Nature of Operations

12 Months Ended

Dec. 31, 2011

Nature of Operations

Nature of Operations

Note 1.  Nature of Operations

Springleaf Finance Corporation (SLFC or, collectively with its subsidiaries, whether directly or indirectly owned, the Company, we, us, or our) (formerly American General Finance Corporation) is a wholly-owned subsidiary of Springleaf Finance, Inc. (SLFI) (formerly American General Finance, Inc.).

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. See Note 5 for further information on the FCFI Transaction.

SLFC is a financial services holding company with subsidiaries engaged in the consumer finance and credit insurance businesses. 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.

Events Subsequent to December 31, 2011

The following events have occurred since December 31, 2011:

·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 January 10, 2012, SLFC issued one share of SLFC common stock to SLFI for $10.5 million, which was applied to fund the current payment due on our $350.0 million junior subordinated debentures.

·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. See Note 30 for further information on the branch closings.

·On February 3, 2012, Standard & Poor’s lowered its rating on SLFC’s unsecured senior long-term debt from “B” to “CCC” and maintained its negative outlook.

·On February 10, 2012, we received proceeds of $272.7 million (before taxes and selling expenses and excluding accrued interest) from the sales of retained subordinated interests in previously issued securitization transactions. See Note 30 for further information on the sales of retained subordinated interests.

·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.

·On March 2, 2012, we informed affected employees of our plan to consolidate certain branch operations and close approximately 150 branch offices in 25 states. See Note 30 for further information on the branch closings.

·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.

·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.

In our branch business segment, we:

·originate secured and unsecured non-real estate loans;

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

·originated real estate loans secured by first or second mortgages on residential real estate (until January 1, 2012), which may be closed-end accounts or open-end home equity lines of credit and are generally considered non-conforming.

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

In our centralized real estate business segment, we originated or acquired a portfolio of residential real estate loans unrelated to our branch business. MorEquity, Inc. (MorEquity), a wholly-owned subsidiary of SLFC, services these real estate loans, all of which are subserviced by Nationstar Mortgage LLC (Nationstar), a non-subsidiary affiliate of SLFC, except for certain securitized real estate loans, which are serviced and subserviced by third parties.

In our insurance business segment, we write and reinsure credit life, credit accident and health, credit-related property and casualty, and credit involuntary unemployment insurance covering our customers and the property pledged as collateral through products that the branch business segment offers to its customers. We also offer non-credit insurance products. See Note 26 for further information on the Company’s business segments.

At December 31, 2011, the Company had $13.0 billion of net finance receivables due from 1.1 million customer accounts and $3.3 billion of credit and non-credit life insurance in force covering approximately 601,000 customer accounts.