Segment Information

3 Months Ended

Mar. 31, 2013

Segment Information

Segment Information

17.  Segment Information

During the fourth quarter of 2012, we redefined our segments to coincide with how our businesses are managed. Effective December 31, 2012, our three business segments include: consumer, insurance, and real estate. These business segments evolved primarily from management’s redefined business strategy, including its decision to cease real estate lending effective January 1, 2012 and to shift its focus to personal loan products which we believe have significant prospects for growth and business development due to the strong demand in our target market of nonprime borrowers. Throughout 2012, management continued to refine our business strategy and operating footprint and the reporting tools necessary to manage the Company under the new segments, which ultimately led to our new segment reporting.

A description of each of our three business segments follows:

· Consumer Business Segment - We originate and service personal loans (secured and unsecured) in 26 states, which are our core operating states. To supplement our lending activities, we may purchase finance receivables originated by other lenders. We also offer credit and non-credit insurance and ancillary products to all eligible branch customers.

· 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 consumer and real estate business segments offer to its customers. We also offer non-credit insurance and ancillary products.

· Real Estate Business Segment - We service and hold real estate loans secured by first or second mortgages on residential real estate. Real estate loans previously originated through our branch offices are either serviced by our branch personnel or centrally serviced at our Evansville, Indiana location or other specialized servicing centers. Real estate loans previously acquired or originated through centralized distribution channels are serviced by MorEquity, a wholly-owned subsidiary of SLFC, all of which are subserviced by Nationstar, except for certain securitized real estate loans, which are serviced and subserviced by third parties. Investment funds managed by affiliates of Fortress indirectly own a majority interest in Nationstar. As a result of the cessation of real estate lending effective January 1, 2012, all of our real estate loans are in a liquidating status.

We report our segment totals using the historical accounting basis (which is a basis of accounting other than U.S. GAAP) because management analyzes each business segment on a historical accounting basis. We evaluate the performance of the segments based on pretax operating earnings.

The “Other” column in the following tables consists of our non-core and non-originating legacy operations, including:

· our legacy operations in 14 states where we do not have a significant presence;

· our liquidating retail sales finance portfolio, including our retail sales finance accounts from our dedicated auto finance operation;

· our lending operations in Puerto Rico and the U.S. Virgin Islands; and

· Ocean.

The “Push-down Accounting Adjustments” column in the following tables consists of:

· the accretion or amortization of the valuation adjustments on the applicable revalued assets and liabilities;

· the difference in finance charges on our credit impaired finance receivables compared to the finance charges on these finance receivables on a historical accounting basis;

· the elimination of accretion or amortization of historical based discounts, premiums, and other deferred costs on our finance receivables and long-term debt; and

· the reversal of the decreases to the allowance for finance receivable losses (on a historical accounting basis).

The following tables present information about the Company’s segments as well as reconciliations to the condensed consolidated financial statement amounts. Due to the changes in the composition of our previously reported business segments, we have restated the corresponding segment information for the prior period.

												Total
												Historical			Push-down
	Consumer		Insurance			Real Estate						Accounting			Accounting			Consolidated
(dollars in thousands)	Segment		Segment			Segment			Other			Basis			Adjustments			Total
At or for the Three Months Ended March 31, 2013
Interest income:
Finance charges	$	160,483	$	-		$	184,956		$	15,344		$	360,783		$	49,014		$	409,797
Interest expense	36,951		-			150,790			4,860			192,601			34,500			227,101
Net interest income	123,532		-			34,166			10,484			168,182			14,514			182,696
Provision for finance receivable losses	19,961		-			76,883			993			97,837			(1,752		)	96,085
Net interest income after provision for finance receivable losses	103,571		-			(42,717		)	9,491			70,345			16,266			86,611
Other revenues:
Insurance	-		32,892			-			20			32,912			(12		)	32,900
Investment	-		9,292			-			-			9,292			(1,412		)	7,880
Intersegment - insurance commissions	10,676		(10,669		)	28			(35		)	-			-			-
Other	423		1,793			(1,100		)	4,427			5,543			(281		)	5,262
Total other revenues	11,099		33,308			(1,072		)	4,412			47,747			(1,705		)	46,042
Other expenses:
Operating expenses:
Salaries and benefits	61,214		1,764			6,497			8,476			77,951			(53		)	77,898
Other operating expenses	29,145		2,340			14,729			1,592			47,806			1,156			48,962
Insurance losses and loss adjustment expenses	-		14,968			-			-			14,968			(214		)	14,754
Total other expenses	90,359		19,072			21,226			10,068			140,725			889			141,614
Income (loss) before provision for (benefit from) income taxes	$	24,311	$	14,236		$	(65,015	)	$	3,835		$	(22,633	)	$	13,672		$	(8,961	)
Assets	$	2,579,848	$	1,013,908		$	9,365,246		$	2,380,616		$	15,339,618		$	(736,109	)	$	14,603,509

													Total
													Historical			Push-down
	Consumer			Insurance			Real Estate						Accounting			Accounting			Consolidated
(dollars in thousands)	Segment			Segment			Segment			Other			Basis			Adjustments			Total
At or for the Three Months Ended March 31, 2012
Interest income:
Finance charges	$	139,428		$	-		$	213,605		$	33,157		$	386,190		$	54,985		$	441,175
Finance receivables held for sale originated as held for investment	-			-			913			-			913			-			913
Total interest income	139,428			-			214,518			33,157			387,103			54,985			442,088
Interest expense	32,490			-			171,964			10,792			215,246			65,334			280,580
Net interest income	106,938			-			42,554			22,365			171,857			(10,349		)	161,508
Provision for finance receivable losses	15,044			-			65,444			1,803			82,291			(15,109		)	67,182
Net interest income after provision for finance receivable losses	91,894			-			(22,890		)	20,562			89,566			4,760			94,326
Other revenues:
Insurance	-			29,558			-			32			29,590			(41		)	29,549
Investment	-			11,081			-			-			11,081			(2,022		)	9,059
Intersegment - insurance commissions	7,409			(7,731		)	15			307			-			-			-
Other	295			551			(24,370		)	5,240			(18,284		)	1,407			(16,877		)
Total other revenues	7,704			33,459			(24,355		)	5,579			22,387			(656		)	21,731
Other expenses:
Operating expenses:
Salaries and benefits	65,998			2,837			7,971			11,575			88,381			(137		)	88,244
Other operating expenses	27,661			2,783			22,990			10,095			63,529			2,195			65,724
Restructuring expenses	14,894			201			556			5,935			21,586			-			21,586
Insurance losses and loss adjustment expenses	-			12,854			-			-			12,854			(320		)	12,534
Total other expenses	108,553			18,675			31,517			27,605			186,350			1,738			188,088
Income (loss) before provision for (benefit from) income taxes	$	(8,955	)	$	14,784		$	(78,762	)	$	(1,464	)	$	(74,397	)	$	2,366		$	(72,031	)
Assets	$	2,516,557		$	1,068,623		$	10,394,150		$	2,362,028		$	16,341,358		$	(720,970	)	$	15,620,388