estate Business Segment

The centralized real estate business segment includes generally non-conforming residential real estate loans that were originated or purchased through distribution channels other than our branches. MorEquity, Inc. (MorEquity), a wholly-owned subsidiary of SLFC, is included in this segment. Real estate loans in our centralized real estate business segment have typically had higher credit quality than the real estate loans originated by our branch business segment and are thereby cost-effectively serviced centrally. Our centralized real estate customers are generally described as either prime or near-prime, but for reasons such as elevated debt-to-income ratios, lack of income stability, the level of income disclosure and verification required for a conforming mortgage, as well as credit repayment history or similar measurements, or convenience, they have applied for a non-conforming mortgage. The distribution channels have included direct lending to customers and portfolio acquisitions from third-party lenders. However, with our current limited funding sources, we are not pursuing originations or acquisitions. Since all of the real estate loans in our centralized real estate business segment were either serviced or subserviced externally, the centralized real estate business segment had no employees at December 31, 2011.

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Structure and Responsibilities. During 2011, our centralized real estate business segment originated $4.0 million of real estate loans (primarily additional advances on revolving accounts), as we focused on new lending in our branches.

Products and Services. Real estate loans are secured by first or second mortgages on residential real estate and are generally considered non-conforming. At December 31, 2011, $28.5 million or less than 1% of our centralized real estate loans, were second mortgages. Real estate loans generally have maximum original terms of 360 months but we also have offered loans with maximum original terms of 480 months and 600 months, some of which require a balloon payment at the end of 360 months. At December 31, 2011, $199.5 million, or 4% of our centralized real estate loans, were adjustable-rate mortgages. Our real estate loans do not contain any borrower payment options that allow the loan principal balance to increase through negative loan amortization.

At December 31, 2011, MorEquity had $537.1 million of interest only real estate loans. Our underwriting criteria for interest only loans included borrower qualification on a fully amortizing payment basis and excluded investment properties. At December 31, 2011, MorEquity also had $678.7 million of real estate loans that amortize over 480 months or 600 months, some of which require a balloon payment at the end of 360 months.

Account Servicing. From a centralized location, MorEquity serviced approximately 15,000 real estate loans totaling $2.8 billion at December 31, 2011, all of which are subserviced by Nationstar Mortgage LLC (Nationstar), a non-subsidiary affiliate of SLFI. See Note 11 of the Notes to Consolidated Financial Statements in Item 8 for further information on the subservicing agreement. At December 31, 2011, approximately 8,300 of MorEquity’s loans totaling $1.5 billion were serviced by a third party in conjunction with the 2009 securitization of these real estate loans. MorEquity’s real estate loans were generated through:

· portfolio acquisitions from third-party lenders;

· our mortgage origination subsidiaries;

· refinancing existing mortgages;

· advances on home equity lines of credit; or

· correspondent relationships.

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Selected Financial Information. Selected financial data for the centralized real estate business segment’s real estate loans (which are reported on a historical basis of accounting) were as follows:

	Successor Company						Predecessor Company
	At or for the Year Ended December 31, 2011			At or for the One Month Ended December 31, 2010			At or for the Eleven Months Ended November 30, 2010			At or for the Year Ended December 31, 2009

Centralized real estate net finance receivables originated and renewed:
Amount (in thousands)	$	3,957		$	302		$	2,937		$	7,455
Number	12			—			3			37
Average size (to nearest dollar)	N/M		(a)	N/M			N/M			$	201,486

Centralized real estate net finance receivables:
Amount (in thousands)	$	5,301,092		$	6,045,742		N/A		(b)	$	6,414,674
Number	28,964			32,337			N/A			33,471
Average size (to nearest dollar)	$	183,023		$	186,961		N/A			$	191,649

Centralized real estate yield	5.74		%	5.84		%	5.81		%	5.78		%

Centralized real estate charge-off ratio	1.82		%	1.98		%	2.14		%	2.16		%

Centralized real estate delinquency ratio	10.10		%	8.67		%	N/A			8.40		%

(a) Not meaningful. The amount originated and renewed includes additional advances made on revolving accounts, while the loan count is included only when the original loan is made (not as each advance is made).

(b) Not applicable. The Consolidated Balance Sheets in Item 8 are presented at December 31, 2011 and 2010; therefore, balance sheet information at November 30, 2010 is not applicable.

Insurance Business Segment

The insurance business segment markets its products to eligible branch customers. We invest cash generated from operations in investment securities, commercial mortgage loans, investment real estate, and policy loans and also use it to pay dividends. The 80 employees of the insurance business segment have numerous underwriting, compliance, and service responsibilities for the insurance companies and also provide services to the branch and centralized real estate business segments.

Structure and Responsibilities. Merit is a life and health insurance company domiciled in Indiana and licensed in 46 states, the District of Columbia, and the U.S. Virgin Islands. Merit writes or reinsures credit life, credit accident and health, and non-credit insurance.

Yosemite is a property and casualty insurance company domiciled in Indiana and licensed in 46 states. Yosemite writes or reinsures credit-related property and casualty and credit involuntary unemployment insurance.

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Products and Services. Our credit life insurance policies insure the life of the borrower in an amount typically equal to the unpaid balance of the finance receivable and provide for payment in full to the lender of the finance receivable in the event of the borrower’s death. Our credit accident and health insurance policies provide, to the lender, payment of the installments on the finance receivable coming due during a period of the borrower’s disability due to illness or injury. Our credit-related property and casualty insurance policies are written to protect the lender’s interest in property pledged as collateral for the finance receivable. Our credit involuntary unemployment insurance policies provide, to the lender, payment of the installments on the finance receivable coming due during a period of the borrower’s involuntary unemployment. The borrower’s purchase of credit life, credit accident and health, credit-related property and casualty, or credit involuntary unemployment insurance is voluntary with the exception of lender-placed property damage coverage for property pledged as collateral. In these instances, our branch or centralized real estate business segment personnel obtain property damage coverage through Yosemite either on a direct or reinsured basis under the terms of the lending agreement if the borrower does not provide evidence of coverage with another insurance carrier. Non-credit insurance policies are primarily traditional life level term policies. The purchase of this coverage is also voluntary.

The ancillary products we offer are home security and auto security membership plans and home warranty service contracts of unaffiliated companies. These products are generally not considered to be insurance policies. Our insurance business segment has no risk of loss on these products. The unaffiliated companies providing these membership plans and service contracts are responsible for any required reimbursement to the customer on these products.

Customers usually either pay premiums for insurance products monthly with their finance receivable payment or finance the premiums and contract fees for ancillary products as part of the finance receivable, but they may pay the premiums and contract fees in cash to the insurer or financial services company. We do not offer single premium credit insurance products to our real estate loan customers.

Reinsurance. Merit and Yosemite enter into reinsurance agreements with other insurers, including subsidiaries of AIG, for reinsurance of various non-credit life, group annuity, credit life, credit accident and health, credit-related property and casualty, and credit involuntary unemployment insurance where our insurance subsidiaries reinsure the risk of loss. The reserves for this business fluctuate over time and in some instances are subject to recapture by the insurer. Yosemite also reinsures risks associated with a closed block of excess and surplus lines dating back to the 1970s. At December 31, 2011, reserves on the books of Merit and Yosemite for reinsurance agreements totaled $78.9 million.

Investments. We invest cash generated by our insurance business segment primarily in bonds. We invest in, but are not limited to, the following:

· bonds;

· commercial mortgage loans;

· short-term investments;

· limited partnerships;

· preferred stock;

· investment real estate;

· policy loans; and

· common stock.

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Prior to January 1, 2011, other AIG subsidiaries managed substantially all of our insurance business segment’s investments on our behalf, under the supervision and control of our investment committee. Effective January 1, 2011, these investments are managed by a third party on our behalf, under the supervision and control of our investment committee.

Selected Financial Information. Selected financial data for the insurance business segment (which are reported on a historical basis of accounting) were as follows:

	Successor Company				Predecessor Company
(dollars in thousands)	At or for the Year Ended December 31, 2011		At or for the One Month Ended December 31, 2010		At or for the Eleven Months Ended November 30, 2010			At or for the Year Ended December 31, 2009

Life insurance in force:
Credit	$	1,950,809	$	1,887,470	N/A		*	$	2,166,654
Non-credit	1,333,998		1,432,931		N/A			1,591,660
Total	$	3,284,807	$	3,320,401	N/A			$	3,758,314

Investments:
Investment securities	$	746,287	$	745,846	N/A			$	733,263
Commercial mortgage loans	115,879		120,093		N/A			139,284
Policy loans	1,500		1,497		N/A			1,612
Investment real estate	50		39		N/A			48
Total	$	863,716	$	867,475	N/A			$	874,207

Premiums earned	$	120,017	$	11,259	$	113,024		$	136,281

Premiums written	$	128,939	$	10,832	$	101,758		$	108,556

Insurance losses and loss adjustment expenses	$	44,361	$	4,692	$	43,576		$	61,410

* Not applicable. The Consolidated Balance Sheets in Item 8 are presented at December 31, 2011 and 2010; therefore, balance sheet information at November 30, 2010 is not applicable.

CREDIT RISK MANAGEMENT

A risk in all consumer lending and retail sales financing transactions is the customer’s unwillingness or inability to repay obligations. Unwillingness to repay is usually evidenced in a consumer’s historical credit repayment record. Declines in residential real estate values also may reduce a customer’s willingness to repay his or her mortgage. An inability to repay usually results from lower income due to unemployment or underemployment, major medical expenses, or divorce. The risk of inability to repay intensifies when economic conditions deteriorate. Occasionally, these events can be so economically severe that the customer files for bankruptcy. Because we evaluate credit applications with a view toward ability to repay, our customer’s inability to repay occurs after our initial credit evaluation and funding of an outstanding finance receivable. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary” in Item 7 for significant economic conditions relevant to the Company.

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In our branch business segment, we use credit risk scoring models at the time of credit application to assess our risk of the applicant’s unwillingness or inability to repay. We develop these models using numerous factors, including past customer credit repayment experience, and periodically revalidate these models based on recent portfolio performance. We use different credit risk scoring models for different types of non-real estate loan and retail sales finance products as part of the credit underwriting process. In certain retail sales finance cases, the models are the decision factor for extending credit. For our other products, a measure of manual underwriting is also required. Price and size of the loan or retail sales finance transaction are in relation to the estimated credit risk we assume. Prior to January 1, 2012, we also used credit risk scoring models as part of the credit underwriting process for our real estate loans.

In our centralized real estate business segment, MorEquity originated real estate loans according to established underwriting criteria. We performed due diligence investigations on all portfolio acquisitions, including re-underwriting of the individual real estate loans by our own personnel.

See Notes 6 and 8 of the Notes to Consolidated Financial Statements in Item 8 for additional disclosures relating to our credit quality. See Note 16 of the Notes to Consolidated Financial Statements in Item 8 for a discussion of derivative counterparty credit risk management.

OPERATIONAL CONTROLS

We control and monitor our branch and centralized real estate business segments through a variety of methods including the following:

· Our operational policies and procedures standardize various aspects of lending, collections, and business development processes.

· Our branch finance receivable systems control amounts, rates, terms, and fees of our customers’ accounts; create loan documents specific to the state in which the branch operates; and control cash receipts and disbursements.

· Our headquarters accounting personnel reconcile bank accounts, investigate discrepancies, and resolve differences.

· Our credit risk management system reports are used by various personnel to compare branch lending and collection activities with predetermined parameters.

· Our executive information system is available to headquarters and field operations management to review the status of activity through the close of business of the prior day.

· Our branch field operations management structure is designed to control a large, decentralized organization with succeeding levels of supervision staffed with more experienced personnel.

· Our field operations compensation plan aligns the operating activities and goals with corporate strategies by basing the incentive portion of field personnel compensation on profitability and credit quality.

· Our internal audit department audits the Company for adherence to operational policy and procedure and compliance with federal and state law and regulation.

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CENTRALIZED SUPPORT

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

· mail and telephone solicitations;

· payment processing;

· foreclosure and real estate owned processing;

· collateral protection insurance tracking;

· retail sales finance approvals;

· revolving retail processing and collections;

· merchant services; and

· charge-off recovery operations.

SOURCES OF FUNDS

Our primary sources of funds to support operations and repay indebtedness in 2011 were net collections of finance receivables, the refinancing of SLFC’s secured term loan, an on-balance sheet securitization, and cash generated from operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity — Capital Resources” in Item 7 for further information on SLFC’s secured term loan refinancing and Note 7 of the Notes to Consolidated Financial Statements in Item 8 for a detailed description of our 2011 on-balance sheet securitization transaction.

REGULATION

Branch and Centralized Real Estate

Federal Laws. Various federal laws and regulations govern our branch and centralized real estate business segments including:

· the Equal Credit Opportunity Act (prohibits discrimination against creditworthy applicants) and Federal Reserve Board Regulation B, which implements that Act;

· the Fair Credit Reporting Act (governs the accuracy and use of credit bureau reports);

· the Truth in Lending Act (governs disclosure of applicable charges and other finance receivable terms) and Federal Reserve Board Regulation Z, which implements that Act;

· the Fair Debt Collection Practices Act;

· the Fair Housing Act (prohibits discrimination in housing lending);

· the Real Estate Settlement Procedures Act and the Department of Housing and Urban Development’s Regulation X (both of which regulate the making and servicing of certain loans secured by real estate);

· the Home Mortgage Disclosure Act (HMDA) and Federal Reserve Board Regulation C, which implements that Act;

· the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act);

· the Gramm-Leach-Bliley Act (governs the handling of personal financial information) and Federal Reserve Board Regulation P, which implements that Act; and

· the Federal Trade Commission Act.

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In many states, federal law preempts state law restrictions on interest rates and points and fees for first lien residential mortgage loans (but not on other types of loans). The federal Alternative Mortgage Transactions Parity Act preempts certain state law restrictions on variable rate loans in many states. Historically, we made residential mortgage loans under this and other federal laws. Federal laws also govern our practices and disclosures when dealing with consumer or customer information.

In third quarter 2009, MorEquity 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 Home Affordable Modification Program (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. On February 1, 2011, MorEquity entered into Subservicing Agreements for the servicing of its centralized real estate loans with Nationstar. 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.

On July 21, 2010, the President of the United States signed into law the Dodd-Frank Act. This law, and the regulations to be promulgated under it, are likely to affect our operations in terms of increased oversight of financial services products by the newly-created Bureau of Consumer Financial Protection (the Bureau) and the imposition of restrictions on the terms of certain loans. The Bureau will have significant authority to implement and enforce Federal consumer financial laws, including the new protections established in the Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive, and abusive acts and practices. In addition, the Bureau will have broad supervisory, examination and enforcement authority over certain consumer products, such as mortgage lending. Under the Dodd-Frank Act, securitizations of loan portfolios are subject to certain restrictions and additional requirements, including requirements that the originator retain a portion of the credit risk of the securities sold and the reporting of buyback requests from investors. The law and accompanying regulations will be phased in over a one to three year period.

It is not possible to estimate the precise effect of the Dodd-Frank Act on our operations at this time because the law requires extensive rule-making, which has not yet been completed.

State Laws. Various state laws and regulations also govern our branch and centralized lending operations. Many states have laws that are similar to the federal laws referred to above. While federal law preempts state law in the event of certain conflicts, compliance with state laws and regulations is still required in the absence of conflicts.

Many states also have laws and regulations that regulate consumer lending. The degree and nature of such regulation vary from state to state. These additional state laws and regulations, under which we conduct a substantial amount of our business, generally:

· provide for state licensing and periodic examination of lenders and loan originators, including state laws adopted or amended to comply with licensing requirements of the federal SAFE Act (which requires licensing of individuals who perform real estate loan originations and, in some states, real estate loan modifications);

· require the filing of reports with regulators;

· impose maximum term, amount, interest rate, and other charge limitations;

· regulate whether and under what circumstances we may offer insurance and other ancillary products in connection with a lending transaction; and

· provide for additional consumer protections.

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There is a clear trend of increased regulation, as well as more detailed reporting, more detailed examinations, and coordination of examinations among the states.

Prospective Lending Legislation. The U.S. government and a number of states, counties, and cities have enacted or may be considering, laws, regulations, or rules that restrict the credit terms or other aspects of residential mortgage loans that are typically described as “high cost mortgage loans” or “higher-priced mortgage loans.” These laws or regulations, if adopted, may limit or restrict the terms of covered loan transactions and may also impose specific statutory liabilities in cases of non-compliance. Additionally, some of these laws may restrict other business activities of the Company and its affiliates.

Insurance

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

· licensing;

· conduct of business, including marketing and sales practices;

· periodic financial and market conduct examination of the affairs of insurers;

· form and content of required financial reports;

· standards of solvency;

· limitations on the payment of dividends and other affiliate transactions;

· types of products offered;

· approval of policy forms and premium rates;

· permissible investments;

· reserve requirements for unearned premiums, losses, and other purposes; and

· claims processing.

Every state in which we operate regulates credit insurance premium rates and premium refund calculations.

International Regulation

In the United Kingdom, the Financial Services Authority (FSA) regulates first mortgage residential real estate loans and insurance products. The FSA is an independent non-governmental body given statutory powers by the Financial Services and Markets Act 2000. The Consumer Credit Act 2006, which amends the Consumer Credit Act 1974, regulates second mortgage residential real estate loans and consumer loans.

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COMPETITION

Branch and Centralized Real Estate

The consumer finance industry is competitive due to the large number of companies offering financial products and services and the sophistication of those products. We compete with other consumer finance companies, as well as other types of financial institutions within our geographic footprint and over the Internet, including credit card companies, local banks, and regional and smaller consumer lenders that offer similar products and services. These companies compete with us in terms of price and speed of service, as well as flexibility of credit underwriting requirements.

Insurance

Our insurance business segment supplements our branch business segment. We believe that our insurance companies’ abilities to market insurance products through our distribution systems provide a competitive advantage.

International Competition

Ocean Finance and Mortgages Limited (Ocean), our United Kingdom subsidiary, competes with other credit intermediaries, many of which are national in scope rather than regional. These credit intermediaries compete on service and quality of products offered. Ocean also competes with various real estate loan lenders which advertise for direct lending to customers.

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Item 1A. Risk Factors.

We face a variety of risks that are inherent in our business. Accordingly, you should carefully consider the following discussion of risks in addition to the other information regarding our business provided in this Annual Report on Form 10-K and in other documents we file with the SEC. These risks are subject to contingencies which may or may not occur, and we are not able to express a view on the likelihood of any such contingency occurring. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance.

RISKS RELATED TO OUR INDEBTEDNESS

If current market conditions and our financial performance do not improve or further deteriorate, we may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control.

Continued challenging economic conditions have negatively affected our financial condition and results of operations. Current economic conditions have negatively affected the markets in which we conduct our business and the capital markets on which we depend to finance our operation. 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 our debt. At December 31, 2011, we had $689.6 million of cash and cash equivalents ($7.0 million of cash and cash equivalents related to our foreign subsidiary, Ocean), and in 2011 we generated a net operating loss of $224.2 million and cash flows from operating and investing activities of $1.7 billion. In 2012, we are required to pay $2.8 billion to service the principal and interest due under the terms of our existing debt (excluding securitizations). Additionally, we have $778.3 million of debt maturities and interest payments (excluding securitizations) due in the first quarter of 2013. In order to meet our debt obligations in 2012 and beyond, we are exploring a number of options, including further operational changes to increase or preserve our available cash; additional debt financings, particularly new securitizations involving real estate and/or non-real estate loans; debt refinancing transactions, or a combination of the foregoing; and we may in the future consider portfolio sales.

We cannot give any assurance that we would be able to take any of these actions, that these actions would be successful even if undertaken, that these actions would permit us to meet our scheduled debt obligations, or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of sufficient cash resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt and other obligations. SLFC’s secured term loan contains certain covenants that may restrict our ability to dispose of assets and use the proceeds from the disposition for certain purposes.

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Further, our ability to refinance our debt on attractive terms or at all, as well as the timing of any refinancings, depends upon a number of factors over which we have little or no control, including general economic conditions, such as unemployment levels, housing markets and interest rates, disruptions in the financial markets, the market’s view of the quality, value, and liquidity of our assets, our current and potential future earnings and cash flows, and our credit ratings. In addition, any financing, particularly any securitization, that is reviewed by a rating agency is subject to the rating agency’s view of the quality and value of any assets supporting such financing, the Company’s processes to generate cash flows from, and monitor the status of, such assets, and changes in the methodology used by the rating agencies to review and rate the applicable financing. This process may require significant time and effort to complete and may not result in a favorable rating or any rating at all, which could reduce the effectiveness of such financing or render it unexecutable.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

· our debt holders could declare all outstanding principal and interest to be due and payable, which could also result in an event of default and declaration of acceleration under certain of our other debt agreements; and

· the lenders under SLFC’s secured term loan could realize related proceeds on the assets securing our borrowings.

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

We currently have a significant amount of indebtedness. At December 31, 2011, we had $14.3 billion in principal amount of indebtedness outstanding (including securitizations and secured indebtedness). Interest expense on our indebtedness was $1.3 billion in 2011. There can be no assurance that we will be able to repay or refinance our debt in the future.

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

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

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

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

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

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

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

In addition, meeting our anticipated liquidity requirements is contingent upon our continued compliance with our existing debt agreements. An event of default or declaration of acceleration under one of our existing debt agreements could also result in an event of default and declaration of acceleration under certain of our other existing debt agreements. Such an acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern.

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Furthermore, our existing debt agreements do not restrict us from incurring significant additional indebtedness. If our debt obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional indebtedness, the consequences described above could be magnified.

Our secured term loan and certain of our outstanding notes contain covenants that restrict our operations and may inhibit our ability to grow our business and increase revenues.

Springleaf Financial Funding Company (SFFC), an indirect subsidiary of the Company, is the borrower under the secured term loan. SLFC and most of its consumer finance operating subsidiaries guarantee the secured term loan. The secured term loan contains restrictions, covenants, and representations and warranties that apply to SLFC and certain of its subsidiaries. If SLFC, SFFC or any subsidiary guarantor fails to comply with any of these covenants or breaches these representations or warranties, such noncompliance would constitute a default under the secured term loan (subject to applicable cure periods), and the lenders could elect to declare all amounts outstanding under the agreements related thereto to be immediately due and payable and enforce their respective interests against collateral pledged under such agreements.

The covenants and restrictions in the secured term loan generally restrict certain of SLFC’s subsidiaries’ ability to, among other things:

· incur or guarantee additional debt;

· make certain investments or acquisitions;

· transfer or sell assets;

· make distributions on common stock;

· engage in mergers or consolidations;

· create or incur liens;

· enter into transactions with affiliates; and

· make certain amendments to organizational documents or documents relating to intercompany secured loans.

In certain cases (e.g., the restriction on incurring liens), the restrictions also apply to SLFC. The secured term loan also generally restricts the ability of SLFC and SFFC to engage in mergers or consolidations. Certain of SLFC’s indentures and notes also contain a covenant that limits SLFC’s and its subsidiaries’ ability to create or incur liens.

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

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

Our ability to access capital and credit was significantly affected by the substantial disruption in the U.S. residential mortgage and credit markets and credit rating downgrades on our debt. Historically, we funded our operations and repaid our debt and other obligations using funds collected from our finance receivable portfolio and new debt issuances. Since September 2008, our traditional borrowing sources, including our ability to cost effectively issue large amounts of unsecured debt in the capital markets, have not been available. We currently expect our near-term sources of funding to be more limited than those that had previously been available to us. Management has worked to reduce liquidity risks by pursuing funding sources and limiting our lending activities and operating expenses. For example, we ceased originating real estate loans in January 2012. However, additional work is necessary to be able to fund operation requirements and satisfy financial obligations in the future. Failure to gain access to adequate capital and credit sources could have a material adverse effect on our financial condition, results of operations, and cash flows.

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

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

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

· SLFI will pay its note payable to SLFC ($538.0 million at December 31, 2011), if needed by SLFC to meet its liquidity needs;

· our access to 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 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;

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

· 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.

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Additionally, there are numerous risks to our financial results, liquidity, and capital raising and debt refinancing 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 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 finance receivable 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 real estate 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.

We intend to support our liquidity position by managing originations (including our decision to cease real estate loan originations) and purchases of finance receivables and maintaining disciplined underwriting standards and pricing on such finance receivables. We intend to support operations and repay indebtedness with one or more of the following activities, among others: finance receivable collections, cash on hand, additional debt financings, particularly new securitizations, debt refinancing transactions, portfolio sales, or a combination of the foregoing. There can be no assurance that we will be successful in undertaking any of these activities to support our operations and repay our obligations.

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

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Our current ratings could adversely affect our ability to raise capital in the debt markets at attractive rates, which could negatively impact our results of operations and financial condition.

Each of Standard & Poor’s Rating Services, Moody’s Investors Service, Inc. and Fitch, Inc. rates our debt. On September 7, 2011, Fitch downgraded SLFC’s ratings, and on February 3, 2012, Standard & Poor’s downgraded SLFC’s ratings. The Fitch rating also applies to SLFI. These rating actions resulted in downward price pressure for SLFC’s outstanding debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Operating Results — Interest Expense” in Item 7 for further information.

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

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

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

We have securitized, and may in the future securitize, certain of our finance receivables to generate cash to originate or purchase new finance receivables or pay our outstanding indebtedness. In each such transaction, we conveyed a pool of finance receivables to a special purpose entity (SPE), which, in turn, conveyed the finance receivables to a trust (the issuing entity). Concurrently, the trust issued non-recourse notes or certificates pursuant to the terms of an indenture or pooling and servicing agreement, respectively, which then were transferred to the SPE in exchange for the finance receivables. The securities issued by the trust were secured by the pool of finance receivables. In exchange for the transfer of finance receivables to the issuing entity, we received the cash proceeds from the sale of the trust securities, all residual interests, if any, in the cash flows from the finance receivables after payment of the trust securities, and a 100% beneficial interest in the issuing entity. As a result of the challenging credit and liquidity conditions, the value of the subordinated securities we retain in our securitizations might be reduced or, in some cases, eliminated.

The more limited securitization markets since 2007 have impaired our ability to complete securitizations. Although we were able to complete a securitization during the third quarter of 2011, the securitization market remains constrained, and we can give no assurances that we will be able to complete additional securitizations.

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

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Further, other matters, such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements applicable to banks and other regulated financial institutions holding residential mortgage-backed securities or other asset-backed securities, could result in less investor demand for securities issued through our securitization transactions, or increased competition from other institutions that undertake securitization transactions.

If it is not possible or economical for us to securitize our finance receivables in the future, we might seek alternative financing to support our operations and to meet our existing debt obligations, which could be less efficient and have a material adverse effect on our results of operations and liquidity.

RISKS RELATED TO OUR BUSINESS

Our consolidated results of operations and financial condition have been adversely affected by economic conditions and other factors, including high unemployment and the troubled residential real estate market, and we do not expect these conditions to significantly improve in the near future.

Our actual consolidated results of operations or financial condition may differ from the consolidated results of operations or financial condition that we anticipate or that we achieved in the past. We believe that generally the factors affecting our consolidated results of operations or financial condition relate to: general economic conditions, such as unemployment levels, housing markets, and interest rates; our ability to successfully underwrite lending risk; our ability to cost-effectively access the capital markets to support our business; fluctuations in the demand for our products and services and the effectiveness of our distribution channels; and natural or other events and catastrophes that affect our customers, collateral, and branches or other operating facilities.

In 2008 and 2009, the U.S. residential real estate markets and credit markets experienced significant disruption as housing prices generally declined, unemployment increased, consumer delinquencies increased, and credit availability contracted and became more expensive for consumers and many financial institutions (including us). The U.S. residential real estate market remains fragile. High unemployment levels negatively affect the ability and willingness of many borrowers to make the required interest and principal payments on their loans. Decreased real estate values that accompany a market downturn can reduce a borrower’s ability to refinance his or her mortgage, as well as increase the LTV ratios of our real estate loans. In addition, adverse changes in the real estate market increase the probability of default, as the incentive for a borrower to continue making payments declines if the borrower has little or no equity in the property securing the loan. Further, declining real estate values significantly increase the likelihood that we will incur losses on our real estate loans in the event of default because the value of our collateral may be insufficient to recover the amount due on the loan.

Defaults by borrowers on finance receivables could cause losses to us, could lead to increased claims relating to non-prime or sub-prime loan origination practices, and could encourage increased or changing regulation. Any increased or changing regulation could limit the availability of, or require changes in, the terms of non-real estate loan products that we offer, and could also require us to devote additional resources to comply with the new and changing regulation.

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The market developments discussed above have adversely affected our operating results significantly. As a result, we have ceased our real estate lending as of January 1, 2012. The continuation or worsening of these conditions could further adversely affect our business and results of operations. Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our revenue from finance receivables in our portfolio and our ability to acquire, sell and securitize finance receivables, which would significantly harm our revenues, financial condition, liquidity, results of operations, and business prospects. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements” in Item 7 for a more detailed list of factors which could cause our consolidated results of operations or financial condition to differ, possibly materially, from the consolidated results of operations or financial condition that we anticipate.

We are exposed to credit risk and the risk of loss in our lending activities.

Our ability to collect on finance receivables depends on our borrowers’ willingness and ability to repay their amounts borrowed. Any material adverse change in the ability or willingness of a significant portion of our borrowers to meet their obligations to us, whether due to changes in economic conditions, the cost of consumer goods, interest rates or home values, or due to natural disasters, acts of war or terrorism, or other causes over which we have no control, could have a material adverse effect on our earnings and financial condition. Further, a substantial majority of our borrowers are subprime or non-prime borrowers, who are more likely to be affected, and more severely affected, by adverse macroeconomic conditions such as those that have persisted over the last few years. In addition, although the vast majority of our real estate loans are fixed-rate loans, rising interest rates may increase the credit risks associated with certain types of residential real estate loans in our portfolio, such as adjustable-rate real estate loans. At December 31, 2011, 5% of our real estate loan portfolio was subject to adjustable rates. Accordingly, when short-term interest rates rise, required monthly payments from homeowners who have adjustable rate loans will rise under the terms of these real estate loans, and this may increase borrower delinquencies and defaults. In addition, we cannot be certain that our policies and procedures will adequately adapt to changes in economic or any other conditions affecting customers and the quality of the finance receivable portfolio.

In the event of default under a finance receivable held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral, if any, and the outstanding principal and accrued but unpaid interest of the finance receivable, which could adversely affect our cash flow from operations. Foreclosure of a real estate loan can be an expensive and lengthy process, which would negatively affect our anticipated return on the foreclosed loan.

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

The documents governing our finance receivable sales and securitizations contain provisions that require us to indemnify the purchasers of securitized finance receivables, or to repurchase the affected finance receivables, under certain circumstances. While our sale and securitization documents vary, they generally contain provisions that may require us to repurchase finance receivables if:

· our representations and warranties concerning finance receivable quality and circumstances are inaccurate, including representations concerning the licensing of a mortgage broker;

· borrower fraud or if a payment default occurs on a finance receivable shortly after its origination;

· we fail to comply, at the individual finance receivable level or otherwise, with regulatory requirements; and

· in limited instances, an individual finance receivable reaches certain defined finance delinquency limits.

We believe that, as a result of the current market environment, many purchasers of real estate loans (including through securitizations) are particularly aware of the conditions under which originators must indemnify purchasers or repurchase finance receivables, and would benefit from enforcing any repurchase remedies that they may have. Theoretically our exposure to repurchases under our representations and warranties could include the current unpaid balance of all finance receivables that we have sold or securitized and which are not subject to settlement agreements with purchasers.

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

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

We maintain an allowance for finance receivable losses. To estimate the appropriate level of allowance for finance receivable losses, we consider known and relevant internal and external factors that affect finance receivable collectability, including the total amount of finance receivables outstanding, historical finance receivable charge-offs, our current collection patterns, and economic trends. Our methodology for establishing our allowance for finance receivable losses is based in large part on our historic loss experience. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect our allowance for finance receivable losses, our provision may be inadequate. Our allowance for finance receivable losses is an estimate, and if actual finance receivable losses are materially greater than our allowance for finance receivable losses, our financial condition and results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for finance receivable losses. Additional information regarding our allowance for finance receivable losses is included in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Allowance for Finance Receivable Losses.”

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We may be required to take impairment charges for intangible assets related to the FCFI Transaction.

As a result of the application of push-down accounting, we recorded intangible assets related to the FCFI Transaction. We recorded no goodwill associated with the FCFI Transaction. Additionally, we have no remaining goodwill from previous transactions. As a result of our future quarterly reviews and evaluation of our intangible assets for potential impairment, we may be required to take an impairment charge to the extent that the carrying values of our intangible assets exceed their fair value. Also, if we sell a business for less than the book value of the assets sold, including intangible assets attributable to that business, we may be required to take an impairment charge on all or part of the intangible assets attributable to that business.

We have recognized impairments on several of the intangible assets related to the FCFI Transaction. We cannot give assurances that we will not have to recognize additional material impairment charges in the future. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 for further information on the impairments of our intangible assets.

Our risk management efforts may not be effective.

We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational risks related to our business, assets and liabilities. We use a proprietary credit risk management system, which provides decision support to the underwriters. A key component of the system is the credit risk modeling component used to assess the credit risk of potential borrowers. That assessment is derived from the applicant credit profile and evaluated by proprietary credit risk scoring models. To the extent the models do not adequately identify potential risks, the valuations produced would not adequately represent the risk profile of the borrower and could result in a riskier finance receivable profile than originally identified. Our risk management policies, procedures, and techniques, including our scoring technology, may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify additional risks to which we may become subject in the future.

We may be unable to maintain or grow our finance receivable origination volume, which could cause us to implement changes to our business and adversely affect our business prospects, liquidity, financial condition, results of operations, or cash flows.

Our finance receivable origination business consists of non-real estate loans and retail sales finance. Prior to January 1, 2012, our branch and centralized real estate personnel also originated real estate loans. We continually evaluate the type and mix of finance receivables that we believe are prudent to originate. Our ability to originate new finance receivables is dependent on a number of factors, including, but not limited to, consumer demand for finance receivables, economic conditions, interest rates and property values, as well as our access to financing, the terms of such financing, and the amount of capital we have available to originate finance receivables.

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Since September 2008, one or more of these factors has contributed to a significant reduction in the number and dollar amount of our real estate loan originations. In particular, our traditional borrowing sources, including our ability to cost effectively issue large amounts of unsecured debt in the capital markets, have not been available. We currently expect our near-term sources of funding to originate finance receivables and for other purposes to be more limited than those that had been available to us prior to September 2008.

Since current conditions have not improved, we have ceased our real estate loan originations as of January 1, 2012. In addition, on February 1, 2012, we announced plans to close branches and cease consumer lending and retail sales financing in certain states, and on March 2, 2012 we announced plans to consolidate branches in certain states. Any or all of these events could adversely affect our business prospects, liquidity, financial condition, results of operations, or cash flows, in particular by reducing the amount of cash generated from operations that is available to service our significant indebtedness. Moreover, the benefit to our liquidity positions from these measures may not be as significant as we anticipate or may not materialize at all.

Any additional decisions to close branches or cease consumer lending and retail sales financing may result in the recording of additional special charges, such as workforce reduction costs. Furthermore, ceasing to originate real estate loans impairs our ability to offer our customers a broad suite of products. Customers may decide to seek out our competitors that have the ability to offer products that address all of our customers’ lending needs. Loss of business due to our inability to provide a full service option to our customers as we have done in the past could adversely affect our business prospects, liquidity, financial condition, results of operations, or cash flows.

Recent market conditions may upset the historical relationship between interest rate changes and prepayment trends, which could adversely affect our liquidity and reduce the value our finance receivable portfolio.

Our liquidity position and the value of our finance receivable portfolio (and in particular, our real estate loan portfolio) will be affected by prepayment rates, which cannot be predicted with certainty. Prepayment rates may be affected by a number of factors, including, but not limited to, the availability of credit, changes in housing prices, changes in interest rates, the relative economic vitality of the area in which the borrowers and the related properties are located, possible changes in tax laws, other opportunities for investment, homeowner mobility, and other economic, social, geographic, demographic, and legal factors beyond our control. Prepayment rates typically increase during periods of declining interest rates, and decrease during periods of increasing interest rates. The current challenging economic conditions and recent significant declines in home values (and the resulting loss of homeowner equity) has limited many homeowners’ ability to refinance mortgage loans, which has reduced the rate of repayment for real estate loans, even in the current low interest rate environment. The slower rate of prepayment for finance receivables could adversely affect our liquidity by reducing our cash flow received from prepayments and lowering the market value of the finance receivables for sale or as collateral for secured funding.

Increases in interest rates could adversely affect the value of our finance receivables and increase our financing cost, which could negatively affect our profitability and liquidity.

The vast majority of our finance receivables are fixed-rate finance receivables that will generally decline in value if interest rates increase. Declines in market value could reduce the proceeds of a sale or secured financing of these finance receivables.

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A significant risk associated with these finance receivables is if interest rates increase significantly. If rates increased significantly, the market value of these finance receivables would decline, and the weighted-average life of the finance receivables would increase if prepayments slowed. Moreover, an increase in interest rates could increase the cost to finance our assets.

Apart from interest rate changes, the market values of our finance receivables also may decline for a number of reasons, such as increases or expected increases in defaults, increases or expected increases in voluntary prepayments for those finance receivables that are subject to prepayment risk, or widening of credit spreads.

Our finance receivable approval process is decentralized, which may result in variability of finance receivable structures, and could adversely affect our results of operations.

Our branch finance receivable origination system is decentralized. Subject to approval by District Managers and/or Directors of Operations in certain cases, our branches have the authority to approve and structure finance receivables within broadly written underwriting guidelines rather than having all finance receivable terms approved centrally. As a result, there may be variability in finance receivable structure (e.g., whether or not collateral is taken for the finance receivable) and finance receivable quality among branches or regions, even when underwriting policies are followed. This decentralized approach could adversely affect our operating results.

We are not able to track the default status of the senior lien loan for our second mortgages if we are not the holder of the senior loan.

Second mortgages constituted approximately 6% of our finance receivable portfolio as of December 31, 2011. When we hold the second mortgage, either we or another creditor holds the first mortgage on the property, and our second mortgage is subordinate in right of payment to the first mortgage holder’s right to receive payment. We are not able to track the default status of a first mortgage for our second mortgages if we are not the holder of the related first mortgage. In such instances, the value of our second mortgage may be lower than our records indicate.

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

We are a party to various legal proceedings, including certain purported class action claims, arising in the ordinary course of our business. Some of these proceedings are pending in jurisdictions that permit damage awards disproportionate to the actual economic damages alleged to have been incurred. The continued occurrences of large damage awards in general in the United States, including, in some jurisdictions, large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs, create the potential for an unpredictable result in any given proceeding. A large judgment that is adverse to us could have a material adverse effect on our consolidated results of operations or financial condition. See “Legal Proceedings” in Item 3 and Note 23 of the Notes to Consolidated Financial Statements in Item 8 for more information.

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

Our future success significantly depends on the continued service and performance of our key management personnel. Competition for these employees is intense and our current financial condition could adversely affect our ability to attract and retain key personnel. The loss of the service of members of our senior management or key team members, or the inability to attract additional qualified personnel as needed, could materially harm our business.

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

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

Security breaches in our information systems, in the information systems of third parties or in our branches could adversely affect our reputation and could subject us to significant costs and regulatory penalties.

Our operations rely heavily on the secure processing, storage and transmission of confidential customer and other information in our computer systems and networks. Each branch is part of an electronic information network that is designed to permit us to originate and track finance receivables and collections, and perform several other tasks that are part of our everyday operations. Although we take extensive measures to protect our information systems, which we refer to as cyber security, our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code that could result in disruption to our business, or the loss or theft of confidential information, including customer information. Any failure, interruption, or breach in our cyber security, including any failure of our back-up systems, could result in reputational harm, disruption in the management of our customer relationships, or the inability to originate, process and service our finance receivable products. Further, any of these cyber security and operational risks could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. In addition, we may be required to incur significant costs to increase our cyber security to address any vulnerabilities that may be discovered or to remediate the harm caused by any security breaches.

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As part of our business, we may share confidential customer information and proprietary information with clients, vendors, service providers, and business partners. The information systems of these third parties may be vulnerable to security breaches and we may not be able to ensure that these third parties have appropriate security controls in place to protect the information we share with them. If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

Our branches have physical customer records necessary for day-to-day operations that contain extensive confidential information about our customers, including financial and personally identifiable information. We also retain physical records in various storage locations outside of our branches. The loss or theft of customer information and data from our branches or other storage locations could subject us to additional regulatory scrutiny and penalties, and could expose us to civil litigation and possible financial liability, which could have a material adverse effect on our financial condition and results of operations.

The nature of our operations exposes us to security and other risks that could adversely affect our operations.

Many of our account payments occur at our branches, either in person or by mail, and frequently consist of cash payments, which we deposit at local banks throughout the day. This business practice exposes us daily to the potential for employee or other theft of funds. Despite controls and procedures to prevent such losses, we have in the past sustained losses due to employee fraud and theft. In addition, our employees “field call” delinquent accounts by visiting the home or workplace of a delinquent borrower. Such visits may subject our employees to a variety of dangers including violence, vehicle accidents, and other perils. We also have had break-ins at our branches, where money and/or customer records have been taken. A breach in the security of our branches or in the safety of our employees could result in employee injury, loss of funds or records and adverse publicity, and could result in a loss of customer business or expose us to civil litigation and possible financial liability. Although we have insurance that is intended to cover certain losses from such events, there can be no assurance that such insurance will be adequate or available, and in certain circumstances, these events could have a material adverse effect on our financial condition and results of operations.

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

If a real estate loan goes into default, we will start foreclosure proceedings in appropriate circumstances, which could result in our taking title to the mortgaged real estate. We also will consider alternatives to foreclosure, such as “short sales,” where we take title to mortgaged real estate. There is a risk that toxic or hazardous substances could be found on property after we take title. As the owner of any property where hazardous waste is present, we could be held liable for clean-up and remediation costs, as well as damages for personal injuries or property damage caused by the condition of the property. We can be responsible for these costs if we are in the chain of title for the property, even if we were not responsible for the contamination, and even if the contamination is not discovered until after we have sold the property. Costs related to these activities and damages could be substantial. Although we have policies and procedures in place to investigate properties for potential hazardous substances before taking title to properties, these reviews may not always uncover potential environmental hazards.

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

Insurance claims and policyholder liabilities are difficult to predict and may exceed the related reserves for losses and loss adjustment expenses. Additionally, events such as hurricanes, earthquakes, pandemic disease, cyber security breaches, and other catastrophes could adversely affect our insurers’ financial condition or results of operations. Other risk factors for our insurance operations include the regulatory environment, capital/reserve requirements, and our insurers’ dependence on our lending operations for their sole source of business and product distribution.

The financial condition of counterparties, including other financial institutions, could adversely affect our financial condition and results of operations.

We have entered into, and may in the future enter into, derivative transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by the counterparty or client, which can be exacerbated during periods of market illiquidity. During such periods, our credit risk may be further increased when any collateral held by us cannot be realized upon or is liquidated at prices that are not sufficient to recover the full amount of our exposure.

RISKS RELATED TO OUR INDUSTRY AND REGULATION

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

The consumer finance industry is highly competitive, and the barriers to entry for new competitors are relatively low in the markets in which we operate. Our profitability depends, in large part, on our ability to originate finance receivables. We compete with other consumer finance companies as well as other types of financial institutions that offer similar products and services in originating finance receivables. Some of these competitors may have considerably greater financial, technical, and marketing resources than we possess. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us. We cannot assure that the competitive pressures we face will not have a material adverse effect on our business, financial condition, liquidity, and results of operations.

We cannot predict the consequences and market distortions that may stem from anticipated far-ranging governmental intervention in the economic and financial system or from regulatory reform of the oversight of financial markets.

The U.S. Government, the Federal Reserve, the U.S. Treasury Department (the Treasury), the SEC, and other governmental and regulatory bodies have taken or are taking various actions to address the recent financial crisis.

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The far-ranging government intervention in the economic and financial system may carry intended and unintended consequences and cause market distortions that may have a negative impact on our business. We are unable to predict the extent and nature of such consequences and market distortions, if any. For example, to the extent that new government programs are designed, in part, to restart the market for origination of finance receivables, the establishment of these programs may result in increased competition and higher prices for origination.

On July 21, 2010, the President of the United States signed into law the Dodd-Frank Act. This law, and the regulations already promulgated and to be promulgated under it, are likely to affect our operations in terms of increased oversight of financial services products by the Consumer Financial Protection Bureau (the Bureau), and the imposition of restrictions on the allowable terms for certain consumer credit finance receivables. The Bureau has significant authority to implement and enforce Federal consumer finance laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, and new requirements for financial services products provided for in the Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive, or abusive acts and practices. In addition, the Dodd-Frank Act provides the Bureau with broad supervisory, examination, and enforcement authority over various consumer financial products and services. The Dodd-Frank Act and accompanying regulations will be phased in over a one- to three-year period, and we cannot predict the terms of the final regulations, their intended consequences, or how such regulations will affect us or our industry. A Director for the Bureau was appointed as a recess appointment in early January 2012. Although there is a question over whether the appointment was valid, the Bureau and Director are taking the position that the Bureau has the authority to supervise and examine non-depository institutions such as SLFI and its subsidiaries.

The Dodd-Frank Act may adversely affect the securitization market because it requires, among other things, that a securitizer generally retain not less than 5% of the credit risk for certain types of securitized assets that are transferred, sold, or conveyed through issuance of asset-backed securities (ABS). Also, the SEC has proposed significant changes to Regulation AB, which, if adopted in their present form, could result in sweeping changes to the commercial and residential mortgage loan securitization markets, as well as to the market for the re-securitization of mortgage-backed securities. The SEC also has proposed rules that would require issuers and underwriters to make any third-party due diligence reports on ABS publicly available. In addition to the foregoing, the Federal Reserve, the Treasury, and other federal, state, and local governmental and regulatory bodies may continue to enact additional legislation or undertake regulatory actions designed to address the recent economic crisis or for other purposes that could have a material and adverse effect on our ability to execute our business strategies. We cannot predict whether or when such additional actions may occur. However, such actions could have an impact on our business, results of operations, liquidity, and financial condition, and the cost of complying with any additional laws and regulations could have a material adverse effect on our financial condition, liquidity, and results of operations.

The SEC recently solicited public comment on a wide range of issues relating to certain existing provisions of the Investment Company Act, including the nature of the assets that qualify for purposes of certain exemptions. There can be no assurance that the laws and regulations governing our Investment Company Act status, or SEC guidance regarding these exemptions, will not change in a manner that adversely affects our operations.

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Real estate loan modification and refinancing programs and future legislative action may adversely affect the value of, and the returns on, our portfolio.

The U.S. Government has implemented a number of federal programs designed to assist homeowners, including the HAMP, which provides homeowners with assistance in avoiding residential real estate loan foreclosures. HAMP involves, among other things, the modification of real estate loans to reduce the principal amount of the loans (through forbearance and/or forgiveness) and/or the rate of interest payable on the loans, or to extend payment terms of the loans. Some of the real estate loans serviced by various third parties for certain of our subsidiaries may be eligible for modification under HAMP. Other existing or future government programs designed to assist homeowners also could affect the servicing of, and our ability to foreclose on, real estate loans.

HAMP (as it applies to those real estate loans serviced by third parties) and other existing or future legislative or regulatory actions, including possible amendments to the bankruptcy laws, which result in the modification of outstanding real estate loans, may adversely affect the value of, and the returns on, our initial portfolio and the assets we acquire in the future.

High-cost and other lending laws could adversely impact our results of operations, liquidity, financial condition, and business.

Various U.S. federal, state and local laws are designed to discourage or prohibit certain lending practices, including by restricting finance receivable terms, amounts, interest rates, and other charges. For example, the federal Home Ownership and Equity Protection Act of 1994, or HOEPA, prohibits inclusion of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination. Some states and municipalities have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in the HOEPA. In addition, under the lending laws of some states, the origination of certain residential mortgage loans, including loans that are not classified as “high-cost” loans under applicable law, must satisfy a “tangible net benefits” or similar test with respect to the related borrower. This test may be highly subjective and open to interpretation. As a result, a court may determine that a residential mortgage loan, for example, does not meet the test even if the related originator reasonably believed that the test was satisfied.

Lawsuits have been brought in various states making claims against owners of high-cost finance receivables for violations of federal or state law. If any of our finance receivables are found to have been originated in violation of high-cost or unfair lending laws, we could incur losses, including monetary penalties and finance receivable rescissions, which could adversely affect our results of operations, financial condition, liquidity, and business.

Real estate loan servicing has come under increasing scrutiny from government officials and others, which could make servicing our portfolio more costly and difficult.

Real estate loan servicers have recently come under increasing scrutiny. Certain state Attorneys General, court administrators and governmental agencies, as well as representatives of the federal government, have issued letters of inquiry to real estate loan servicers, including our branch operations and certain of our third party real estate loan servicers, requesting written responses to questions regarding policies and procedures, especially with respect to notarization and affidavit preparation procedures. These requests, and any subsequent administrative, judicial, or legislative actions taken by these regulators, court

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administrators, or other governmental entities may subject us or our third party real estate loan servicers to fines and other sanctions, including a moratorium or suspension on foreclosures.

In addition, some states and municipalities have passed laws that impose additional duties on foreclosing lenders and real estate loan servicers, such as mandatory mediation, or extensive requirements for maintenance of vacant properties, which, in some cases, begin even before a lender has taken title to property. These additional requirements can delay foreclosures, make it uneconomical to foreclose on mortgaged real estate, or result in significant additional costs.

These developments could adversely affect our business. For example, our servicing expenses would likely increase if we or the companies servicing our loans were subject to increased costs. Moreover, real estate loan servicing companies may shut down or restrict their servicing operations in response to these developments, which would limit our servicing options. Without effective servicing at a competitive price, the value of our portfolio would be adversely affected. Any of these or other external influences could delay foreclosures on the loans in our portfolio, which could materially affect the value of our portfolio.

Our businesses are subject to extensive regulation in the jurisdictions in which we conduct our business.

Our businesses are subject to various U.S. state and federal laws and regulations, and various U.S. state authorities regulate and supervise our insurance business segment. The laws under which a substantial amount of our branch and centralized real estate businesses are conducted generally: provide for state licensing of lenders and, in many cases, licensing of employees involved in real estate lending; impose limits on the term of a finance receivable, amounts, interest rates and charges on the finance receivables; regulate whether and under what circumstances insurance and other ancillary products may be offered to consumers in connection with a lending transaction; and provide for other consumer protections. The extent of state regulation of our insurance business varies by product and by jurisdiction, but relates primarily to the following: licensing; conduct of business; periodic examination of the affairs of insurers; form and content of required financial reports; standards of solvency; limitations on dividend payments and other related party transactions; types of products offered; approval of policy forms and premium rates; permissible investments; deposits of securities for the benefit of policyholders; reserve requirements for unearned premiums, losses and other purposes; and claims processing. We are also subject to various laws and regulations relating to our subsidiaries in the United Kingdom.

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

We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local regulations. We may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. In addition, changes in laws or regulations affecting us could affect our ability to conduct business or the manner in which we conduct business and, accordingly, could have a material adverse effect on our consolidated results of operations or financial condition.

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Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We generally conduct branch office operations, branch office administration, other operations, and operational support in leased premises. Lease terms generally range from three to five years. Ocean currently leases one facility under a lease that expires in 2018. Ocean also leases land on which it owns an office facility in Tamworth, England under a 999 year land lease that expires in 3001.

Our investment in real estate and tangible property is not significant in relation to our total assets due to the nature of our business. SLFC subsidiaries own two branch offices in Riverside and Barstow, California, two branch offices in Hato Rey and Isabela, Puerto Rico, one branch office in Terre Haute, Indiana, and eight buildings in Evansville, Indiana. The Evansville buildings house our administrative offices, our centralized services and support operations for our branch and centralized real estate business segments, and one of our branch offices.

Item 3. Legal Proceedings.

See Note 23 of the Notes to Consolidated Financial Statements in Item 8.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

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

No trading market exists for SLFI’s common stock. All of the Company’s common stock is held by AGF Holding. SLFI did not pay any cash dividends on its common stock in 2011 or 2010.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity — Capital Resources” in Item 7 and Note 21 of the Notes to Consolidated Financial Statements in Item 8, regarding limitations on the ability of SLFI and its subsidiaries to pay dividends.

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Item 6. Selected Financial Data.

You should read the following selected financial data in conjunction with the consolidated financial statements and related notes in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7.

	Successor Company						Predecessor Company
(dollars in thousands)	At or for the Year Ended December 31, 2011			At or for the One Month Ended December 31, 2010			At or for the Eleven Months Ended November 30, 2010			At or for the Year Ended December 31, 2009			At or for the Year Ended December 31, 2008			At or for the Year Ended December 31, 2007
Total revenues	$	2,023,706		$	213,141		$	1,913,142		$	2,260,954		$	2,781,025		$	2,842,180
Net (loss) income (a) (b)	$	(224,156	)	$	1,464,275		$	(14,031	)	$	(477,675	)	$	(1,345,652	)	$	112,301
Total assets	$	15,494,888		$	18,260,950		N/A		(c)	$	22,787,386		$	26,547,375		$	30,620,147
Long-term debt	$	13,070,393		$	15,168,034		N/A			$	17,743,343		$	20,980,980		$	22,586,994
Average net receivables	$	13,685,817		$	14,439,246		$	17,861,779		$	21,703,335		$	26,081,007		$	24,937,508
Average borrowings	$	14,415,356		$	15,147,670		$	17,825,608		$	21,791,944		$	24,853,566		$	23,952,538
Yield	13.78		%	14.82		%	10.20		%	10.16		%	10.20		%	10.42		%
Interest expense rate	8.77		%	9.34		%	6.08		%	5.00		%	5.03		%	5.24		%
Interest spread	5.01		%	5.48		%	4.12		%	5.16		%	5.17		%	5.18		%
Operating expense ratio (d)	5.15		%	4.77		%	4.24		%	3.42		%	5.09		%	3.91		%
Allowance ratio	0.55		%	N/M		(e)	N/A			8.13		%	4.64		%	2.36		%
Charge-off ratio	1.95		%	2.62		%	3.60		%	3.92		%	2.08		%	1.16		%
Charge-off coverage	0.27		x	N/M			2.14		x	1.78		x	2.10		x	2.09		x
Delinquency ratio	6.91		%	6.55		%	N/A			7.24		%	4.99		%	2.84		%
Return on average assets	(1.30		)%	N/M			(0.07		)%	(1.92		)%	(4.60		)%	0.40		%
Return on average equity	(14.80		)%	N/M			(0.79		)%	(24.86		)%	(49.96		)%	3.97		%
Ratio of earnings to fixed charges (f)	N/A			N/M			N/A			N/A			N/A			1.11		x
Adjusted tangible leverage	8.78		x	9.07		x	N/A			9.16		x	11.75		x	9.72		x
Debt to equity ratio	9.59		x	9.42		x	N/A			10.54		x	14.71		x	9.44		x

(a) We exclude per share information because AGF Holding owns all of SLFI’s common stock.

(b) Net income for the one month ended December 31, 2010 included a bargain purchase gain of $1.5 billion resulting from the FCFI Transaction.

(c) Not applicable. The Consolidated Balance Sheets in Item 8 are presented at December 31, 2011 and 2010; therefore, balance sheet information at November 30, 2010 is not applicable.

(d) 2008 operating expenses included significant goodwill and other intangible assets impairment charges.

(e) Not meaningful

(f) Earnings did not cover total fixed charges by $323.2 million in 2011, $264.7 million during the eleven months ended November 30, 2010, $909.2 million in 2009, and $950.7 million in 2008.

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Glossary

Adjusted tangible leverage		total debt less 75% of hybrid debt divided by the sum of tangible equity and 75% of hybrid debt

Allowance ratio		allowance for finance receivable losses as a percentage of net finance receivables

Average borrowings		average of debt for each day in the period

Average net receivables		average of net finance receivables at the beginning and end of each month in the period

Charge-off coverage		allowance for finance receivable losses to annualized net charge-offs

Charge-off ratio		annualized net charge-offs as a percentage of the average of net finance receivables at the beginning of each month in the period

Debt to equity ratio		total debt divided by total equity

Delinquency ratio		unpaid principal balance 60 days or more past due (greater than three payments unpaid) as a percentage of unpaid principal balance

Hybrid debt		capital securities classified as debt for accounting purposes but due to their terms are afforded, at least in part, equity capital treatment in the calculation of effective leverage by rating agencies

Interest expense rate		annualized interest expense as a percentage of average borrowings

Interest spread		yield less interest expense rate

Net interest income		total interest income less total interest expense

Operating expense ratio		total annualized operating expenses as a percentage of average net receivables

Ratio of earnings to fixed charges		see Exhibit 12 for calculation

Return on average assets		annualized net (loss) income as a percentage of the average of total assets at the beginning and end of each month in the period

Return on average equity		annualized net (loss) income as a percentage of the average of total equity at the beginning and end of each month in the period

Tangible equity		total equity less accumulated other comprehensive income or loss

Yield		annualized finance charges as a percentage of average net receivables

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

You should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the consolidated financial statements and related notes in Item 8. With this discussion and analysis, we intend to enhance the reader’s understanding of our consolidated financial statements in general and more specifically our liquidity and capital resources, our asset quality, and the results of our operations.

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

Topic		Page

Forward-Looking Statements		43
FCFI Transaction		44
Executive Summary		44
Springleaf REIT Inc.		46
Basis of Reporting		46
Recent Accounting Pronouncements		48
Critical Accounting Policies and Estimates		48
Off-Balance Sheet Arrangements		51
Capital Resources and Liquidity		51
Selected Loan Portfolio Segment Information		57
Analysis of Financial Condition		59
Analysis of Operating Results		66
Regulation and Other		86

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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;

· 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;

· 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

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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 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 Item 1A in this report and 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.

FCFI TRANSACTION

On November 30, 2010, FCFI indirectly acquired an 80% economic interest in SLFI from ACC. AIG, through ACC, indirectly retained a 20% economic interest in SLFI. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 for further information on the FCFI Transaction.

EXECUTIVE SUMMARY

Segment Overview

2011 Overview

Following the deepest recession in more than a half-century, the U.S. economy struggled with high unemployment, poor housing markets, retrenching businesses, and reluctant consumers. After spiking to nearly 480,000 early in the year, weekly initial jobless claims declined to below 400,000 in fourth quarter 2011. The unemployment rate hovered around 9% through September 2011 until dropping below the 9% level in fourth quarter 2011. Such jobs figures are now recognized to be understated since those who are no longer looking for work are excluded.

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Consumer spending contributes approximately two-thirds of the U.S. economy’s spending and has a significant impact on our core lending operations. U.S. consumer credit increased in all but one month in 2011, with the largest gains late in the year. Consumer confidence is a key determinant of U.S. consumers’ willingness to spend and to borrow money to spend. Measures of consumer confidence were relatively low until October 2011 and improved as 2011 came to a close.

With the positive economic trends in late 2011 combined with a fourth quarter annualized gross domestic product (GDP) growth of 2.8% (the highest since the second quarter of 2010), most economists’ concerns of a double-dip recession abated. Global capital markets improved for most market participants and many took advantage of historically low interest rates. However, the current recovery is weak compared to other post-recession periods. The mix of growth in the fourth quarter 2011 GDP was disappointing and largely attributable to a surge in business inventories, which accounted for two-thirds of the growth.

The housing market has not made a meaningful recovery, yet residential spending grew at 10.9% in fourth quarter 2011, the fastest rate of growth since 2006. Consumers are putting money into their existing homes, since homeowners are reluctant to sell their homes at a loss, and the U.S. has had a particularly mild winter. The Federal Housing Finance Agency’s House Price Index ended December 2011 at 320, up slightly from September 2011, but well off its pre-recession levels of more than 370.

Credit quality improved on our non-real estate and retail sales finance portfolios, which is where we focused our lending efforts during 2011. With our very limited real estate loan originations and the continued adverse housing markets during 2011, we saw our real estate delinquency rates increase while the absolute dollar amount of 60-days plus delinquent real estate loans did not change significantly from year-end 2010.

The continued limited availability of funding for the Company led to additional downgrades of our unsecured credit ratings during 2011. Our capital market activities in 2011 were focused on secured funding. In May 2011, we refinanced our $3.0 billion secured term loan into a $3.75 billion loan with improved advance rates, lower borrowing costs, and a longer maturity (see “Capital Resources and Liquidity — Capital Resources”). In September 2011, we securitized $496.9 million of our real estate loans and sold $242.7 million of senior mortgage backed notes (while retaining subordinated notes for possible future sale, $49.7 million of which we sold in February 2012 at 99.3% of face amount before expenses).

In September 2011, our Board of Directors appointed Jay N. Levine to the positions of President, Chief Executive Officer, and Director of the Company effective October 1, 2011 following the retirement of our prior Chief Executive Officer.

2012 Outlook

The gradual economic improvement observed in 2011 is expected to continue into 2012. The forecasted 2012 GDP growth is expected to be approximately 2.1% in the first half of 2012 and increase to approximately 2.5% in the second half of 2012. Weak labor markets, a stubbornly high but somewhat improving unemployment rate, and a continued weak housing market will likely weigh on 2012 fundamentals. We believe 2012 may be the third year of a cyclical recovery from the recent recession that began in late 2007. We believe that gradual economic improvement may aid the lending environment, and financial markets should continue to improve and provide support to both consumer and business spending.

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As we focus on returning the Company to profitability, we are pursuing consumer lending that we believe will provide higher returns and more cost-effective operations during 2012. 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 closings. On March 2, 2012, we announced our plan to consolidate certain branch operations and close approximately 150 branch offices in 25 states. As a result of these events, our workforce was reduced by approximately 690 employees and we expect to incur a total pretax charge of $20.5 million in first quarter 2012.

Assuming the U.S. economy maintains its recent performance, we expect the 2012 credit quality of our non-real estate and retail sales finance portfolio to correlate with the U.S. economy. With our mortgage portfolio liquidating and the continuing difficulty in the housing markets, we anticipate our 2012 credit quality ratios for real estate loans will likely remain under pressure.

We expect that our funding activities will include further operational changes to increase or preserve our available cash, additional debt financings, particularly new securitizations, debt refinancing transactions, 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 financial position, results of operations, and cash flows.

Risks and Uncertainties

See Note 2 of the Notes to Consolidated Financial Statements in Item 8 for a discussion of our risks and uncertainties.

SPRINGLEAF REIT INC.

In May 2011, SLFC caused the formation of Springleaf REIT Inc. (Springleaf REIT), a Delaware corporation. Springleaf REIT, an indirect subsidiary of SLFI, filed with the SEC a registration statement for an initial public offering of its common stock. As a result of revisions to our strategic direction to cease real estate lending as discussed further in “Executive Summary” above, this registration statement has not been declared effective and the offering has been suspended indefinitely.

BASIS OF REPORTING

We prepared our consolidated financial statements using accounting principles generally accepted in the United States of America (U.S. GAAP). The statements include the accounts of SLFI 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 consolidated financial statements and disclosures of contingent assets and liabilities. Ultimate results could differ from our estimates.

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At December 31, 2011, 85% of our assets were net finance receivables less allowance for finance receivable losses. Finance charge revenue is a function of the amount of average net receivables and the yield on those average net receivables. U.S. GAAP requires that we recognize finance charges as revenue on the accrual basis using the interest method.

At December 31, 2011, 92% of our liabilities were debt issued primarily to support our net finance receivables. Interest expense is a function of the amount of average borrowings and the interest expense rate on those average borrowings. U.S. GAAP requires that we recognize interest on borrowings as expense on the accrual basis using the interest method. Interest expense includes the effect of our swap agreements that qualify for hedge accounting under U.S. GAAP.

Insurance revenues consist primarily of insurance premiums resulting from our branch customers purchasing various credit and non-credit insurance policies. Insurance premium revenue is a function of the premium amounts and policy terms. U.S. GAAP dictates the methods of insurance premium revenue recognition. Our credit life premiums are recognized as revenue using the rule of 78’s method for decreasing credit life and the pro rata method for level credit life. Our credit accident and health premiums are recognized as revenue using the mean of the rule of 78’s method and the pro rata method. Our credit property and casualty and credit involuntary unemployment premiums are recognized as revenue using the pro rata method. Our non-credit premiums are recognized as revenue when collected. Insurance revenues also include commissions received from selling third-party insurers’ products, primarily through the operations of Ocean.

We invest cash in investment securities (mainly bonds), which were 7% of our assets at December 31, 2011, and to lesser extents in commercial mortgage loans, policy loans, and investment real estate, which we include in other assets. We report the resulting revenue in investment revenue. U.S. GAAP requires that we recognize interest on these investments as revenue on the accrual basis.

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Loan brokerage fees revenues (included in other revenues), through the operations of Ocean, consist of commissions from lenders for loans brokered to them, fees from customers to process their loans, and fees from other credit originators for customer referrals. We recognize these commissions and fees in loan brokerage fees revenues when earned.

Mortgage banking revenues (included in other revenues) consist of net gain or loss on sale of finance receivables held for sale, provision for warranty reserve, and interest income on finance receivables held for sale. U.S. GAAP requires that we recognize the difference between the sales price we receive when we sell a finance receivable held for sale and the carrying value of that loan as a gain or loss at the time of the sale. We carry finance receivables held for sale at the lower of cost or fair value. We recognize net unrealized losses through a valuation allowance and record changes in the valuation allowance in other revenues. We also charge provisions for recourse obligations to provision for warranty reserve to maintain the reserves for recourse obligations at appropriate levels. We recognize interest as revenue on the accrual basis using the interest method during the period we hold a real estate loan held for sale.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 4 of the Notes to Consolidated Financial Statements in Item 8 for discussion of recently issued accounting pronouncements.

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 Item 8. We consider the policies discussed below 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

Our Credit Strategy and Policy Committee evaluates our finance receivable portfolio monthly by non-real estate loans, retail sales finance, and real estate loans. 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. Our Credit Strategy and Policy Committee considers numerous internal and external factors in estimating losses inherent in our finance receivable portfolio, including the following:

· prior finance receivable loss and delinquency experience;

· the composition of our finance receivable portfolio; and

· current economic conditions, including the levels of unemployment and personal bankruptcies.

We use migration analysis and, effective September 30, 2011, a roll rate-based model as the principal tools to determine the appropriate amount of allowance for finance receivable losses. 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 losses of finance receivables. The overall results of switching from the migration analysis in second quarter 2011 to the roll rate-based model in third quarter 2011 were not material.

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Our migration analysis utilizes a rolling 12 months of historical data that is updated quarterly for our real estate loan and retail sales finance receivable portfolio. The primary inputs for our migration analysis are (1) the related historical finance receivable balances, (2) the historical delinquency, charge-off, recovery and repayment amounts, and (3) the related finance receivable balances in each stage of delinquency (i.e., current, greater than 30 days past due, greater than 60 days past due, etc.). The primary assumptions used in our migration analysis are the weighting of historical data and our estimate of the loss emergence period for the portfolio.

Management considers the performance of our second mortgage portfolio when estimating the allowance for finance receivable losses at the time we evaluate our real estate loan portfolio for impairments. However, we are not able to track the default status of the first lien position for our second mortgages if we are not the holders of the first lien position. We attempt to mitigate the risk resulting from the inability to track this information by utilizing our migration model. Our migration model incorporates the historical performance of our real estate portfolio (including second mortgages) and its output will therefore be impacted by any actual delinquency and charge-offs from second mortgages.

In our roll rate-based model, our non-real estate loan portfolio is stratified by delinquency stages (i.e., current, 1-29 days past due, 30-59 days past due, etc.) and projected forward in one-month increments using historical roll rates. In each month of the simulation, losses on non-real estate loans are captured, and the ending delinquency stratification serves as the beginning point of the next iteration. No new volume is assumed. This process is repeated until the number of iterations equals the loss emergence period for the non-real estate loan portfolio. We believe that this model is more effective in determining the appropriate amount of allowance for our non-real estate loan portfolio.

Prior to the FCFI Transaction, we used the Monte Carlo technique for our non-real estate loans, which utilized historical loan level data from January 2003 through the mid month of the current quarter and was updated quarterly. The primary inputs for Monte Carlo were the number of historical finance receivable accounts, the variability in account migration through the various stages of delinquency (i.e., the probability of a loan moving from 30 days past due to 60 days past due in any given month), and average charge-off amounts. The primary assumptions used in our Monte Carlo analysis were the loss emergence period for the portfolio and average charge-off amounts. The program employed a discrete method of incorporating economic conditions with a set of matrices, each of which represented a historical month of data. Each matrix was therefore representative of certain seasonal and secular economic conditions, and the probability of selecting a given matrix during the simulation increased as the simulated economic conditions approached those represented by the matrix.

We consider the current and historical levels of nonaccrual loans in our analysis of the allowance by factoring the delinquency status of loans into both the migration analysis and the roll rate-based model. We classify loans as nonaccrual based on our accounting policy, which is based on the delinquency status of the loan. As delinquency is a primary input into our quantitative models, we inherently consider nonaccrual loans in our estimate of the allowance for finance receivable losses. See Note 6 of the Notes to Consolidated Financial Statements in Item 8 for further information on our nonaccrual loans and finance receivables more than 90 days past due at December 31, 2011.

We calculate our allowance for finance receivable losses at our estimated “most predictive” outcome of our adjusted migration analysis and roll rate-based model. The “most predictive” outcome is the scenario that the Credit Strategy and Policy Committee has identified to be a better estimate than any other amount considering how the analyses best represent the probable losses inherent in our portfolio at the balance sheet date, taking into account the relevant qualitative factors, observable trends, economic conditions and our historical experience with our portfolio.

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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 (defined as a change in cash flows equal to 10 percent or more) in expected cash flows to be collected would first reverse any previously recorded allowance for finance receivable losses.

The allowance for finance receivable losses related to our Troubled Debt Restructurings (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. See Note 6 of the Notes to Consolidated Financial Statements in Item 8 for further information on our troubled debt restructured finance receivables at December 31, 2011.

The Credit Strategy and Policy Committee exercises its judgment, based on quantitative analyses, qualitative factors, and each committee member’s experience in the consumer finance industry, when determining the amount of the allowance for finance receivable losses. If the committee’s review concludes that an adjustment is necessary, we charge or credit this adjustment to expense through the provision for finance receivable losses. We consider this estimate to be a critical accounting estimate that affects the net income of the Company in total and the pretax operating income of our branch and centralized real estate business segments.

Push-down Accounting

On November 30, 2010, FCFI indirectly acquired an 80% economic interest in SLFI from ACC. AIG, through ACC, indirectly retained a 20% economic interest in SLFI. 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 as the acquired businesses. 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.

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. In establishing this population, consideration was given to the requirement that each individual finance receivable first be reviewed. However, because of the homogeneity of finance receivables within a particular product group as well as the fact that we do not view our business on a loan by loan basis, emphasis was placed on past due status and accounting classification. As a result, the population of accounts identified principally consists of those finance receivables that are 60 days or more past due or that were classified as TDRs as of the acquisition date.

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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 fair value should be based on assumptions that market participants would use, including a consideration of non-performance risk.

In determining fair value, we use various valuation techniques and prioritize the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument; whether the instrument is actively traded and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.

Valuation Allowance on Deferred Tax Assets

The authoritative guidance for the accounting for income taxes permits a deferred tax asset to be recorded if the asset meets a more likely than not standard (i.e., more than 50 percent likely) that the asset will be realized. Realization of our net deferred tax asset depends on our ability to generate sufficient taxable income of the appropriate character within the carryforward periods of the jurisdictions in which the net operating and capital losses, deductible temporary differences and credits were generated. Because the realization of the deferred tax assets relies on a projection of future income, we view this as a critical accounting estimate.

When making our assessment about the realization of our deferred tax assets, we consider all available evidence, including:

· the nature, frequency, and severity of current and cumulative financial reporting losses;

· the carryforward periods for the net operating and capital loss carryforwards;

· the sources and timing of future taxable income, giving greater weight to discrete sources and to earlier years in the forecast period; and

· tax planning strategies that would be implemented, if necessary, to accelerate taxable amounts.

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 December 31, 2011 or 2010.

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.

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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 our debt. At December 31, 2011, we had $689.6 million of cash and cash equivalents ($7.0 million of cash and cash equivalents related to our foreign subsidiary, Ocean), and in 2011 we generated a net operating loss of $224.2 million and cash flows from operating and investing activities of $1.7 billion. In 2012, we are required to pay $2.8 billion to service the principal and interest due under the terms of our existing debt (excluding securitizations). Additionally, we have $778.3 million of debt maturities and interest payments (excluding securitizations) due in the first quarter of 2013. In order to meet our debt obligations in 2012 and beyond, we are exploring a number of options, including further operational changes to increase or preserve our available cash, additional debt financings, particularly new securitizations involving real estate and/or non-real estate loans, debt refinancing transactions, portfolio sales, or a combination of the foregoing. As of December 31, 2011, the Company had $3.5 billion of unencumbered real estate loans and $3.1 billion of unencumbered non-real estate loans. We cannot assure that additional debt financings, particularly new securitizations, debt refinancing transactions, or portfolio sales will be available to us on acceptable terms, or at all. Our ability to support 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 may purchase portions of our outstanding indebtedness. Any such future 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.

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.

	Successor Company
	December 31, 2011				December 31, 2010
(dollars in millions)	Amount		Percent		Amount		Percent

Long-term debt	$	13,070.4	91	%	$	15,168.0	90	%
Equity	1,362.9		9		1,610.3		10
Total capital	$	14,433.3	100	%	$	16,778.3	100	%

Net finance receivables	$	13,170.8			$	14,359.6

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 and SLFI 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 term loan funding arrangement, and completed on-balance sheet securitizations.

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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 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. SLFC used a portion of the proceeds from the secured term loan to repay its $2.125 billion multi-year credit facility in April 2010.

In May 2011, the $3.0 billion 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 term loan that is repaid (whether at or prior to maturity) will permanently reduce the principal amount outstanding and may not be reborrowed.

The 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 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.

Springleaf Financial Funding Company used the proceeds from the 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.

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 December 31, 2011, we were in compliance with all of the covenants under our debt agreements.

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Historically, we targeted our leverage to be a ratio of 9.0x 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.

Under the 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 September 30, 2011, a mandatory trigger event occurred under SLFC’s hybrid debt with respect to the hybrid debt’s semi-annual payment due in January 2012 due to the average fixed charge ratio being less than 0.76x (while the equity to assets ratio was 9.17%). During January 2012, SLFC received from SLFI the non-debt capital funding necessary to satisfy, and subsequently paid, the January 2012 interest payments required by SLFC’s hybrid 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, particularly when compared to leverage measurements of the Predecessor Company. Our adjusted tangible leverage at December 31, 2011 was 8.78x compared to 9.07x at December 31, 2010. In calculating December 31, 2011 leverage, management deducted $773.9 million of cash equivalents from adjusted debt, resulting in an effective adjusted tangible leverage of 8.25x. In calculating December 31, 2010 leverage, management deducted $1.2 billion of cash equivalents from adjusted debt, resulting in an effective adjusted tangible leverage of 8.38x.

Reconciliations of total debt to adjusted debt were as follows:

	Successor Company
(dollars in millions)	December 31, 2011			December 31, 2010

Total debt	$	13,070.4		$	15,168.0
75% of hybrid debt	(128.6		)	(128.6		)
Adjusted debt	$	12,941.8		$	15,039.4

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Reconciliations of equity to adjusted tangible equity were as follows:

	Successor Company
(dollars in millions)	December 31, 2011			December 31, 2010

Equity	$	1,362.9		$	1,610.3
75% of hybrid debt	128.6			128.6
Net other intangible assets	(42.7		)	(83.7		)
Accumulated other comprehensive loss	25.7			2.5
Adjusted tangible equity	$	1,474.5		$	1,657.7

Liquidity

Principal sources and uses of cash were as follows:

	Successor Company				Predecessor Company
(dollars in millions)	Year Ended December 31, 2011		One Month Ended December 31, 2010		Eleven Months Ended November 30, 2010		Year Ended December 31, 2009

Principal sources of cash:
Net collections/originations and purchases of finance receivables	$	943.8	$	132.8	$	1,653.2	$	2,645.6
Net repayment/establishment of note receivable from AIG	468.7		—		1,550.9		—
Operations	180.6		—		383.6		554.8
Net investment securities called, sold, and matured/purchased	—		8.5		—		27.8
Sales and principal collections on finance receivables held for sale originated as held for investment	—		—		37.8		1,990.9
Capital contributions	—		—		21.9		604.3
Total	$	1,593.1	$	141.3	$	3,647.4	$	5,823.4

Principal uses of cash:
Net repayment/issuances of debt	$	2,430.4	$	122.7	$	3,424.9	$	4,049.7
Net investment securities purchased/called, sold, and matured	297.7		—		2.9		—
Operations	—		110.8		—		—
Establishment of note receivable from AIG	—		—		—		1,550.9
Total	$	2,728.1	$	233.5	$	3,427.8	$	5,600.6

During 2011, we continued to manage our liquidity with net collections of finance receivables, the refinancing of SLFC’s secured term loan in May 2011, proceeds of $242.5 million from a real estate loan securitization transaction in September 2011, and cash from operations. On May 10, 2011, SLFC successfully refinanced its $3.0 billion secured term loan with an additional $750.0 million of borrowings, a two-year maturity extension to May 2017, lower borrowing costs, and reduced collateral requirements. SLFC received $45.0 million of dividends during second quarter 2011 from its insurance subsidiaries. Cash and cash equivalents decreased $708.0 million during 2011 primarily due to our debt repayments in 2011.

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During 2010, we managed our liquidity with cash from operations, proceeds of $501.2 million from a real estate loan securitization transaction in March 2010, and the execution and full draw down of a $3.0 billion five-year secured term loan in April 2010. During the first three months of 2010, we also received repayment of AIG’s $1.6 billion demand promissory notes. SLFC and SLFI used a portion of the proceeds from these transactions to repay the $2.450 billion one-year term loans in March 2010 ($2.050 billion repaid by SLFC and $400.0 million repaid by SLFI) and the SLFC $2.125 billion multi-year credit facility in April 2010, both prior to their due dates in July 2010. On May 11, 2010, SLFC made a loan of $750.0 million to AIG that was payable on demand at any time. The cash used to fund the AIG loan came from operations and SLFC’s secured term loan. On November 29, 2010, AIG repaid the $750.0 million demand promissory note plus accrued interest of $1.3 million.

At December 31, 2011, material obligations were as follows:

(dollars in millions)	Long-term Debt (a)		Interest Payments on Debt (a) (b)		Operating Leases (c)		Total

First quarter 2012	$	5.9	$	138.0	$	6.6	$	150.5
Second quarter 2012	13.9		234.1		8.9		256.9
Third quarter 2012	991.5		118.0		8.3		1,117.8
Fourth quarter 2012	1,006.9		263.5		7.8		1,278.2
2012	2,018.2		753.6		31.6		2,803.4
2013-2014	2,092.9		1,179.0		42.8		3,314.7
2015-2016	949.8		1,021.8		14.5		1,986.1
2017+	6,623.6		746.7		3.8		7,374.1
Securitizations	1,385.9		310.7		—		1,696.6
Total	$	13,070.4	$	4,011.8	$	92.7	$	17,174.9

(a) Long-term debt and interest payments on debt maturities by period exclude on-balance sheet securitizations due to their variable monthly payments.

(b) Future interest payments on floating-rate debt are estimated based upon floating rates in effect at December 31, 2011.

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

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, 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.

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

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SELECTED LOAN PORTFOLIO SEGMENT INFORMATION

Allowance for Finance Receivable Losses

Our Credit Strategy and Policy Committee evaluates our finance receivable portfolio monthly 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 8 of the Notes to Consolidated Financial Statements in Item 8 for information on our allowance for finance receivable losses.

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 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 greater than 619 and less than 660

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

See Note 6 of the Notes to Consolidated Financial Statements in Item 8 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 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

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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.

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

Successor Company
December 31, 2011

Branch higher-risk real estate loans:
Interest only (a)
Sub-prime	$	3,747.8	7.25	%	74.6	%	557
Second mortgages	$	701.1	7.39	%	N/A	(b)	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	$	334.5	14.99	%	77.5	%	587
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	$	251.1	15.45	%	76.4	%	662

Successor Company
December 31, 2010

Branch higher-risk real estate loans:
Interest only (a)
Sub-prime	$	4,099.8	6.89	%	74.8	%	557
Second mortgages	$	835.9	7.43	%	N/A		602
LTV greater than 95.5% at origination	$	237.0	5.50	%	97.8	%	611
Low documentation (a)

Centralized real estate higher-risk loans:
Interest only	$	764.9	11.08	%	88.6	%	707
Sub-prime	$	357.9	12.43	%	77.4	%	586
Second mortgages	$	32.9	2.61	%	N/A		703
LTV greater than 95.5% at origination	$	1,600.2	7.82	%	99.4	%	709
Low documentation	$	275.4	13.32	%	76.4	%	664

(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 December 31, 2011 and 2010. Our second mortgages may be closed-end accounts or open-end home equity lines of credit and are primarily fixed-rate products. At December 31, 2011 and 2010, 89% of our second mortgages were fixed-rate mortgages. At December 31, 2011, 65% of our second mortgages were open-end home equity lines of credit, compared to 64% at December 31, 2010. 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:

	Successor Company				Predecessor Company
	Year Ended December 31, 2011		One Month Ended December 31, 2010		Eleven Months Ended November 30, 2010		Year Ended December 31, 2009

Branch

Higher-risk real estate loans charge-off ratios:
Interest only*
Sub-prime	2.79	%	3.10	%	3.66	%	3.71	%
Second mortgages	7.19	%	9.45	%	9.89	%	10.50	%
LTV greater than 95.5% at origination	3.46	%	5.94	%	4.04	%	4.96	%
Low documentation*

Centralized real estate

Higher-risk real estate loans charge-off ratios:
Interest only	3.39	%	3.04	%	3.40	%	4.12	%
Sub-prime	1.76	%	2.81	%	2.56	%	2.49	%
Second mortgages	0.64	%	0.93	%	2.96	%	4.92	%
LTV greater than 95.5% at origination	2.43	%	2.21	%	2.38	%	2.53	%
Low documentation	1.80	%	2.05	%	1.82	%	3.27	%

* Not applicable because these higher-risk loans were 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 December 31, 2011 was $2.5 billion, or 25%, 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.

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.

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Amount, number, and average size of net finance receivables originated and renewed by portfolio segment were as follows:

	Successor Company				Predecessor Company
	Year Ended December 31, 2011		One Month Ended December 31, 2010		Eleven Months Ended November 30, 2010		Year Ended December 31, 2009

Originated

Amount (in millions):
Real estate loans	$	144.1	$	8.1	$	124.6	$	267.4
Non-real estate loans	981.0		60.4		704.0		714.0
Retail sales finance	162.6		7.1		77.9		687.9
Total	$	1,287.7	$	75.6	$	906.5	$	1,669.3

Number:
Real estate loans	2,393		76		1,635		4,789
Non-real estate loans	285,274		21,389		211,542		191,484
Retail sales finance	51,442		2,495		23,649		214,338
Total	339,109		23,960		236,826		410,611

Average size (to nearest dollar):
Real estate loans	$	60,218	$	107,145	$	76,218	$	55,843
Non-real estate loans	3,439		2,827		3,328		3,729
Retail sales finance	3,160		2,841		3,295		3,209

Renewed (includes additional funds borrowed)

Amount (in millions):
Real estate loans	$	31.3	$	1.4	$	24.6	$	77.0
Non-real estate loans	1,551.8		125.6		1,243.5		1,338.3
Total	$	1,583.1	$	127.0	$	1,268.1	$	1,415.3

Number:
Real estate loans	638		28		468		1,456
Non-real estate loans	391,361		33,940		322,285		332,348
Total	391,999		33,968		322,753		333,804

Average size (to nearest dollar):
Real estate loans	$	48,964	$	48,893	$	52,647	$	52,883
Non-real estate loans	3,965		3,699		3,858		4,027

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Amount and number of net finance receivables net (transferred/sold) transferred back/purchased by portfolio segment were as follows:

	Successor Company					Predecessor Company
	Year Ended December 31, 2011			One Month Ended December 31, 2010		Eleven Months Ended November 30, 2010		Year Ended December 31, 2009

Net (transferred/sold) transferred back/purchased

Amount (in millions):
Real estate loans	$	0.1		$	—	$	526.9	$	(1,867.7	)
Non-real estate loans	(9.0		)	—		0.1		—
Retail sales finance	0.2			—		—		0.5
Total	$	(8.7	)	$	—	$	527.0	$	(1,867.2	)

Number:
Real estate loans	1			—		4,252		(11,952		)
Non-real estate loans	(3,007		)	—		1		—
Retail sales finance	119			—		—		68
Total	(2,887		)	—		4,253		(11,884		)

See Note 9 of the Notes to Consolidated Financial Statements in Item 8 for a discussion of net finance receivables transferred to finance receivables held for sale, subsequent sales, and finance receivables held for sale transferred back to finance receivables held for investment during 2010 and 2009.

Amount and number of total net finance receivables originated, renewed, and net (transferred/sold) transferred back/purchased by portfolio segment were as follows:

	Successor Company				Predecessor Company
	Year Ended December 31, 2011		One Month Ended December 31, 2010		Eleven Months Ended November 30, 2010		Year Ended December 31, 2009

Originated, renewed, and net (transferred/sold) transferred back/purchased

Amount (in millions):
Real estate loans	$	175.5	$	9.5	$	676.1	$	(1,523.3	)
Non-real estate loans	2,523.8		186.0		1,947.6		2,052.3
Retail sales finance	162.8		7.1		77.9		688.4
Total	$	2,862.1	$	202.6	$	2,701.6	$	1,217.4

Number:
Real estate loans	3,032		104		6,355		(5,707		)
Non-real estate loans	673,628		55,329		533,828		523,832
Retail sales finance	51,561		2,495		23,649		214,406
Total	728,221		57,928		563,832		732,531

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Amount, number, and average size of net finance receivables by portfolio segment were as follows:

	Successor Company
	December 31, 2011				December 31, 2010
	Amount		Percent		Amount		Percent

Net finance receivables

Amount (in millions):
Real estate loans	$	10,115.9	77	%	$	11,252.4	78	%
Non-real estate loans	2,685.0		20		2,616.0		18
Retail sales finance	369.9		3		491.2		4
Total	$	13,170.8	100	%	$	14,359.6	100	%

Number:
Real estate loans	156,622		15	%	172,817		15	%
Non-real estate loans	780,678		73		777,067		68
Retail sales finance	124,402		12		188,985		17
Total	1,061,702		100	%	1,138,869		100	%

Average size (to nearest dollar):
Real estate loans	$	64,587			$	65,112
Non-real estate loans	3,439				3,366
Retail sales finance	2,973				2,599

The amount of first mortgage loans was 92% of our real estate loan net receivables at December 31, 2011 and 91% at December 31, 2010.

See Note 6 of the Notes to Consolidated Financial Statements in Item 8 for additional information on our finance receivables, including geographic diversification and contractual maturities of finance receivables.

Table of Contents

Real Estate Owned

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

	Successor Company						Predecessor Company
(dollars in millions)	At or for the Year Ended December 31, 2011			At or for the One Month Ended December 31, 2010			At or for the Eleven Months Ended November 30, 2010			At or for the Year Ended December 31, 2009

Balance at beginning of period (a)	$	178.9		$	177.8		$	143.1		$	135.3
Properties acquired	241.2			28.7			260.8			320.2
Properties sold or disposed of	(234.4		)	(24.7		)	(205.9		)	(277.4		)
Writedowns	(56.2		)	(2.9		)	(36.9		)	(35.0		)
Balance at end of period	$	129.5		$	178.9		$	161.1		$	143.1

Number of real estate owned properties at end of period	1,583			2,134			2,151			1,867

Real estate owned as a percentage of real estate loans	1.28		%	1.59		%	N/A		(b)	0.99		%

(a) The beginning balance of real estate owned for the Successor Company for the one month ended December 31, 2010 includes the push-down accounting adjustments.

(b) Not applicable. The Consolidated Balance Sheets in Item 8 are presented at December 31, 2011 and 2010; therefore, balance sheet information at November 30, 2010 is not applicable.

The decrease in real estate owned at December 31, 2011 when compared to December 31, 2010 reflected our liquidity management efforts. The increase in real estate owned at December 31, 2010 when compared to December 31, 2009 reflected higher foreclosures as a result of negative economic fundamentals and the downturn in the U.S. residential real estate market. The increase in real estate owned at December 31, 2010 when compared to December 31, 2009 also reflected the impact of push-down accounting adjustments, which increased real estate owned by $16.7 million.

See Note 3 of the Notes to Consolidated Financial Statements in Item 8 for information relating to our accounting policy for real estate owned.

Investments

Investments by type were as follows:

	Successor Company
	December 31, 2011				December 31, 2010
	Amount		Percent		Amount		Percent

Investment securities	$	1,045.5	90	%	$	745.8	85	%
Commercial mortgage loans	121.3		10		128.4		15

SPRINGLEAF FINANCE INC 10-K