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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

¨	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)

(812) 424-8031

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ 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 ¨

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.

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

At November 14, 2011, there were 2,000,000 shares of the registrant’s common stock, $.50 par value, outstanding.

TABLE OF CONTENTS


	Item			Page

Part I		1.	Financial Statements		3

		2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		56

		3.	Quantitative and Qualitative Disclosures About Market Risk		91

		4.	Controls and Procedures		92

Part II		1.	Legal Proceedings		92

		1A.	Risk Factors		93

		2.	Unregistered Sales of Equity Securities and Use of Proceeds		109

		3.	Defaults Upon Senior Securities		109

		4.	Removed and Reserved		-

		5.	Other Information		109

		6.	Exhibits		109

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 – FINANCIAL INFORMATION

Item 1.

Financial Statements

SPRINGLEAF FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)


	Successor Company
(dollars in thousands)	September 30, 2011			December 31, 2010
Assets

Net finance receivables:
Real estate loans (includes loans of consolidated VIEs of $2.5 billion in 2011 and $2.2 billion in 2010)	$	10,416,220		$	11,252,484
Non-real estate loans		2,611,323			2,615,969
Retail sales finance		381,769			491,185

Net finance receivables		13,409,312			14,359,638
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.5 million in 2011 and $0.1 million in 2010)		(56,950	)		(7,120	)

Net finance receivables, less allowance for finance receivable losses		13,352,362			14,352,518
Investment securities		734,084			745,846
Cash and cash equivalents		1,690,921			1,397,563
Restricted cash (includes restricted cash of consolidated VIEs of $22.6 million in 2011 and $30.9 million in 2010)		72,043			325,780
Other assets		659,865			1,439,243

Total assets	$	16,509,275		$	18,260,950

Liabilities and Shareholder’s Equity

Long-term debt (includes debt of consolidated VIEs of $1.5 billion in 2011 and 2010)	$	13,902,188		$	15,168,034
Insurance claims and policyholder liabilities		322,704			340,203
Other liabilities		376,615			608,835
Deferred and accrued taxes		449,640			533,580

Total liabilities		15,051,147			16,650,652

Shareholder’s equity:
Common stock		1,000			1,000
Additional paid-in capital		147,452			147,457
Accumulated other comprehensive income (loss)		7,963			(2,434	)
Retained earnings		1,301,713			1,464,275

Total shareholder’s equity		1,458,128			1,610,298

Total liabilities and shareholder’s equity	$	16,509,275		$	18,260,950

See Notes to Condensed Consolidated Financial Statements.

SPRINGLEAF FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)


	Successor Company			Predecessor Company			Successor Company			Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Interest income:
Finance charges	$	467,810		$	448,459		$	1,421,794		$	1,378,010
Finance receivables held for sale originated as held for investment		—			—			—			20,418

Total interest income		467,810			448,459			1,421,794			1,398,428

Interest expense:
Interest expense		303,417			268,202			976,234			777,435
Reclassification from accumulated other comprehensive income (loss) related to cash flow hedges		848			12,818			(828	)		39,392

Total interest expense		304,265			281,020			975,406			816,827

Net interest income		163,545			167,439			446,388			581,601

Provision for finance receivable losses		81,567			119,227			227,917			358,802

Net interest income after provision for finance receivable losses		81,978			48,212			218,471			222,799

Other revenues:
Insurance		29,923			30,753			88,218			93,634
Investment:
Investment		9,231			13,603			29,661			38,973
Reclassification from accumulated other comprehensive income (loss) related to net realized losses on investment securities		(379	)		(637	)		(2,894	)		(7,740	)
Gain on early extinguishment of secured term loan		—			—			10,664			—
Other:
Other		59,838			(120,223	)		(71,857	)		128,063
Reclassification from accumulated other comprehensive income (loss) related to cash flow hedges		(55,450	)		139,000			49,091			(33,726	)

Total other revenues		43,163			62,496			102,883			219,204

Other expenses:
Operating expenses:
Salaries and benefits		92,614			123,111			278,802			320,450
Other operating expenses		75,256			95,862			255,843			262,732
Insurance losses and loss adjustment expenses		15,113			9,304			27,845			36,134

Total other expenses		182,983			228,277			562,490			619,316

Loss before benefit from income taxes		(57,842	)		(117,569	)		(241,136	)		(177,313	)

Benefit from income taxes		(7,661	)		(93,119	)		(78,574	)		(201,555	)

Net (loss) income	$	(50,181	)	$	(24,450	)	$	(162,562	)	$	24,242

See Notes to Condensed Consolidated Financial Statements.

SPRINGLEAF FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)


	Successor Company			Predecessor Company			Successor Company			Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Net (loss) income	$	(50,181	)	$	(24,450	)	$	(162,562	)	$	24,242

Other comprehensive income (loss):
Net unrealized (losses) gains on:
Investment securities on which other-than-temporary impairments were taken		(669	)		1,365			(511	)		8,289
All other investment securities		(538	)		12,323			12,810			32,387
Cash flow hedges*		(42,088	)		94,446			50,641			(102,800	)
Foreign currency translation adjustments		(3,761	)		6,595			52			(3,877	)

Income tax effect:
Net unrealized losses (gains) on:
Investment securities on which other-than-temporary impairments were taken		234			(478	)		179			(2,901	)
All other investment securities		189			(4,312	)		(4,483	)		(11,335	)
Cash flow hedges		14,731			(33,056	)		(17,725	)		35,980
Foreign currency translation adjustments		—			3,656			—			3,656
Valuation allowance on deferred tax assets for:
Investment securities		—			5,014			—			13,266
Cash flow hedges		—			(11,108	)		—			(10,389	)
Foreign currency translation adjustments		—			(3,656	)		—			(3,656	)

Other comprehensive (loss) income, net of tax, before reclassification adjustments		(31,902	)		70,789			40,963			(41,380	)

Reclassification adjustments included in net (loss) income:
Net realized losses on investment securities		379			637			2,894			7,740
Cash flow hedges*		56,298			(126,182	)		(49,919	)		73,118

Income tax effect:
Realized losses on investment securities		(133	)		(223	)		(1,013	)		(2,709	)
Cash flow hedges		(19,704	)		44,164			17,472			(25,591	)

Reclassification adjustments included in net (loss) income, net of tax		36,840			(81,604	)		(30,566	)		52,558

Other comprehensive income (loss), net of tax		4,938			(10,815	)		10,397			11,178

Comprehensive (loss) income	$	(45,243	)	$	(35,265	)	$	(152,165	)	$	35,420

We revised our presentation from the prior period to reflect our cash flow hedges on a gross basis. In the prior year, these swap agreements were incorrectly presented on a net basis totaling a $31.7 million net loss for the three months ended September 30, 2010 and a $29.7 million net loss for the nine months ended September 30, 2010. This revision had no impact on our other comprehensive income (loss) for the three and nine months ended September 30, 2010.

See Notes to Condensed Consolidated Financial Statements.

SPRINGLEAF FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholder’s Equity

(Unaudited)


(dollars in thousands)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			(Accumulated Deficit) Retained Earnings			Total Shareholder’s Equity
Predecessor Company

Balance, January 1, 2010	$	1,000	$	1,971,175		$	1,846		$	(57,368	)	$	1,916,653
Capital contributions from parent and other		—		20,000			—			—			20,000
Change in net unrealized gains (losses):
Investment securities		—		—			44,737			—			44,737
Cash flow hedges		—		—			(29,682	)		—			(29,682	)
Foreign currency translation adjustments		—		—			(3,877	)		—			(3,877	)
Net income		—		—			—			24,242			24,242

Balance, September 30, 2010	$	1,000	$	1,991,175		$	13,024		$	(33,126	)	$	1,972,073

Successor Company

Balance, January 1, 2011	$	1,000	$	147,457		$	(2,434	)	$	1,464,275		$	1,610,298
Capital contributions from parent and other		—		(5	)		—			—			(5	)
Change in net unrealized gains:
Investment securities		—		—			9,876			—			9,876
Cash flow hedges		—		—			469			—			469
Foreign currency translation adjustments		—		—			52			—			52
Net loss		—		—			—			(162,562	)		(162,562	)

Balance, September 30, 2011	$	1,000	$	147,452		$	7,963		$	1,301,713		$	1,458,128

See Notes to Condensed Consolidated Financial Statements.

SPRINGLEAF FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


(dollars in thousands)	Successor Company			Predecessor Company
Nine Months Ended September 30,	2011			2010
Cash Flows from Operating Activities
Net (loss) income	$	(162,562	)	$	24,242
Reconciling adjustments:
Provision for finance receivable losses		227,917			358,802
Depreciation and amortization		186,884			115,546
Deferral of finance receivable origination costs		(32,174	)		(27,903	)
Deferred income tax (benefit) charge		(86,310	)		347
Net realized losses on investment securities		2,894			7,740
Change in other assets and other liabilities		73,075			(4,761	)
Writedowns and net loss on sales of real estate owned		52,341			32,369
Gain on early extinguishment of secured term loan		(10,664	)		—
Change in insurance claims and policyholder liabilities		(17,499	)		(27,557	)
Change in taxes receivable and payable		(58,435	)		(202,263	)
Change in accrued finance charges		7,925			30,662
Change in restricted cash		9,654			(6,970	)
Other, net		(924	)		848

Net cash provided by operating activities		192,122			301,102

Cash Flows from Investing Activities
Finance receivables originated or purchased		(1,338,954	)		(1,086,647	)
Principal collections on finance receivables		2,124,096			2,477,590
Sales and principal collections on finance receivables held for sale originated as held for investment		—			37,764
Investment securities purchased		(60,920	)		(74,942	)
Investment securities called, sold, and matured		78,972			51,043
Change in notes receivable from AIG		468,662			800,864
Change in restricted cash		244,106			(198,658	)
Proceeds from sale of real estate owned		159,364			164,180
Other, net		(14,591	)		(6,576	)

Net cash provided by investing activities		1,660,735			2,164,618

Cash Flows from Financing Activities
Proceeds from issuance of long-term debt		2,362,113			3,501,205
Debt commissions on issuance of long-term debt		(20,683	)		(87,237	)
Repayment of long-term debt		(3,901,849	)		(4,279,646	)
Change in short-term debt		—			(2,450,000	)
Capital contributions from parent		—			21,929

Net cash used for financing activities		(1,560,419	)		(3,293,749	)

Effect of exchange rate changes		920			(826	)

Increase (decrease) in cash and cash equivalents		293,358			(828,855	)
Cash and cash equivalents at beginning of period		1,397,563			1,311,842

Cash and cash equivalents at end of period	$	1,690,921		$	482,987

See Notes to Condensed Consolidated Financial Statements.

SPRINGLEAF FINANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2011

Note 1. Basis of Presentation

Until November 30, 2010, Springleaf Finance, Inc. (SLFI or, collectively with its subsidiaries, whether directly or indirectly owned, the Company, we, or our) (formerly American General Finance, Inc.) 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. SLFI’s principal subsidiary is Springleaf Finance Corporation (SLFC) (formerly American General Finance Corporation).

We prepared our condensed consolidated financial statements using accounting principles generally accepted in the United States of America (U.S. GAAP). These statements are unaudited. The year-end condensed balance sheet data was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The statements include the accounts of SLFI and its subsidiaries, all of which are wholly owned. We eliminated all material intercompany accounts and transactions. We made estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results, and the out of period adjustments recorded in second and third quarters of 2011 discussed below. Ultimate results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date. In second quarter 2011, we revised the presentation of our condensed consolidated statements of operations to report net interest income. We believe this presentation more clearly shows the key components of our operating income source and use of funds. You should read these statements in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. To conform to the 2011 presentation, we reclassified certain items in the prior period.

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 Quarterly Report on Form 10-Q through the inclusion of a vertical black line between the Successor Company and the Predecessor Company columns.

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 three and nine months ended September 30, 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.

In second quarter 2011, we recorded an out of period adjustment related to prior periods, which decreased insurance losses and loss adjustment expenses by $14.2 million for the nine months ended September 30, 2011. This adjustment related to the correction of a benefit reserve error related to a closed block of annuities. After evaluating the quantitative and qualitative aspects of this correction, management has determined that our previously issued quarterly and annual consolidated financial statements were not materially misstated and that the out of period adjustment is immaterial to our estimated full year results.

In third quarter 2011, we recorded an out of period adjustment related to the first and second quarters of 2011. The adjustment decreased other revenues by $6.7 million and decreased other operating expenses by $0.1 million for the three months ended September 30, 2011. This adjustment related to the correction of the calculation of the carrying value for our branch real estate owned and to the calculation of net loss on sales of our centralized real estate owned that are externally serviced. After evaluating the quantitative and qualitative aspects of this correction, management has determined that our previously issued quarterly consolidated financial statements were not materially misstated and that there was no effect to our estimated full year results.

In third quarter 2011, we obtained new information relative to assumptions applied in our determination of the deferred and accrued taxes recorded as of the date of the FCFI Transaction, which indicated that the deferred liability should have been $7.9 million more than the amounts reflected in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Under push down accounting, adjustments can be made to the fair value of assets and liabilities recorded at the date of the FCFI Transaction during the measurement period in response to new information about facts and circumstances that existed as of the transaction date. The measurement period ends when information is obtained or is determined to not be available and is not to exceed one year from the date of the transaction. As a result, we recorded a tax adjustment that increased deferred and accrued taxes and decreased retained earnings by $7.9 million pursuant to purchase accounting as of December 31, 2010 to conform with the new information.

In third quarter 2011, we reclassified $28.7 million of the interest expense on derivatives (which reduced other revenues and interest expense) relating to amounts previously recognized through June 30, 2011 for the difference between the hypothetical derivative interest expense and the contractual derivative interest expense. After evaluating the quantitative and qualitative aspects of this reclassification, management has determined that our previously issued results of operations were not materially misstated.

In third quarter 2011, we revised the presentation of our prior period derivative footnote (see Note 12). This revision corrects the omission of the effective portion of the valuation change of our cross currency and cross currency interest rate swaps that was recorded in accumulated other comprehensive income and an equal amount that was reclassified to earnings for the three and nine months ended September 30, 2010. In addition, we revised the presentation of our consolidated statements of other comprehensive (loss) income to reflect our cash flow hedges on a gross basis. In the prior year, these swap agreements were incorrectly presented on a net basis totaling a $31.7 million net loss for the three months ended September 30, 2010 and a $29.7 million net loss for the nine months ended September 30, 2010. After evaluating the quantitative and qualitative aspects of these corrections, management has determined that our previously issued quarterly and annual consolidated financial statements were not materially misstated.

Historically, we included the accelerated accretion of the valuation discount on non-credit impaired charged-off accounts as a component of finance charge revenue. After further review of this treatment, we have changed our presentation (beginning in third quarter 2011) to include the accelerated accretion in connection with non-credit impaired charged-off accounts as a component of net charge-offs. Accordingly, in third quarter 2011 we reclassified $29.5 million of the accelerated accretion of the valuation discount on non-credit impaired charged off accounts from finance charge revenue to the provision for finance receivable losses, which related to the amount previously recognized through June 30, 2011. This revised presentation provides an income statement treatment that is more consistent with the balance sheet presentation of the related finance receivables as the finance receivables are presented under push-down accounting net of valuation discount. We will apply this revised presentation in all periods in future filings. After evaluating the quantitative and qualitative aspects of this reclassification, management has determined that our previously issued results of operations were not materially misstated.

After evaluating the quantitative and qualitative aspects of all of the errors in aggregate, management has determined that our previously issued consolidated interim and annual financial statements were not materially misstated.

Note 2. Recent Accounting Pronouncements

We adopted the following accounting standards in 2011:

Presentation of Comprehensive Income

In June 2011, the Financial Accounting Standards Board (FASB) issued an accounting standard that requires companies to report total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements, bringing U.S. GAAP and International Financial Reporting Standards (IFRS) into alignment on the required presentation of other comprehensive income. The new standard is effective for interim and annual periods beginning on January 1, 2012. Early application is permitted. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring

In April 2011, the FASB issued an accounting standard that clarifies which loan modifications constitute troubled debt restructurings (TDR). In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist: (1) the restructuring constitutes a concession; and (2) the debtor is experiencing financial difficulties. This standard amends the accounting guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. The new standard is effective for the first interim or annual period beginning on or after June 15, 2011. Early application is permitted. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

We will adopt the following accounting standards in the future:

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

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

Reconsideration of Effective Control for Repurchase Agreements

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

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs

In May 2011, the FASB and the International Accounting Standards Board jointly issued an accounting standard resulting in a common fair value meaning between U.S. GAAP and IFRS and consistency of disclosures relating to fair value. The new standard is effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. We are in the process of reviewing the potential impact on our consolidated financial condition, results of operations, and cash flows.

Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan

In September 2011, the FASB issued an accounting standard update that addresses concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. When subsidiaries issue separate financial statements, each subsidiary should account for its participation in the overall single-employer pension plan as a participation in a multiemployer plan. The amendments will require each of our subsidiaries that issues separate financial statements to disclose the name of the plan in which it participates and the amount of contributions the subsidiary made in each period for which a statement of income is presented. The amendments in this new standard are effective for annual periods for fiscal years ending after December 15, 2011. Early adoption is permitted. The amendments should be applied retrospectively for all prior periods presented. The adoption of this new standard will not have a material effect on our consolidated financial condition, results of operations, or cash flows.

Note 3. Finance Receivables

We have three portfolio segments as defined below:

•

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

•

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

•

Retail sales finance includes retail sales contracts, revolving retail, and private label. Retail sales contracts are closed-end accounts that represent a single purchase transaction. Revolving retail and private label 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 and private label 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.

Components of net finance receivables by type were as follows:


(dollars in thousands)	Real Estate Loans			Non-Real Estate Loans			Retail Sales Finance			Total
Successor Company September 30, 2011

Gross receivables	$	10,366,802		$	2,876,515		$	423,686		$	13,667,003
Unearned finance charges and points and fees		(12,905	)		(319,779	)		(45,664	)		(378,348	)
Accrued finance charges		61,589			32,390			3,757			97,736
Deferred origination costs		731			22,197			—			22,928
Premiums, net of discounts		3			—			(10	)		(7	)

Total	$	10,416,220		$	2,611,323		$	381,769		$	13,409,312

Successor Company December 31, 2010

Gross receivables	$	11,197,768		$	2,853,633		$	536,144		$	14,587,545
Unearned finance charges and points and fees		(15,963	)		(274,907	)		(48,386	)		(339,256	)
Accrued finance charges		70,654			33,747			3,427			107,828
Deferred origination costs		25			3,496			—			3,521

Total	$	11,252,484		$	2,615,969		$	491,185		$	14,359,638

Included in the table above are real estate finance receivables associated with securitizations that remain on our balance sheet totaling $2.5 billion at September 30, 2011 and $2.2 billion at December 31, 2010. See Note 4 and Note 10 for further discussion regarding our securitization transactions. Also included in the table above are finance receivables totaling $4.8 billion at September 30, 2011 and $6.4 billion at December 31, 2010, which have been pledged as collateral for SLFC’s $3.75 billion six-year secured term loan facility (secured term loan).

Unused credit lines extended to customers by the Company totaled $391.8 million at September 30, 2011 and $162.3 million at December 31, 2010. All unused credit lines, in part or in total, can be cancelled at the discretion of the Company.

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

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

•

Prime: Borrower FICO score greater than or equal to 660

•

Non-prime: Borrower FICO score greater than 619 and less than 660

•

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

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

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

		$13,409,312		$13,409,312		$13,409,312		$13,409,312		$13,409,312		$13,409,312
(dollars in thousands)	Branch Real Estate		Centralized Real Estate		Branch Non- Real Estate		Branch Retail		Other*		Total
Successor Company September 30, 2011

Prime	$	985,974	$	3,204,748	$	524,771	$	158,004	$	—	$	4,873,497
Non-prime		1,077,237		851,815		602,954		53,179		—		2,585,185
Sub-prime		3,839,224		339,079		1,473,668		169,746		—		5,821,717
Other/FICO unavailable		705		145		9,930		840		117,293		128,913

Total	$	5,903,140	$	4,395,787	$	2,611,323	$	381,769	$	117,293	$	13,409,312

Successor Company December 31, 2010

Prime	$	1,067,320	$	3,535,214	$	528,435	$	220,677	$	—	$	5,351,646
Non-prime		1,162,387		912,835		592,163		72,261		—		2,739,646
Sub-prime		4,099,761		357,870		1,482,975		197,484		—		6,138,090
Other/FICO unavailable		991		418		12,396		762		115,689		130,256

Total	$	6,330,459	$	4,806,337	$	2,615,969	$	491,184	$	115,689	$	14,359,638

* Primarily includes net finance receivables of our foreign subsidiary, Ocean Finance and Mortgages Limited (Ocean).

		$13,409,312			$13,409,312			$13,409,312			$13,409,312			$13,409,312			$13,409,312
FICO-delineated prime, non-prime, and sub-prime categories for delinquency ratios by portfolio segment and by class were as follows:
	Branch Real Estate			Centralized Real Estate			Branch Non- Real Estate			Branch Retail			Other (a)			Total
Successor Company September 30, 2011

Prime		3.76	%		8.05	%		1.62	%		2.50	%		N/M			6.42	%
Non-prime		5.72			13.49			2.39			4.52			N/M			7.71
Sub-prime		7.24			15.03			4.02			4.06			N/M			6.84
Other/FICO unavailable		4.80			—			1.57			4.22			5.42	%		5.22

Total		6.38	%		9.65	%		3.16	%		3.45	%		5.42	%		6.84	%

Successor Company December 31, 2010

Prime		3.61	%		7.31	%		2.04	%		3.95	%		N/M			6.01	%
Non-prime		5.21			12.39			3.11			6.32			N/M			7.37
Sub-prime		6.89			12.43			4.75			5.71			N/M			6.69
Other/FICO unavailable		3.81			—			N/M	(b)		6.94			5.56	%		5.52

Total		6.03	%		8.67	%		3.84	%		5.01	%		5.56	%		6.55	%

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

(b)	Not meaningful

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


(dollars in thousands)	Branch Real Estate		Centralized Real Estate		Branch Non- Real Estate		Branch Retail		Other*		Total
Successor Company September 30, 2011

Performing	$	5,635,461	$	4,049,714	$	2,566,251	$	373,284	$	112,739	$	12,737,449
Nonperforming		267,679		346,073		45,072		8,485		4,554		671,863

Total	$	5,903,140	$	4,395,787	$	2,611,323	$	381,769	$	117,293	$	13,409,312

Successor Company December 31, 2010

Performing	$	6,101,243	$	4,490,825	$	2,590,614	$	488,377	$	111,239	$	13,782,298
Nonperforming		229,216		315,512		25,355		2,807		4,450		577,340

Total	$	6,330,459	$	4,806,337	$	2,615,969	$	491,184	$	115,689	$	14,359,638

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

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


(dollars in thousands)	Branch Real Estate		Centralized Real Estate		Branch Non- Real Estate		Branch Retail		Other*		Total
Successor Company September 30, 2011

Net finance receivables:
30-59 days past due	$	108,724	$	95,957	$	38,212	$	8,204	$	1,658	$	252,755
60-89 days past due		66,068		58,550		20,597		4,296		1,502		151,013
90-119 days past due		49,431		45,512		16,206		3,356		1,171		115,676
120-149 days past due		35,850		35,304		12,032		2,615		754		86,555
150-179 days past due		31,191		32,422		8,115		1,669		609		74,006
180 days or more past due		151,208		232,835		8,947		845		2,020		395,855

Total past due		442,472		500,580		104,109		20,985		7,714		1,075,860
Current		5,460,668		3,895,207		2,507,214		360,784		109,579		12,333,452

Total	$	5,903,140	$	4,395,787	$	2,611,323	$	381,769	$	117,293	$	13,409,312

Successor Company December 31, 2010

Net finance receivables:
30-59 days past due	$	110,509	$	86,333	$	41,040	$	11,786	$	1,605	$	251,273
60-89 days past due		64,582		65,631		22,822		7,245		1,502		161,782
90-119 days past due		44,519		44,528		7,109		3,315		1,048		100,519
120-149 days past due		29,433		40,875		4,731		1,282		842		77,163
150-179 days past due		25,183		34,799		3,729		1,164		631		65,506
180 days or more past due		130,081		195,310		10,134		440		1,929		337,894

Total past due		404,307		467,476		89,565		25,232		7,557		994,137
Current		5,926,152		4,338,861		2,526,404		465,952		108,132		13,365,501

Total	$	6,330,459	$	4,806,337	$	2,615,969	$	491,184	$	115,689	$	14,359,638

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

We have $3.8 million of branch retail finance receivables that were more than 90 days past due and still accruing finance charges at September 30, 2011, compared to $10.0 million at December 31, 2010. Our other portfolio segments (branch real estate, centralized real estate, and branch non-real estate) do not have finance receivables that were more than 90 days past due and still accruing finance charges.

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


(dollars in thousands)	Successor Company
(dollars in thousands)	September 30, 2011		December 31, 2010
Carrying amount, net of allowance	$	1,596,297	$	1,847,175
Outstanding balance	$	2,290,696	$	2,680,421
Allowance for purchased credit impaired finance receivable losses	$	—	$	—

We did not create an allowance for purchased credit impaired finance receivable losses in the third quarter of 2011 since the net carrying value of these purchased credit impaired finance receivables was less than the present value of the expected cash flow.

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

(dollars in thousands)

Successor
Company

Predecessor
Company

Successor
Company

Predecessor
Company

At or for the
Three Months
Ended
September 30,
2011

At or for the
Three Months
Ended
September 30,
2010*

At or for the
Nine Months
Ended
September 30,
2011

At or for the
Nine Months
Ended
September 30,
2010*

Balance at beginning of period

555,694

—

644,681

—

Additions

—

Accretion

(40,265

)

—

(118,128

)

—

Reclassifications from (to) nonaccretable difference

—

15,490

—

Disposals

(9,447

)

—

(36,061

)

—

Balance at end of period

505,982

—

505,982

—

* Prior to the FCFI Transaction, the accretable yield of our purchased credit impaired finance receivables was immaterial.

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

		$1,596,297		$1,596,297		$1,596,297		$1,596,297		$1,596,297		$1,596,297
(dollars in thousands)	Branch Real Estate		Centralized Real Estate		Branch Non- Real Estate		Branch Retail		Other		Total
Successor Company September 30, 2011

Prime	$	56,406	$	544,442	$	—	$	—	$	—	$	600,848
Non-prime		102,294		270,765		—		—		—		373,059
Sub-prime		507,109		115,215		—		—		—		622,324
Other/FICO unavailable		66		—		—		—		—		66

Total	$	665,875	$	930,422	$	—	$	—	$	—	$	1,596,297


Successor Company December 31, 2010

Prime	$	68,125	$	627,177	$	2,182	$	566	$	—	$	698,050
Non-prime		120,470		297,927		4,317		374		—		423,088
Sub-prime		581,581		122,403		19,646		2,205		—		725,835
Other/FICO unavailable		179		—		9		14		—		202

Total	$	770,355	$	1,047,507	$	26,154	$	3,159	$	—	$	1,847,175

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

		$1,596,297			$1,596,297			$1,596,297			$1,596,297			$1,596,297		$1,596,297
	Branch Real Estate			Centralized Real Estate			Branch Non- Real Estate			Branch Retail			Other		Total
Successor Company September 30, 2011

Prime		17.47	%		24.26	%		N/M	*		N/M			N/M		23.75	%
Non-prime		15.71			26.68			N/M			N/M			N/M		24.05
Sub-prime		16.86			27.21			N/M			N/M			N/M		20.14
Other/FICO unavailable		40.39			—			N/M			N/M			N/M		46.92
Total		16.74	%		25.33	%		N/M			N/M			N/M		22.38	%

Successor Company December 31, 2010

Prime		29.49	%		33.69	%		94.63	%		93.40	%		N/M		33.89	%
Non-prime		24.95			32.57			93.69			90.28			N/M		32.05
Sub-prime		24.43			31.18			92.44			89.50			N/M		30.36
Other/FICO unavailable		62.92			—			100.00			88.37			N/M		70.44
Total		24.97	%		33.08	%		92.83	%		90.31	%		N/M		32.05	%

*	Not meaningful

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

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


(dollars in thousands)	Branch Real Estate		Centralized Real Estate		Total
Successor Company September 30, 2011

TDR gross finance receivables	$	104,530	$	121,093	$	225,623
TDR net finance receivables	$	105,078	$	121,358	$	226,436
Allowance for TDR finance receivable losses	$	15,470	$	7,520	$	22,990

Successor Company December 31, 2010

TDR gross finance receivables	$	18,707	$	9,351	$	28,058
TDR net finance receivables	$	18,816	$	9,379	$	28,195
Allowance for TDR finance receivable losses	$	2,377	$	458	$	2,835

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

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


	Successor Company		Predecessor Company		Successor Company		Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010
Branch

TDR average net receivables	$	99,175	$	841,218	$	74,042	$	736,549
TDR finance charges recognized	$	1,439	$	10,296	$	2,612	$	27,096

Centralized Real Estate

TDR average net receivables	$	105,531	$	1,084,782	$	64,210	$	1,004,613
TDR finance charges recognized	$	854	$	12,535	$	1,805	$	37,403

Total

TDR average net receivables	$	204,706	$	1,926,000	$	138,252	$	1,741,162
TDR finance charges recognized	$	2,293	$	22,831	$	4,417	$	64,499

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


	Successor Company		Predecessor Company		Successor Company		Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010
Branch

Number of TDR accounts		213		830		1,003		3,346
Pre-modification TDR net finance receivables	$	18,495	$	94,291	$	84,784	$	388,094
Post-modification TDR net finance receivables	$	18,693	$	94,153	$	87,865	$	391,342

Centralized Real Estate

Number of TDR accounts		284		341		653		1,243
Pre-modification TDR net finance receivables	$	48,268	$	77,330	$	111,894	$	290,062
Post-modification TDR net finance receivables	$	48,487	$	79,111	$	112,291	$	295,653

Total

Number of TDR accounts		497		1,171		1,656		4,589
Pre-modification TDR net finance receivables	$	66,763	$	171,621	$	196,678	$	678,156
Post-modification TDR net finance receivables	$	67,180	$	173,264	$	200,156	$	686,995

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


	Successor Company		Successor Company
(dollars in thousands)	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011
Branch

Number of TDR accounts		49		76
TDR net finance receivables*	$	3,888	$	5,809

Centralized Real Estate

Number of TDR accounts		16		32
TDR net finance receivables*	$	2,176	$	4,395

Total

Number of TDR accounts		65		108
TDR net finance receivables*	$	6,064	$	10,204

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

In third quarter 2009, MorEquity, Inc. (MorEquity), a wholly-owned subsidiary of SLFC, entered into a Commitment to Purchase Financial Instrument and Servicer Participation Agreement (the Agreement) with the Federal National Mortgage Association as financial agent for the United States Department of the Treasury, which provides for participation in the Home Affordable Modification Program (HAMP). MorEquity entered into the Agreement as the servicer with respect to our centralized real estate finance receivables, 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 finance receivables with Nationstar Mortgage LLC (Nationstar), a non-subsidiary affiliate of SLFC. As a result of the subservicing transfer, the Agreement was terminated on May 26, 2011. Loans subserviced by Nationstar that are eligible for modification pursuant to HAMP guidelines are still subject to HAMP.

Note 4. On-Balance Sheet Securitization Transactions

As part of our overall funding strategy and as part of our efforts to support our liquidity from sources other than our traditional capital market sources, we have transferred certain finance receivables to variable interest entities (VIEs) for securitization transactions. These securitization transactions do not satisfy the requirements for accounting sale treatment because the securitization trusts do not have the right to freely pledge or exchange the transferred assets. We also have significant discretion for working out and disposing of defaulted real estate loans and disposing of any foreclosed real estate held by the VIEs. Since the transactions do not meet all of the criteria for sale accounting treatment, the securitized assets and related liabilities are included in our financial statements and are accounted for as secured borrowings.

Our on-balance sheet securitizations of real estate loans and the related debt were as follows:


(dollars in thousands)	Real Estate Loans		Long-term Debt
Successor Company September 30, 2011

2003 securitization	$	14,110	$	14,836
2006 securitization		147,222		179,423
2009 securitization		1,210,602		723,001
2010 securitization		681,892		336,667
2011 securitization		397,322		233,710

Successor Company December 31, 2010

2003 securitization	$	16,147	$	17,249
2006 securitization		171,989		209,795
2009 securitization		1,316,280		876,607
2010 securitization		740,794		423,119

We have limited continued involvement with the finance receivables that have been included in these securitization transactions. Our 2009 securitization transaction utilizes a third-party servicer to service the finance receivables. Although we have servicer responsibilities for the finance receivables for our other existing securitization transactions, Nationstar subservices the centralized real estate finance receivables for the 2006, 2010, and 2011 securitization transactions. In the case of each existing securitization transaction, the related finance receivables have been legally isolated and are only available for payment of the debt and other obligations issued or arising in the applicable securitization transaction. The cash and cash equivalent balances relating to securitization transactions are used only to support the on-balance sheet securitization transactions and are recorded as restricted cash. We hold the right to certain excess cash flows not needed to pay the debt and other obligations issued or arising in our securitization transactions. The asset-backed debt has been issued by consolidated VIEs.

Note 5. Allowance for Finance Receivable Losses

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


(dollars in thousands)	Branch Real Estate			Centralized Real Estate			Branch Non- Real Estate			Branch Retail			All Other			Consolidated Total
Successor Company Three Months Ended September 30, 2011

Balance at beginning of period	$	13,509		$	4,990		$	24,196		$	435		$	—		$	43,130
Provision for finance receivable losses		30,977			20,953			25,116			4,521			—			81,567
Charge-offs		(29,278	)		(18,491	)		(26,106	)		(6,939	)		—			(80,814	)
Recoveries		2,087			68			8,237			2,675			—			13,067

Balance at end of period	$	17,295		$	7,520		$	31,443		$	692		$	—		$	56,950

Predecessor Company Three Months Ended September 30, 2010

Balance at beginning of period	$	540,243		$	594,378		$	247,159		$	46,881		$	3,951		$	1,432,612
Provision for finance receivable losses		70,993			33,198			5,948			9,598			(510	)		119,227
Charge-offs		(63,303	)		(32,907	)		(48,151	)		(19,419	)		498			(163,282	)
Recoveries		2,430			298			9,308			3,313			74			15,423

Balance at end of period	$	550,363		$	594,967		$	214,264		$	40,373		$	4,013		$	1,403,980

Included in the table above are allowance for finance receivable losses associated with securitizations that remain on our balance sheet totaling $1.5 million at September 30, 2011 and $0.1 million at December 31, 2010. See Note 4 and Note 10 for further discussion regarding our securitization transactions.


(dollars in thousands)	Branch Real Estate			Centralized Real Estate			Branch Non- Real Estate			Branch Retail			All Other		Consolidated Total
Successor Company Nine Months Ended September 30, 2011

Balance at beginning of period	$	2,465		$	488		$	4,111		$	56		$	—	$	7,120
Provision for finance receivable losses		67,080			76,277			74,158			10,402			—		227,917
Charge-offs		(63,440	)		(69,450	)		(73,783	)		(19,186	)		—		(225,859	)
Recoveries (a)		11,190			205			26,957			9,420			—		47,772

Balance at end of period	$	17,295		$	7,520		$	31,443		$	692		$	—	$	56,950

Net finance receivables	$	5,903,140		$	4,395,787		$	2,611,323		$	381,769		$	117,293	$	13,409,312

Predecessor Company Nine Months Ended September 30, 2010

Balance at beginning of period	$	633,172		$	536,440		$	291,995		$	67,364		$	3,514	$	1,532,485
Provision for finance receivable losses		104,596			160,745			61,317			32,037			107		358,802
Charge-offs		(195,194	)		(104,050	)		(167,735	)		(68,927	)		313		(535,593	)
Recoveries		7,789			1,832			28,687			9,899			79		48,286

Balance at end of period	$	550,363		$	594,967		$	214,264		$	40,373		$	4,013	$	1,403,980

Net finance receivables	$	7,521,110		$	6,296,520		$	2,803,688		$	624,919		$	122,237	$	17,368,474

(a)

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

After the FCFI Transaction, the recorded investment or carrying amount of finance receivables includes the impact of push-down adjustments. For the three and nine months ended September 30, 2011, the carrying amount charged off for non-credit impaired loans subject to push-down accounting was $57.6 million and $133.0 million, respectively. For the three and nine months ended September 30, 2011, the carrying amount charged off for purchased credit impaired loans subject to push-down accounting was $19.6 million and $88.4 million, respectively.

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


(dollars in thousands)	Real Estate Loans		Non-Real Estate Loans		Retail Sales Finance		Total
Successor Company September 30, 2011

Allowance for finance receivable losses for finance receivables:
Collectively evaluated for impairment	$	1,825	$	31,443	$	692	$	33,960
Acquired with deteriorated credit quality (purchased credit impaired finance receivables)		—		—		—		—
Individually evaluated for impairment (TDR finance receivables)		22,990		—		—		22,990

Total	$	24,815	$	31,443	$	692	$	56,950

Finance receivables:
Collectively evaluated for impairment	$	8,593,487	$	2,611,323	$	381,769	$	11,586,579
Purchased credit impaired finance receivables		1,596,297		—		—		1,596,297
TDR finance receivables		226,436		—		—		226,436

Total	$	10,416,220	$	2,611,323	$	381,769	$	13,409,312

Successor Company December 31, 2010

Allowance for finance receivable losses for finance receivables:
Collectively evaluated for impairment	$	118	$	4,111	$	56	$	4,285
Purchased credit impaired finance receivables		—		—		—		—
TDR finance receivables		2,835		—		—		2,835

Total	$	2,953	$	4,111	$	56	$	7,120

Finance receivables:
Collectively evaluated for impairment	$	9,406,427	$	2,589,815	$	488,026	$	12,484,268
Purchased credit impaired finance receivables		1,817,862		26,154		3,159		1,847,175
TDR finance receivables		28,195		—		—		28,195

Total	$	11,252,484	$	2,615,969	$	491,185	$	14,359,638

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

Prior to the FCFI Transaction, we used migration analysis and the Monte Carlo technique as the principal tools to determine the appropriate amount of allowance for finance receivable losses.

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

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.

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

Note 6. Investment Securities

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


(dollars in thousands)	Cost/ Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Other- Than- Temporary Impairments in AOCI(L) (a)
Successor Company September 30, 2011

Fixed maturity investment securities:
Bonds:
U.S. government and government sponsored entities	$	38,621	$	1,385	$	—		$	40,006	$	—
Obligations of states, municipalities, and political subdivisions		201,089		3,627		(475	)		204,241		—
Corporate debt		332,729		4,211		(6,377	)		330,563		—
Mortgage-backed, asset-backed, and collateralized:
RMBS		111,657		3,759		(37	)		115,379		—
CMBS		16,328		1,689		(730	)		17,287		—
CDO/ABS		14,377		475		(460	)		14,392		—

Total		714,801		15,146		(8,079	)		721,868		—
Preferred stocks		4,959		—		(47	)		4,912		—
Other long-term investments (b)		3,456		1,619		(1	)		5,074		—
Common stocks		840		—		(17	)		823		—

Total	$	724,056	$	16,765	$	(8,144	)	$	732,677	$	—

Successor Company December 31, 2010

Fixed maturity investment securities:
Bonds:
U.S. government and government sponsored entities	$	9,566	$	—	$	(174	)	$	9,392	$	—
Obligations of states, municipalities, and political subdivisions		226,023		201		(2,257	)		223,967		—
Corporate debt		345,735		3,098		(6,084	)		342,749		—
Mortgage-backed, asset-backed, and collateralized:
RMBS		129,411		201		(1,486	)		128,126		—
CMBS		10,064		492		(90	)		10,466		—
CDO/ABS		17,980		113		(158	)		17,935		—

Total		738,779		4,105		(10,249	)		732,635		—
Preferred stocks		4,959		—		(206	)		4,753		—
Other long-term investments (b)		6,653		—		(221	)		6,432		—
Common stocks		676		1		—			677		—

Total	$	751,067	$	4,106	$	(10,676	)	$	744,497	$	—

(a)	In January 2011, we reclassified $0.1 million of previously recorded other-than-temporary impairments in accumulated other comprehensive loss to unrealized gains on investment securities in accumulated other comprehensive loss to reflect the proper classification of these investment securities.

(b)	Excludes interest in a limited partnership that we account for using the equity method ($1.4 million at September 30, 2011 and December 31, 2010).

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


(dollars in thousands)	12 Months or Less					More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Successor Company September 30, 2011

Bonds:
Obligations of states, municipalities, and political subdivisions	$	23,877	$	(475	)	$	—	$	—	$	23,877	$	(475	)
Corporate debt		147,326		(6,377	)		—		—		147,326		(6,377	)
RMBS		8,537		(37	)		—		—		8,537		(37	)
CMBS		5,260		(730	)		—		—		5,260		(730	)
CDO/ABS		7,319		(460	)		—		—		7,319		(460	)

Total		192,319		(8,079	)		—		—		192,319		(8,079	)
Preferred stocks		4,912		(47	)		—		—		4,912		(47	)
Other long-term investments		28		(1	)		—		—		28		(1	)
Common stocks		104		(17	)		—		—		104		(17	)

Total	$	197,363	$	(8,144	)	$	—	$	—	$	197,363	$	(8,144	)

Successor Company December 31, 2010

Bonds:
U.S. government and government sponsored entities	$	9,392	$	(174	)	$	—	$	—	$	9,392	$	(174	)
Obligations of states, municipalities, and political subdivisions		207,378		(2,257	)		—		—		207,378		(2,257	)
Corporate debt		273,766		(6,084	)		—		—		273,766		(6,084	)
RMBS		111,384		(1,486	)		—		—		111,384		(1,486	)
CMBS		7,966		(90	)		—		—		7,966		(90	)
CDO/ABS		10,128		(158	)		—		—		10,128		(158	)

Total		620,014		(10,249	)		—		—		620,014		(10,249	)
Preferred stocks		4,753		(206	)		—		—		4,753		(206	)
Other long-term investments		6,403		(221	)		—		—		6,403		(221	)

Total	$	631,170	$	(10,676	)	$	—	$	—	$	631,170	$	(10,676	)

Management reviews all securities in an unrealized loss position on a quarterly basis to determine the ability and intent to hold such securities to recovery, which could be maturity, if necessary, by performing an evaluation of expected cash flows. Management considers factors such as our investment strategy, liquidity requirements, overall business plans, and recovery periods for securities in previous periods of broad market declines. For fixed-maturity securities with significant declines, management performs extended fundamental credit analysis on a security-by-security basis, which includes consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other market available data.

We did not recognize in earnings the unrealized losses on fixed-maturity securities at September 30, 2011, because management neither intends to sell the securities nor does it believe that it is more likely than not that it will be required to sell these securities before recovery of their amortized cost basis. Furthermore, management expects to recover the entire amortized cost basis of these securities (that is, they are not credit impaired).

As of September 30, 2011 and December 31, 2010, we had no investment securities which had been in an unrealized loss position of more than 50% for more than 12 months. As part of our credit evaluation procedures applied to investment securities, we consider the nature of both the specific securities and the general market conditions for those securities. Based on management’s analysis, we continue to believe that the expected cash flows from our investment securities will be sufficient to recover the amortized cost of our investment. We continue to monitor these positions for potential credit impairments.

At September 30, 2011, we had no unrealized losses on investment securities for which an other-than-temporary impairment was recognized. In January 2011, we reclassified $0.4 million in unrealized losses on investment securities, previously classified as other-than-temporarily impaired, to unrealized losses on all other investment securities to reflect the proper classification of these investment securities for which no other-than-temporary impairment was recognized.

We recognize credit losses into earnings on securities in an unrealized loss position for which we do not expect to recover the entire amortized cost basis. Non-credit losses are recognized in accumulated other comprehensive income or loss since we do not intend to sell these securities, and we believe it is more likely than not that we will not be required to sell any investment security before the recovery of its amortized cost basis.

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


(dollars in thousands)	Successor Company			Predecessor Company			Successor Company			Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Total other-than-temporary impairment losses	$	(213	)	$	(211	)	$	(2,440	)	$	(2,188	)
Portion of loss recognized in accumulated other comprehensive income		—			(440	)		—			(4,502	)

Net impairment losses recognized in net (loss) income	$	(213	)	$	(651	)	$	(2,440	)	$	(6,690	)

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


(dollars in thousands)	Successor Company			Predecessor Company			Successor Company			Predecessor Company
(dollars in thousands)	At or for the Three Months Ended September 30, 2011			At or for the Three Months Ended September 30, 2010			At or for the Nine Months Ended September 30, 2011			At or for the Nine Months Ended September 30, 2010
Balance at beginning of period*	$	2,188		$	9,016		$	—		$	3,150
Additions:
Due to other-than-temporary impairments:
Not previously impaired/impairment not previously recognized		205			—			2,398			9
Previously impaired/impairment previously recognized		8			651			42			6,591
Reductions:
Realized due to sales with no prior intention to sell		—			—			—			—
Realized due to intention to sell		—			—			—			—
Accretion of credit impaired securities		(25	)		(18	)		(64	)		(101	)

Balance at end of period	$	2,376		$	9,649		$	2,376		$	9,649

In January 2011, we reclassified $31,000 of the balance at the beginning of the nine months ended September 30, 2011 period, which was previously recorded as accretion of credit impaired securities, to interest income on all other investment securities to reflect the proper classification of these investment securities for which no other-than-temporary impairment was recognized.

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


(dollars in thousands)	Successor Company			Predecessor Company			Successor Company			Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Fair value	$	3,237		$	25,941		$	39,141		$	163,720

Realized gains	$	21		$	19		$	190		$	56
Realized losses		(187	)		(6	)		(644	)		(139	)

Net realized (losses) gains	$	(166	)	$	13		$	(454	)	$	(83	)

Contractual maturities of fixed-maturity investment securities at September 30, 2011 were as follows:


(dollars in thousands) September 30, 2011	Fair Value		Amortized Cost
Fixed maturities, excluding mortgage-backed securities:
Due in 1 year or less	$	41,585	$	41,568
Due after 1 year through 5 years		170,679		171,698
Due after 5 years through 10 years		199,810		197,799
Due after 10 years		162,736		161,374
Mortgage-backed securities		147,058		142,362

Total	$	721,868	$	714,801

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

Note 7. Restricted Cash

Restricted cash at September 30, 2011 and December 31, 2010 included funds to be used for future debt payments relating to our securitization transactions (see Note 4), escrow deposits, and funds related to SLFC’s secured term loan. The decrease in restricted cash at September 30, 2011 when compared to December 31, 2010 was primarily due to reduced collateral requirements on SLFC’s secured term loan, which was refinanced in May 2011.

Note 8. Related Party Transactions

AFFILIATE LENDING

Prior to the FCFI Transaction, SLFC made loans to AIG under demand note agreements as a short-term investment source for cash. Interest revenue on notes receivable from AIG for the three and nine months ended September 30, 2010 totaled $4.0 million and $8.7 million, respectively.

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. At December 31, 2010, affiliates of Fortress and affiliates of AIG were included in the syndicate of lenders.

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. At September 30, 2011, affiliates of Fortress and affiliates of AIG were included in the syndicate of lenders.

COST SHARING AGREEMENTS

Prior to the FCFI Transaction, we were party to cost sharing agreements, including tax sharing arrangements, with AIG. Generally, these agreements provided for the allocation of shared corporate costs based upon a proportional allocation of costs to all AIG subsidiaries. See Note 14 for further information on the tax sharing arrangements.

We also reimburse AIG Federal Savings Bank (AIG Bank), a subsidiary of AIG, for costs associated with a remediation program related to a Supervisory Agreement among AIG Bank, Wilmington Finance, Inc. (WFI), SLFI, and the Office of Thrift Supervision dated June 7, 2007 (the Supervisory Agreement). As of September 30, 2011, we have made reimbursements of $61.9 million for payments made by AIG Bank to refund certain fees to customers pursuant to the terms of the Supervisory Agreement. At September 30, 2011, the remaining reserve, which reflects management’s best estimate of the expected costs of the remediation program, totaled $15,000.

REINSURANCE AGREEMENTS

Merit Life Insurance Co. (Merit), a wholly-owned subsidiary of SLFC, enters into reinsurance agreements with subsidiaries of AIG, for reinsurance of various group annuity, credit life, and credit accident and health insurance where Merit reinsures the risk of loss. The reserves for this business fluctuate over time and in some instances are subject to recapture by the insurer. Reserves on the books of Merit for reinsurance agreements with subsidiaries of AIG totaled $49.9 million at September 30, 2011 and $51.2 million at December 31, 2010.

DERIVATIVES

At September 30, 2011, all of our derivative financial instruments were with AIG Financial Products Corp. (AIGFP), a subsidiary of AIG. At December 31, 2010, all but one of our derivative financial instruments were with AIGFP. The derivative financial instrument that was not with AIGFP was terminated in March 2011 due to the sale of the related note receivable from AIG. See Note 12 for further information on our derivatives.

SUBSERVICING AND REFINANCE AGREEMENTS

Nationstar subservices the centralized real estate loans of MorEquity and two other subsidiaries of SLFC (collectively, the Owners), including certain securitized real estate loans. During the three and nine months ended September 30, 2011, the Owners paid Nationstar $2.5 million and $7.4 million, respectively, in fees for its subservicing. During the three and nine months ended September 30, 2011, the Owners paid Nationstar $1.2 million and $4.0 million, respectively, to facilitate the repayment of our centralized real estate loans through refinancings with other lenders.

Note 9. Long-term Debt

Principal maturities of long-term debt (excluding projected securitization repayments by period) by type of debt at September 30, 2011 were as follows:


(dollars in thousands)	Retail Notes		Medium Term Notes		Euro Denominated Notes (a)		Secured Term Loan (b) (c)		Securitizations		Junior Subordinated Debt (Hybrid Debt)		Total
Interest rates (d)		4.00%-9.00%		0.60%-6.90%		3.25%-4.13%		5.05%		4.05%-5.75%		6.00%

Fourth quarter 2011	$	19,053	$	750,000	$	—	$	—	$	—	$	—	$	769,053
First quarter 2012		5,956		—		—		—		—		—		5,956
Second quarter 2012		14,130		—		—		—		—		—		14,130
Third quarter 2012		20,168		1,000,000		—		—		—		—		1,020,168
Remainder of 2012		43,004		1,000,000		—		—		—		—		1,043,004
2013		157,598		500,000		1,269,500		—		—		—		1,927,098
2014		365,637		—		—		—		—		—		365,637
2015		48,471		750,000		—		—		—		—		798,471
2016-2067		—		3,675,000		—		3,750,000		—		350,000		7,775,000
Securitizations (e)		—		—		—		—		1,466,087		—		1,466,087

Total principal maturities	$	674,017	$	7,675,000	$	1,269,500	$	3,750,000	$	1,466,087	$	350,000	$	15,184,604

Total carrying amount	$	602,768	$	6,687,988	$	1,183,295	$	3,768,983	$	1,487,637	$	171,517	$	13,902,188

(a)	Euro denominated notes include two Euro 500 million note issuances, shown here at the U.S. dollar equivalent at time of issuance.

(b)	Issued by wholly-owned Company subsidiaries.

(c)	Guaranteed by SLFC.

(d)	The interest rates shown are the range of contractual rates in effect at September 30, 2011, which exclude the effects of the associated derivative instruments used in hedge accounting relationships, if applicable.

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

Note 10. VIEs

CONSOLIDATED VIES

We use special purpose entities (securitization trusts) to issue asset-backed securities in securitization transactions to investors. We evaluated the securitization trusts and determined that these entities are VIEs of which we are the primary beneficiary; therefore, we consolidated such entities. We are deemed to be the primary beneficiaries of these VIEs because we have power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses and the right to receive benefits that are potentially significant to the VIE. We have consent power over sales of defaulted real estate loans, which is a significant loss mitigation procedure, and, therefore, a significant control, and our retained subordinated and residual interest trust certificates expose us to potentially significant losses and potentially significant returns.

The asset-backed securities are backed by the expected cash flows from securitized real estate loans. Other than servicing fees and prepayment penalties (for our 2003 and 2006 securitizations only), payments from these real estate loans are not available to us until the repayment of the debt issued in connection with the securitization transactions has occurred. We recorded these transactions as “on-balance sheet” secured financings because the transfer of these real estate loans to the trusts did not qualify for sale accounting treatment. We retain interests in these securitization transactions, including senior and subordinated securities issued by the VIEs and residual interests. We retain credit risk in the securitizations because our retained interests include the most subordinated interest in the securitized assets, which are the first to absorb credit losses on the securitized assets. At September 30, 2011, these retained interests were primarily comprised of $1.6 billion, or 39%, of the assets transferred in connection with the on-balance sheet securitizations. We expect that any credit losses in the pools of securitized assets would likely be limited to our retained interests. We have no obligation to repurchase or replace qualified securitized assets that subsequently become delinquent or are otherwise in default. See Note 4 for further discussion regarding these securitization transactions.

The total consolidated VIE assets and liabilities associated with our securitization transactions were as follows:


	Successor Company
(dollars in thousands)	September 30, 2011		December 31, 2010
Assets:
Finance receivables	$	2,451,148	$	2,245,210
Allowance for finance receivable losses		1,468		80
Restricted cash		22,585		30,946

Liabilities
Long-term debt	$	1,487,637	$	1,526,770

We had no off-balance sheet exposure associated with our variable interests in the consolidated VIEs. No additional support to these VIEs beyond what was previously contractually required has been provided by us. Consolidated interest expense related to these VIEs for the three and nine months ended September 30, 2011 totaled $19.0 million and $54.8 million, respectively. Consolidated interest expense related to these VIEs for the three and nine months ended September 30, 2010 totaled $43.4 million and $127.4 million, respectively.

UNCONSOLIDATED VIE

We have established a VIE, primarily related to a debt issuance, of which we are not the primary beneficiary, and in which we do not have a variable interest. Therefore, we do not consolidate such entity. We calculate our maximum exposure to loss primarily to be the amount of debt issued to or equity invested in a VIE. Our on-balance sheet maximum exposure to loss associated with this unconsolidated VIE was $171.5 million at September 30, 2011 and December 31, 2010. We had no off-balance sheet exposure to loss associated with this VIE at September 30, 2011 or December 31, 2010.

Note 11. Refinancing of Secured Term Loan

In May 2011, we refinanced SLFC’s $3.0 billion secured term loan to increase total borrowing to $3.75 billion with a new six-year term, significantly improved advance rates, and lower borrowing costs. The unamortized balance of the fair value mark on the $3.0 billion secured term loan was $30.8 million. We accounted for $20.1 million of the $30.8 million as a modification, which will remain on the balance sheet and amortize over the new term. The remaining $10.7 million was recorded as a gain on the early extinguishment of the secured term loan for the nine months ended September 30, 2011.

Note 12. Derivative Financial Instruments

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

While all of SLFC’s interest rate, cross currency, and cross currency interest rate swap agreements mitigate economic exposure of related debt, not all of these swap agreements currently qualify as cash flow or fair value hedges under U.S. GAAP.

In the first quarter of 2010, we re-examined our accounting for a second quarter 2009 de-designated trade and determined that our method for amortizing the debt basis adjustments related to hedge accounting for this second quarter 2009 de-designated trade contained two errors. The debt basis adjustment to be amortized incorrectly included an accounting adjustment on the hedged debt. Secondly, the amortization method did not take into account all cash flows on the debt when calculating the effective yield amortization. In addition, we did not record the foreign exchange translation on the unamortized debt basis. As a result of these errors, we recorded an out of period adjustment in the first quarter of 2010, which reduced other revenues by $8.2 million during the three months ended March 31, 2010. The impact of this error did not have a material effect on our financial condition or results of operations for previously reported periods.

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


	Successor Company
	September 30, 2011						December 31, 2010
	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Hedging Instruments
Cross currency and cross currency interest rate	$	625,250	$	43,670	$	—	$	1,226,250	$	114,001	$	—
Interest rate		450,000		—		10,733		850,000		—		40,057

Total		1,075,250		43,670		10,733		2,076,250		114,001		40,057

Non-Designated Hedging Instruments
Cross currency and cross currency interest rate		644,250		94,191		—		644,250		75,159		—
Interest rate		—		—		—		468,000		1,148		—
Equity-indexed		—		—		—		6,886		1,720		213

Total		644,250		94,191		—		1,119,136		78,027		213

Total derivative instruments*	$	1,719,500	$	137,861	$	10,733	$	3,195,386	$	192,028	$	40,270

*	Master netting arrangements had no effect.

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


	Effective (a)												Ineffective
				From AOCI(L) to
(dollars in thousands)	AOCI(L) (b)			Other Revenues			Interest Expense			Earnings (c)			Revenues
Successor Company Three Months Ended September 30, 2011

Interest rate	$	130		$	—		$	(447	)	$	(447	)	$	(9	)
Cross currency and cross currency interest rate		(42,218	)		(55,450	)		(401	)		(55,851	)		18

Total	$	(42,088	)	$	(55,450	)	$	(848	)	$	(56,298	)	$	9

Predecessor Company Three Months Ended September 30, 2010

Interest rate:
As previously stated	$	(7,515	)	$	(10,075	)	$	—		$	(10,075	)	$	(741	)
Adjustment		—			10,075			(10,075	)		—			—

As revised		(7,515	)		—			(10,075	)		(10,075	)		(741	)

Cross currency and cross currency interest rate:
As previously stated		(37,039	)		(2,743	)		—			(2,743	)		21,360
Adjustment		139,000			141,743			(2,743	)		139,000			—

As revised		101,961			139,000			(2,743	)		136,257			21,360

Total	$	94,446		$	139,000		$	(12,818	)	$	126,182		$	20,619

Successor Company Nine Months Ended September 30, 2011

Interest rate	$	(2,750	)	$	—		$	(1,424	)	$	(1,424	)	$	(2,562	)
Cross currency and cross currency interest rate		53,391			49,091			2,252			51,343			849

Total	$	50,641		$	49,091		$	828		$	49,919		$	(1,713	)

Predecessor Company Nine Months Ended September 30, 2010

Interest rate:
As previously stated	$	(11,725	)	$	(32,190	)	$	—		$	(32,190	)	$	(2,316	)
Adjustment		—			32,190			(32,190	)		—			—

As revised		(11,725	)		—			(32,190	)		(32,190	)		(2,316	)

Cross currency and cross currency interest rate:
As previously stated		24,030			74,177			—			74,177			(5,044	)
Adjustment		(115,105	)		(107,903	)		(7,202	)		(115,105	)		—

As revised		(91,075	)		(33,726	)		(7,202	)		(40,928	)		(5,044	)

Total	$	(102,800	)	$	(33,726	)	$	(39,392	)	$	(73,118	)	$	(7,360	)

(a)

In third quarter 2011, we corrected the omission of the effective portion of the valuation change of our cross currency and cross currency interest rate swaps that was recorded in accumulated other comprehensive income and an equal amount that was reclassified to earnings for the three and nine months ended September 30, 2010. This revision had no impact on the amount of AOCI(L) at September 30, 2010.

(b)	Accumulated other comprehensive income (loss)

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

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

At September 30, 2011, we expect $1.4 million of the deferred net gain on cash flow hedges to be reclassified from accumulated other comprehensive income to earnings during the next twelve months.

For the nine months ended September 30, 2011, there were no instances in which we reclassified amounts from accumulated other comprehensive income or loss to earnings as a result of a discontinuance of a cash flow hedge due to it becoming probable that the original forecasted transaction would not occur at the end of the originally specified time period.

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


(dollars in thousands)	Non-Designated Hedging Instruments
Successor Company Three Months Ended September 30, 2011

Cross currency, cross currency interest rate, and interest rate	$	(34,978	)
Equity-indexed		54

Total	$	(34,924	)

Predecessor Company Three Months Ended September 30, 2010

Cross currency and cross currency interest rate	$	75,675
Equity-indexed		79

Total	$	75,754

Successor Company Nine Months Ended September 30, 2011

Cross currency, cross currency interest rate, and interest rate	$	14,931
Equity-indexed		215

Total	$	15,146

Predecessor Company Nine Months Ended September 30, 2010

Cross currency and cross currency interest rate	$	65,547
Equity-indexed		239

Total	$	65,786

During the three months ended September 30, 2011, we recognized a loss of $44.0 million on our non-designated cross currency derivative, partially offset by a net gain of $9.1 million reflecting derivative gains and net interest income. During the nine months ended September 30, 2011, we recognized a net gain of $17.1 million reflecting derivative gains and net interest income, partially offset by a loss of $3.7 million on our non-designated cross currency derivative. During the three months ended September 30, 2010, we recognized a gain of $70.6 million on our non-designated cross currency derivative. During the nine months ended September 30, 2010, we recognized a gain of $68.8 million on the release of other comprehensive income related to cash flow hedge maturities, partially offset by a loss of $25.1 million on our non-designated cross currency derivative. We included all components of each derivative’s gain or loss in the assessment of hedge effectiveness.

SLFC is exposed to credit risk if counterparties to swap agreements do not perform. SLFC regularly monitors counterparty credit ratings throughout the term of the agreements. SLFC’s exposure to market risk is limited to changes in the value of swap agreements offset by changes in the value of the hedged debt. In compliance with the authoritative guidance for fair value measurements, our valuation methodology for derivatives incorporates the effect of our non-performance risk and the non-performance risk of our counterparties.

Credit valuation adjustment gains (losses) recorded in other revenues for our non-designated derivative and in accumulated other comprehensive income or loss for our cash flow hedges were as follows:


(dollars in thousands)	Successor Company		Predecessor Company			Successor Company		Predecessor Company
(dollars in thousands)	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010
Credit valuation adjustment gains (losses):

Non-designated derivative	$	4,242	$	(4,332	)	$	2,149	$	8,533
Cash flow hedges	$	3,520	$	(11,158	)	$	622

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SPRINGLEAF FINANCE INC 10-Q