2. Finance Receivables

Our finance receivable types include personal loans, real estate loans, and retail sales finance as defined below:

· Personal loans – are secured by consumer goods, automobiles, or other personal property or are unsecured, generally have maximum original terms of four years, and are usually fixed-rate, fixed-term loans.

· 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. As of January 1, 2012, we ceased originating real estate loans.

· Retail sales finance – includes retail sales contracts and revolving retail accounts. Retail sales contracts are closed-end accounts that represent a single purchase transaction. Revolving retail accounts are open-end accounts that can be used for financing repeated purchases from the same merchant. Retail sales contracts are secured by the personal property designated in the contract and generally have maximum original terms of 60 months. Revolving retail accounts 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. In January 2013, we ceased purchasing retail sales contracts and revolving retail accounts.

Components of net finance receivables by type were as follows:

	Personal			Real			Retail
(dollars in thousands)	Loans			Estate Loans			Sales Finance			Total

September 30, 2013

Gross receivables*	$	3,455,630		$	8,069,358		$	129,602		$	11,654,590
Unearned finance charges and points and fees	(515,471		)	(2,137		)	(12,804		)	(530,412		)
Accrued finance charges	42,704			43,605			1,090			87,399
Deferred origination costs	36,943			291			-			37,234
Total	$	3,019,806		$	8,111,117		$	117,888		$	11,248,811

December 31, 2012

Gross receivables	$	2,984,423		$	8,793,531		$	233,296		$	12,011,250
Unearned finance charges and points and fees	(402,828		)	(5,910		)	(27,087		)	(435,825		)
Accrued finance charges	36,937			50,666			2,148			89,751
Deferred origination costs	31,200			351			-			31,551
Total	$	2,649,732		$	8,838,638		$	208,357		$	11,696,727

* Gross receivables are defined below:

· finance receivables purchased as a performing receivable – gross finance receivables equal the unpaid principal balance (“UPB”) for interest bearing accounts and the gross remaining contractual payments for precompute accounts plus the remaining unearned discount, net of premium established at the time of purchase to reflect the finance receivable balance at its fair value;

· finance receivables originated subsequent to the Fortress Acquisition – gross finance receivables equals the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts; and

· purchased credit impaired finance receivables – gross finance receivables equals the remaining estimated cash flows less the current balance of accretable yield on the purchased credit impaired accounts.

Included in the table above are personal loans totaling $1.7 billion at September 30, 2013 and real estate loans totaling $5.3 billion at September 30, 2013 and $4.0 billion at December 31, 2012 associated with securitizations that remain on our balance sheet. The carrying amount of consolidated long-term debt associated with these securitizations totaled $5.3 billion at September 30, 2013 and $3.0 billion at December 31, 2012. See Note 9 for further discussion regarding our securitization transactions. Also included in the table above are finance receivables totaling $1.9 billion at September 30, 2013 and $5.2 billion at December 31, 2012, which have been pledged as collateral for our secured term loan.

Unused credit lines extended to customers by the Company were as follows:

	September 30,			December 31,
(dollars in thousands)	2013			2012

Real estate loans	$	65,201		$	86,437
Retail sales finance	-		*	78,071
Total	$	65,201		$	164,508

* Reflects the cessation of purchases of revolving retail accounts effective January 16, 2013.

Unused lines of credit on our real estate loans can be suspended if one of the following occurs: the value of the real estate declines significantly below the property’s initial appraised value; we believe the borrower will be unable to fulfill the repayment obligations because of a material change in the borrower’s financial circumstances; or any other default by the borrower of any material obligation under the agreement. Unused lines of credit on home equity lines of credit can be terminated for delinquency.

CREDIT QUALITY INDICATORS

We consider the delinquency status and nonperforming status of the finance receivable as our credit quality indicators.

We accrue finance charges on revolving retail finance receivables up to the date of charge-off at 180 days past due. We had $0.5 million of revolving retail finance receivables that were more than 90 days past due at September 30, 2013, compared to $1.0 million at December 31, 2012. Our personal and real estate loans do not have finance receivables that were more than 90 days past due and still accruing finance charges.

Delinquent Finance Receivables

We consider the delinquency status of the finance receivable as our primary credit quality indicator. We monitor delinquency trends to manage our exposure to credit risk. We consider finance receivables 60 days or more past due as delinquent and consider the likelihood of collection to decrease at such time.

The following is a summary of net finance receivable by type by days delinquent:

	Personal		Real		Retail
(dollars in thousands)	Loans		Estate Loans		Sales Finance		Total

September 30, 2013

Net finance receivables:
60-89 days past due	$	26,048	$	93,928	$	1,705	$	121,681
90-119 days past due	19,375		63,055		1,094		83,524
120-149 days past due	15,270		58,785		811		74,866
150-179 days past due	12,261		38,424		649		51,334
180 days or more past due	919		352,057		130		353,106
Total delinquent finance receivables	73,873		606,249		4,389		684,511
Current	2,897,643		7,321,444		110,114		10,329,201
30-59 days past due	48,290		183,424		3,385		235,099
Total	$	3,019,806	$	8,111,117	$	117,888	$	11,248,811

December 31, 2012

Net finance receivables:
60-89 days past due	$	21,683	$	99,472	$	2,107	$	123,262
90-119 days past due	17,538		73,712		1,416		92,666
120-149 days past due	14,050		57,985		1,171		73,206
150-179 days past due	9,613		45,326		743		55,682
180 days or more past due	12,107		382,227		331		394,665
Total delinquent finance receivables	74,991		658,722		5,768		739,481
Current	2,534,960		7,983,413		197,392		10,715,765
30-59 days past due	39,781		196,503		5,197		241,481
Total	$	2,649,732	$	8,838,638	$	208,357	$	11,696,727

Nonperforming Finance Receivables

We also monitor finance receivable performance trends to evaluate the potential risk of future credit losses. At 90 days or more past due, we consider our finance receivables to be nonperforming. Once the finance receivables are considered nonperforming, we consider them to be at increased risk for credit loss.

Our performing and nonperforming net finance receivables by type were as follows:

	Personal		Real		Retail
(dollars in thousands)	Loans		Estate Loans		Sales Finance		Total

September 30, 2013

Performing	$	2,971,981	$	7,598,796	$	115,204	$	10,685,981
Nonperforming	47,825		512,321		2,684		562,830
Total	$	3,019,806	$	8,111,117	$	117,888	$	11,248,811

December 31, 2012

Performing	$	2,596,424	$	8,279,388	$	204,696	$	11,080,508
Nonperforming	53,308		559,250		3,661		616,219
Total	$	2,649,732	$	8,838,638	$	208,357	$	11,696,727

PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES

As a result of the Fortress Acquisition, we applied push-down accounting and adjusted the carrying value of our finance receivables to their fair value on November 30, 2010. No finance receivables have been added to these pools subsequent to November 30, 2010.

We include the carrying amount (which initially was the fair value) of our 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:

	September 30,		December 31,
(dollars in thousands)	2013		2012

Carrying amount, net of allowance	$	1,282,683	$	1,373,792

Outstanding balance	$	1,825,077	$	1,957,260

Allowance for purchased credit impaired finance receivable losses	$	46,003	$	16,973

The allowance for purchased credit impaired finance receivable losses at September 30, 2013 and December 31, 2012 reflected the net carrying value of these purchased credit impaired finance receivables being higher than the present value of the expected cash flows.

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

	At or for the			At or for the			At or for the			At or for the
	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
(dollars in thousands)	2013			2012			2013			2012

Balance at beginning of period	$	844,018		$	389,461		$	624,879		$	463,960
Accretion	(32,041		)	(34,768		)	(97,036		)	(96,697		)
Reclassifications from nonaccretable difference (a)	2,740			313,864			303,328			313,864
Disposals of finance receivables (b)	(8,337		)	(6,973		)	(24,791		)	(19,543		)
Balance at end of period	$	806,380		$	661,584		$	806,380		$	661,584

(a) Reclassifications from nonaccretable difference for the three and nine months ended September 30, 2013 represent the increases in accretion resulting from higher estimated undiscounted cash flows. Reclassifications from nonaccretable difference for the three and nine months ended September 30, 2012 represent the increase in accretion related to an increase in the pool yield.

(b) Disposals of finance receivables represent finance charges forfeited due to purchased credit impaired finance receivables charged-off during the period.

TROUBLED DEBT RESTRUCTURED FINANCE RECEIVABLES

Information regarding TDR finance receivables were as follows:

	Real Estate
(dollars in thousands)	Loans

September 30, 2013

TDR gross finance receivables	$	1,260,429
TDR net finance receivables	$	1,264,971
Allowance for TDR finance receivable losses	$	161,464

December 31, 2012

TDR gross finance receivables	$	802,495
TDR net finance receivables	$	806,420
Allowance for TDR finance receivable losses	$	92,723

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 were as follows:

Three Months

Nine Months

Ended

September 30,

(dollars in thousands)

2013

2012

2013

2012

Real Estate Loans

TDR average net receivables

1,224,413

590,024

1,072,115

451,248

TDR finance charges recognized

17,109

8,572

45,791

18,470

Information regarding the new volume of the TDR finance receivables was as follows:

Three Months

Nine Months

Ended

September 30,

(dollars in thousands)

2013

2012

2013

2012

Real Estate Loans

Number of TDR accounts

1,618

1,634

5,919

3,610

Pre-modification TDR net finance receivables

131,969

154,492

467,362

367,858

Post-modification TDR net finance receivables

139,830

152,073

488,577

370,031

Net finance receivables that were modified as TDR finance receivables within the previous 12 months and for which there was a default during the period were as follows:

Three Months

Nine Months

Ended

September 30,

(dollars in thousands)

2013

2012

2013

2012

Real Estate Loans

Number of TDR accounts

377

126

796

408

TDR net finance receivables*

26,030

12,416

59,719

47,418

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