News Column

SPRINGLEAF FINANCE CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 11, 2014

Forward-Looking Statements

This report may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," "target," "projects," "contemplates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to: changes in general economic conditions, including the interest rate environment in which we conduct business and the financial markets through which we can access capital and also invest cash flows from our Insurance segment; levels of unemployment and personal bankruptcies;



natural or accidental events such as earthquakes, hurricanes, tornadoes, fires, or floods affecting our customers, collateral, or branches or other operating facilities;

war, acts of terrorism, riots, civil disruption, pandemics, or other events disrupting business or commerce;

the effect of a planned sale of a substantial portion of our remaining portfolio of real estate loans and the transfer of servicing for these loans in the third quarter of 2014;

changes in the rate at which we can collect or potentially sell our finance receivables portfolio;

the effectiveness of our credit risk scoring models in assessing the risk of customer unwillingness or lack of capacity to repay;

changes in our ability to attract and retain employees or key executives to support our businesses;

changes in the competitive environment in which we operate, including the demand for our products, customer responsiveness to our distribution channels, and the strength and ability of our competitors to operate independently or to enter into business combinations that result in a more attractive range of customer products or provide greater financial resources;

shifts in residential real estate values; shifts in collateral values, delinquencies, or credit losses; changes in federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (which, among other things, established the Consumer Financial Protection Bureau, which has broad authority to regulate and examine financial institutions), that affect our ability to conduct business or the manner in which we conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry; the potential for increased costs and difficulty in servicing our legacy real estate loan portfolio (including costs and delays associated with foreclosure on real estate collateral), as a result of heightened nationwide regulatory scrutiny of loan servicing and foreclosure practices in the industry generally, and related costs that could be passed on to us in connection with the subservicing of our real estate loans that were originated or acquired centrally; 59

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potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans, if it is determined that there was a non-curable breach of a warranty made in connection with such transactions; the costs and effects of any litigation or governmental inquiries or investigations involving us, particularly those that are determined adversely to us;



our continued ability to access the capital markets or the sufficiency of our current sources of funds to satisfy our cash flow requirements;

our ability to comply with our debt covenants;

our ability to generate sufficient cash to service all of our indebtedness;

our substantial indebtedness, which could prevent us from meeting our obligations under our debt instruments and limit our ability to react to changes in the economy or our industry, or our ability to incur additional borrowings;



the potential for downgrade of our debt by rating agencies, which would have a negative impact on our cost of, and access to, capital;

the impacts of our securitizations and borrowings;

our ability to maintain sufficient capital levels in our regulated and unregulated subsidiaries; and

changes in accounting standards or tax policies and practices and the application of such new policies and practices to the manner in which we conduct business. We also direct readers to other risks and uncertainties discussed in other documents we file with the Securities and Exchange Commission (the "SEC"). The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Overview Springleaf is a leading consumer finance company providing responsible loan products primarily to non-prime customers. We originate consumer loans through our network of nearly 830 branch offices in 26 states. Through two insurance subsidiaries, we write credit and non-credit insurance policies covering our customers and the property pledged as collateral for our loans. At June 30, 2014, we had three business segments: Consumer, Insurance, and Real Estate. See Note 16 of the Notes to Condensed Consolidated Financial Statements for a description of our segments. 60 --------------------------------------------------------------------------------

Table of Contents OUR PRODUCTS



Our core product offerings include:

Personal Loans - We offer personal loans through our branch network to customers who generally need timely access to cash. Our personal loans are typically non-revolving with a fixed-rate and a fixed, original term of two to four years. At June 30, 2014, we had over 867,000 personal loans, representing $3.4 billion of net finance receivables, of which $1.5 billion, or 45%, were secured by collateral consisting of titled personal property (such as automobiles), $1.3 billion, or 39%, were secured by consumer household goods or other items of personal property, and the remainder was unsecured. Insurance Products - We offer our customers credit insurance (life insurance, accident and health insurance, and involuntary unemployment insurance), non-credit insurance, and ancillary products, such as warranty protection, through our branch operations. Credit insurance and non-credit insurance products are provided by our subsidiaries, Merit and Yosemite. The ancillary products are home security and auto security membership plans and home appliance service contracts of unaffiliated companies. Our legacy products include: Real Estate Loans - We ceased real estate lending in January 2012. These loans may be closed-end accounts or open-end home equity lines of credit, generally have a fixed rate and maximum original terms of 360 months, and are secured by first or second mortgages on residential real estate. We continue to service the liquidating real estate loans and support any advances on open-end accounts. Retail Sales Finance - We ceased purchasing retail sales contracts and revolving retail accounts in January 2013. We continue to service the liquidating retail sales contracts and will provide revolving retail sales financing services on our revolving retail accounts. We refer to retail sales contracts and revolving retail accounts collectively as "retail sales finance." Recent Developments



NON-CORE REAL ESTATE LOAN TRANSACTIONS

Sales of Retained Certificates

We completed the sales of the 2010-1 and 2009-1 Retained Certificates on June 30, 2014 and March 31, 2014, respectively. See Note 1 of the Condensed Consolidated Financial Statements for further information on these sales.

Sale of Real Estate Loans



On March 31, 2014, we completed the sale of certain performing and non-performing real estate loans. See Note 1 of the Condensed Consolidated Financial Statements for further information on this sale.

Sale of Mortgage Loans and Securitization Interests

On August 6, 2014, we entered into an agreement to sell the Mortgage Loans and the Securities issued by each respective Trust, as further discussed in Note 19 of the Notes to Condensed Consolidated Financial Statements. We expect the sales transactions to be completed on or before August 29, 2014, subject to the satisfaction of customary closing conditions. 61 --------------------------------------------------------------------------------



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We will not retain any interest in the certificates issued by, or the real estate loans included in, the respective Trusts. As a result, we will deconsolidate the underlying real estate loans and previously issued securitized interests on the date of sale. At June 30, 2014, the total carrying value of the real estate loans included in the sales transactions noted above totaled $5.3 billion and, as such, reflects a liquidation of a substantial portion of our real estate loans, which totaled $6.0 billion at June 30, 2014, net of allowance for finance receivable losses.



Sale of Servicing Rights of Real Estate Loans

On August 6, 2014, we entered into an agreement, dated and effective as of August 1, 2014, with Nationstar to sell our Servicing Rights for the real estate loans that collateralized previously issued securitizations. The transfer of servicing is expected to be completed by September 30, 2014, subject to the satisfaction of customary closing conditions. See Note 19 of the Notes to Condensed Consolidated Financial Statements for further information. CREDIT RATINGS Standard & Poor's Ratings Services ("S&P") and Fitch, Inc. ("Fitch") upgraded SFC's long-term corporate debt rating as follows: (i) from B- to B with a stable outlook by S&P on August 8, 2014 and (ii) from B- to B with a stable outlook by Fitch on August 7, 2014. In addition, on August 7, 2014, Moody's Investors Service, Inc. placed its B3 rating of SFC's long-term corporate debt on review for upgrade. CONSUMER LOAN SECURITIZATIONS



Whitford Brook 2014-VFN1 Securitization

On June 26, 2014, we established a private securitization facility in which Whitford Brook 2014-VFN1 Trust, a wholly owned special purpose vehicle, may issue variable funding notes with a maximum principal balance of $300 million to be backed by personal loans acquired from subsidiaries of SFC. The notes will be funded over a three-year period, subject to the satisfaction of customary conditions precedent. During this period, the notes can also be paid down to the required minimum balance of $100 million and then redrawn. Following the three-year funding period, the principal amount of the notes will be reduced as cash payments are received on the underlying personal loans and will be due and payable in full in July 2018, unless an option to prepay is elected between July 2017 and July 2018. At June 30, 2014, the required minimum balance of $100 million was drawn under the notes. 2014-A Securitization On March 26, 2014, we completed a private securitization transaction in which a wholly owned special purpose vehicle sold $559.3 million of notes backed by personal loans held by the 2014-A Trust, at a 2.62% weighted average yield. We sold the asset-backed notes for $559.2 million, after the price discount but before expenses and a $6.4 million interest reserve requirement. We initially retained $32.9 million of the 2014-A Trust's subordinate asset-backed notes.



Renewal of Midbrook 2013-VFN1 Securitization

On June 13, 2014, we amended the note purchase agreement with Midbrook 2013-VFN1 Trust, a wholly owned special purpose vehicle, to extend the one-year funding period to a two-year funding period. Following the two-year funding period, the principal amount of the notes, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in full in July 2019. The maximum principal balance of variable funding notes that can be issued remained at $300 million. No amounts were funded at closing. 62 --------------------------------------------------------------------------------



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Repayment of 2013-BAC Trust Notes

On September 25, 2013, we completed a private securitization transaction in which Springleaf Funding Trust 2013-BAC, a wholly owned special purpose vehicle, issued $500 million of notes backed by an amortizing pool of personal loans acquired from subsidiaries of SFC. On March 27, 2014, we repaid the entire $231.3 million outstanding principal balance of the notes, plus accrued and unpaid interest.

PREPAYMENT OF SECURED TERM LOAN

On March 31, 2014, SFFC prepaid, without penalty or premium, the entire $750.0 million outstanding principal balance of the secured term loan, plus accrued and unpaid interest. Effective upon the prepayment, all obligations of SFFC, SFC, and most of the consumer finance operating subsidiaries of SFC under the secured term loan (other than contingent reimbursement obligations and indemnity obligations) were terminated and all guarantees and security interests were released. CAPITAL CONTRIBUTION TO SFC On July 31, 2014, SFI made a capital contribution to SFC, consisting of 100 shares of the common stock, par value of $0.01 per share, of SAC representing all of the issued and outstanding shares of capital stock of SAC. See Note 19 of the Notes to Condensed Consolidated Financial Statements for further information. OUTLOOK Assuming the U.S. economy continues to experience slow to moderate growth, we expect to continue our long history of strong credit performance. During 2012 and much of 2013, we experienced unusually low charge-off ratios as a result of tightening underwriting practices in 2010-2011. The personal loan portfolio typically exhibited net charge-off ratios in the range of 4.75-5.75% prior to the start of the recession in 2008 and has returned to these levels, as we expected. We believe the strong credit quality of our personal loan portfolio is the result of our disciplined underwriting practices and ongoing collection efforts. We also continue to see growth in the volume of personal loan originations driven by the following factors: Declining competition from thrifts and banks (although banks continue to serve non-prime customers in other ways) as these institutions have retreated from the non-prime market in the face of regulatory scrutiny and in the aftermath of the housing crisis. As a result of the reduced lending of these competitors, access to credit has fallen substantially for the non-prime segment of customers, which, in turn, has increased our potential customer base.



Slow but sustained economic growth.

Migration of customer activity from traditional channels such as direct mail to online channels where we believe we are well suited to capture volume due to our scale, technology, and deployment of advanced analytics.



Our renewed focus on our personal loan business as we have discontinued real estate and other product originations in our branches.

In addition, with an experienced management team, a strong balance sheet, proven access to the capital markets, and strong demand for consumer credit, we believe we are well positioned for future personal loan growth. 63 --------------------------------------------------------------------------------

Table of Contents Prior Period Revisions As disclosed in our 2013 Annual Report on Form 10-K, we identified certain out-of-period errors in preparing our annual consolidated financial statements for the year ended December 31, 2013. In addition to these errors, we had previously recorded and disclosed out-of-period adjustments in prior reporting periods when the errors were discovered. As a result, we revised all previously reported periods included in our 2013 Annual Report on Form 10-K. Similarly, we have revised all previously reported periods included in this report. We corrected the errors identified in the fourth quarter of 2013 and included these corrections in the appropriate prior periods. In addition, we reversed all out-of period adjustments previously recorded and disclosed, and included the adjustments in the appropriate periods. After evaluating the quantitative and qualitative aspects of these corrections, we have determined that our previous quarterly and annual consolidated financial statements were not materially misstated.



See Note 17 of the Notes to Condensed Consolidated Financial Statements for further information on the prior period revisions. All prior period data presented in the discussion and analysis of our financial condition and results of operations reflects the revised balances.

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Table of Contents Results of Operations CONSOLIDATED RESULTS See table below for our consolidated operating results. A further discussion of our operating results for each of our business segments is provided under "-Segment Results." Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Interest income $ 391,353$ 407,846$ 793,922$ 816,363 Interest expense 171,797 214,285 353,543 444,591 Net interest income 219,556 193,561 440,379 371,772 Provision for finance receivable losses 74,246 64,384



181,258 158,615

Net interest income after provision for finance receivable losses 145,310 129,177 259,121 213,157 Other revenues: Insurance 42,687 35,967 81,106 68,867 Investment 10,629 10,488 20,060 19,326 Net loss on repurchases and repayments of debt - (237 ) (6,615 ) (237 ) Net gain on sales of real estate loans and related trust assets 34,800 - 89,986 - Other 4,180 10,098 7,214 15,360 Total other revenues 92,296 56,316 191,751 103,316 Other expenses: Operating expenses: Salaries and benefits 81,277 75,640 163,463 153,538 Other operating expenses 51,573 49,962 102,006 98,924 Insurance losses and loss adjustment expenses 18,667 16,346 37,032 31,100 Total other expenses 151,517 141,948 302,501 283,562 Income before provision for income taxes 86,089 43,545 148,371 32,911 Provision for income taxes 32,811 16,398 56,891 13,048 Net income $ 53,278$ 27,147$ 91,480$ 19,863 Comparison of Consolidated Results for Three Months Ended June 30, 2014 and 2013 (dollars in thousands) Three Months Ended June 30, 2014 2013 Interest income: Finance charges $ 388,689$ 407,846



Interest income on finance receivables held for sale originated as held for investment

2,664 - Total $ 391,353$ 407,846 65

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Finance charges decreased for the three months ended June 30, 2014 when compared to the same period in 2013 due to the net of the following:

(dollars in thousands)

2014 compared to 2013 - Three Months Ended June 30

Decrease in average net receivables $ (34,030 ) Increase in yield 14,873 Total $ (19,157 ) Average net receivables decreased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to our liquidating real estate loan portfolio, including the transfers of real estate loans with a total carrying value of $1.2 billion associated with the 2010 and 2009 securitizations and an additional transfer of real estate loans with a carrying value of $90.9 million to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The decrease was partially offset by higher personal loan average net receivables resulting from our continued focus on personal loans.



Yield increased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to our continued focus on personal loans, which have higher yields.

Interest expense decreased for the three months ended June 30, 2014 when compared to the same period in 2013 due to the following:

(dollars in thousands)

2014 compared to 2013 - Three Months Ended June 30

Decrease in average debt $ (39,077 ) Decrease in weighted average interest rate (3,411 ) Total $ (42,488 ) Average debt decreased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to debt repurchases and repayments of $4.6 billion during the past twelve months. These decreases were partially offset by debt issuances pursuant to eight securitization transactions completed during the past twelve months. The weighted average interest rate on our debt decreased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to the debt repurchases and repayments discussed above, which resulted in lower accretion of net discount applied to long-term debt. The lower weighted average interest rate also reflected the completion of eight securitization transactions during the past twelve months, which generally have lower interest rates. Provision for finance receivable losses increased $9.9 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to $41.2 million of recoveries recorded in June 2013 resulting from a sale of previously charged-off finance receivables in June 2013. The increase also reflected additional allowance requirements primarily due to growth in our personal loans during the 2014 period and higher delinquency ratios on all finance receivable types at June 30, 2014. This increase was partially offset by a reduction in the allowance requirements on our real estate loans deemed to be purchased credit impaired finance receivables and TDR finance receivables subsequent to the Fortress Acquisition as a result of the transfers of real estate loans with a total carrying value of $1.3 billion to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The allowance for finance receivables losses was eliminated with the application of push-down accounting as the allowance for finance receivable losses was incorporated in the new fair value basis of the finance receivables as of the Fortress Acquisition date. 66 --------------------------------------------------------------------------------



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Net gain on sales of real estate loans and related trust assets of $34.8 million for the three months ended June 30, 2014 reflected the reversal of the remaining unaccreted push-down accounting basis for these real estate loans, less allowance for finance receivable losses that we established at the date of the Fortress Acquisition. See Note 1 of the Notes to Condensed Financial Statements for further information on these sales. Provision for income taxes totaled $32.8 million for the three months ended June 30, 2014 compared to $16.4 million for the three months ended June 30, 2013. The effective tax rate for the three months ended June 30, 2014 was 38.1% compared to 37.7% for the same period in 2013. The effective tax rates for the three months ended June 30, 2014 and 2013 differed from the federal statutory rates primarily due to the effect of our state income taxes. Comparison of Consolidated Results for Six Months Ended June 30, 2014 and 2013 (dollars in thousands) Six Months Ended June 30, 2014 2013 Interest income: Finance charges $ 786,680$ 816,363



Interest income on finance receivables held for sale originated as held for investment

7,242 - Total $ 793,922$ 816,363



Finance charges decreased for the six months ended June 30, 2014 when compared to the same period in 2013 due to the net of the following:

(dollars in thousands)

2014 compared to 2013 - Six Months Ended June 30

Decrease in average net receivables $ (46,058 ) Increase in yield 16,375 Total $ (29,683 ) Average net receivables decreased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to our liquidating real estate loan portfolio, including the transfers of real estate loans with a total carrying value of $1.2 billion associated with the 2010 and 2009 securitizations and an additional transfer of real estate loans with a carrying value of $90.9 million to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The decrease was partially offset by higher personal loan average net receivables resulting from our continued focus on personal loans. Yield increased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to our continued focus on personal loans, which have higher yields.



Interest expense decreased for the six months ended June 30, 2014 when compared to the same period in 2013 due to the following:

(dollars in thousands)

2014 compared to 2013 - Six Months Ended June 30

Decrease in average debt $ (73,015 ) Decrease in weighted average interest rate (18,033 ) Total $ (91,048 ) 67

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Average debt decreased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to debt repurchases and repayments of $4.6 billion during the past twelve months. These decreases were partially offset by debt issuances pursuant to eight securitization transactions completed during the past twelve months. The weighted average interest rate on our debt decreased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to the debt repurchases and repayments discussed above, which resulted in lower accretion of net discount applied to long-term debt. The lower weighted average interest rate also reflected the completion of eight securitization transactions during the past twelve months, which generally have lower interest rates. Provision for finance receivable losses increased $22.6 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to $41.2 million of recoveries recorded in June 2013 resulting from a sale of previously charged-off finance receivables in June 2013. The increase also reflected additional allowance requirements primarily due to growth in our personal loans during the 2014 period and higher delinquency ratios on all finance receivable types at June 30, 2014. This increase was partially offset by a reduction in the allowance requirements on our real estate loans deemed to be purchased credit impaired finance receivables and TDR finance receivables subsequent to the Fortress Acquisition as a result of the transfers of real estate loans with a total carrying value of $1.3 billion to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The allowance for finance receivables losses was eliminated with the application of push-down accounting as the allowance for finance receivable losses was incorporated in the new fair value basis of the finance receivables as of the Fortress Acquisition date.



Net loss on repurchases and repayments of debt of $6.6 million for the six months ended June 30, 2014 reflected repurchases of debt in 2014 at net amounts greater than carrying value.

Net gain on sales of real estate loans and related trust assets of $90.0 million for the six months ended June 30, 2014 reflected the reversal of the remaining unaccreted push-down accounting basis for these real estate loans, less allowance for finance receivable losses that we established at the date of the Fortress Acquisition. See Note 1 of the Notes to Condensed Financial Statements for further information on these sales. Provision for income taxes totaled $56.9 million for the six months ended June 30, 2014 compared to $13.0 million for the six months ended June 30, 2013. The effective tax rate for the six months ended June 30, 2014 was 38.3% compared to 39.6% for the same period in 2013. The effective tax rates for the six months ended June 30, 2014 and 2013 differed from the federal statutory rates primarily due to the effect of our state income taxes. 68 --------------------------------------------------------------------------------



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Reconciliation of Income before Provision for Income Taxes on Push-Down Accounting Basis to Historical Accounting Basis

Due to the nature of the Fortress Acquisition, we revalued our assets and liabilities based on their fair values at November 30, 2010, the date of the Fortress Acquisition, in accordance with business combination accounting standards, or push-down accounting. Push-down accounting affected and continues to affect, among other things, the carrying amount of our finance receivables and long-term debt, our finance charges on our finance receivables and related yields, our interest expense, our allowance for finance receivable losses, and our net charge-offs and charge-off ratio. In general, on a quarterly basis, we accrete or amortize the valuation adjustments recorded in connection with the Fortress Acquisition, or record adjustments based on current expected cash flows as compared to expected cash flows at the time of the Fortress Acquisition, in each case, as described in more detail in the footnotes to the table below. In addition, push-down accounting resulted in the elimination of accretion or amortization of discounts, premiums, and other deferred costs on our finance receivables and long-term debt prior to the Fortress Acquisition. The reconciliations of income before provision for income taxes on a push-down accounting basis to income before provision for income taxes on a historical accounting basis (which is a basis of accounting other than U.S. GAAP that we believe provides a consistent basis for both management and other interested third parties to better understand our operating results) were as follows: Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Income before provision for income taxes - push-down accounting basis $ 86,089$ 43,545$ 148,371$ 32,911 Interest income adjustments (a) (32,706 ) (49,404 ) (67,980 ) (97,138 ) Interest expense adjustments (b) 35,256 34,563 63,884 70,370 Provision for finance receivable losses adjustments (c) 1,921 12,266 1,663 13,295 Repurchases and repayments of long-term debt adjustments (d) - (21,134 ) (4,884 ) (21,134 ) Fair value adjustments on debt (e) - 18,247 8,298 33,211 Sales of finance receivables held for sale originated as held for investment adjustments (f) (57,619 ) - (174,981 ) - Amortization of other intangible assets (g) 1,095 1,308 2,221 2,718 Other (h) 654 2,090 1,072 3,409 Income (loss) before provision for (benefit from) income taxes -historical accounting basis $ 34,690$ 41,481$ (22,336 )$ 37,642

-------------------------------------------------------------------------------- (a) Interest income adjustments consist of: (1) the accretion of the net discount applied to non-credit impaired net finance receivables to revalue the non-credit impaired net finance receivables to their fair value at the date of the Fortress Acquisition using the interest method over the remaining life of the related net finance receivables; (2) the difference in finance charges earned on our pools of purchased credit impaired net finance receivables under a level rate of return over the expected lives of the underlying pools of purchased credit impaired finance receivables, net of the finance charges earned on these finance receivables under historical accounting basis; and (3) the elimination of the accretion or amortization of historical unearned points and fees, deferred origination costs, premiums, and discounts. 69 --------------------------------------------------------------------------------



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Components of interest income adjustments consisted of:

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Accretion of net discount applied to non-credit impaired net finance receivables $ (24,087 )$ (39,882 )$ (49,522 )$ (77,508 ) Credit impaired finance receivables finance charges (11,578 ) (14,257 ) (24,320 ) (28,297 ) Elimination of accretion or amortization of historical unearned points and fees, deferred origination costs, premiums, and discounts 2,959 4,735 5,862 8,667 Total $ (32,706 )$ (49,404 )$ (67,980 )$ (97,138 ) (b) Interest expense adjustments consist of: (1) the accretion of the net discount applied to long-term debt to revalue the debt securities to their fair value at the date of the Fortress Acquisition using the interest method over the remaining life of the related debt securities; and (2) the elimination of the accretion or amortization of historical discounts, premiums, commissions, and fees.



Components of interest expense adjustments were as follows:

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Accretion of net discount applied to long-term debt $ 36,560$ 46,210$ 73,695$ 96,197 Elimination of accretion or amortization of historical discounts, premiums, commissions, and fees (1,304 ) (11,647 ) (9,811 ) (25,827 ) Total $ 35,256$ 34,563$ 63,884$ 70,370 (c) Provision for finance receivable losses consists of the allowance for finance receivable losses adjustments and net charge-offs quantified in the table below. Allowance for finance receivable losses adjustments reflects the net difference between our allowance adjustment requirements calculated under our historical accounting basis net of adjustments required under push-down accounting basis. Net charge-offs reflects the net charge-off of loans at a higher carrying value under historical accounting basis versus the discounted basis to their fair value at date of the Fortress Acquisition under push-down accounting basis. Components of provision for finance receivable losses adjustments were as follows: Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Allowance for finance receivable losses adjustments $ 12,720$ 28,659$ 22,099$ 48,266 Net charge-offs (10,799 ) (16,393 ) (20,436 ) (34,971 ) Total $ 1,921$ 12,266$ 1,663$ 13,295 (d) Repurchases and repayments of long-term debt adjustments reflect the impact on acceleration of the accretion of the net discount or amortization of the net premium applied to long-term debt. 70 --------------------------------------------------------------------------------



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(e) Fair value adjustments on debt reflect differences between historical accounting basis and push-down accounting basis. On a historical accounting basis, certain long-term debt components are marked-to-market on a recurring basis and are no longer marked-to-market on a recurring basis after the application of push-down accounting at the time of the Fortress Acquisition. (f) Fair value adjustments on sales of finance receivables held for sale originated as held for investment reflect the reversal of the remaining unaccreted push-down accounting basis for net finance receivables, less allowance for finance receivable losses established at the date of the Fortress Acquisition that were sold in March 2014. (g) Amortization of other intangible assets reflects the amortization over the remaining estimated life of intangible assets established at the date of the Fortress Acquisition as a result of the application of push-down accounting. (h) "Other" items reflects less significant differences between historical accounting basis and push-down accounting basis relating to various items such as the elimination of deferred charges, adjustments to the basis of other real estate assets, fair value adjustments to fixed assets, adjustments to insurance claims and policyholder liabilities, and various other differences all as of the date of the Fortress Acquisition.



At June 30, 2014, the remaining unaccreted push-down accounting basis totaled $359.3 million for net finance receivables, less allowance for finance receivable losses and $653.1 million for long-term debt.

Segment Results See Note 16 of the Notes to Condensed Consolidated Financial Statements for a description of our segments. Management considers Consumer and Insurance as our Core Consumer Operations and Real Estate as our Non-Core Portfolio. Due to the nature of the Fortress Acquisition, we applied push-down accounting. However, we report the operating results of our Core Consumer Operations, Non-Core Portfolio, and Other using the same accounting basis that we employed prior to the Fortress Acquisition, which we refer to as "historical accounting basis," to provide a consistent basis for both management and other interested third parties to better understand the operating results of these segments. The historical accounting basis (which is a basis of accounting other than U.S. GAAP) also provides better comparability of the operating results of these segments to our competitors and other companies in the financial services industry. See Note 16 of the Notes to Condensed Consolidated Financial for reconciliations of segment totals to condensed consolidated financial statement amounts. 71

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We allocate revenues and expenses (on a historical accounting basis) to each segment using the following methodologies:

Interest Directly correlated with a specific segment. income Disaggregated into three categories based on the underlying debt that the expense pertains to: securitizations - allocated to the segments whose finance receivables serve as the collateral securing each of the Interest respective debt instruments; expense unsecured debt - allocated to the segments based on the remaining balance of debt by segment; and secured term loan - allocated to the segments whose finance receivables served as the collateral securing each of the respective debt instruments.



Provision Directly correlated with a specific segment for finance except for allocations to "other," which are receivable based on the remaining delinquent accounts as losses a percentage of total delinquent accounts.

Insurance Directly correlated with a specific segment. revenues

Investment Directly correlated with a specific segment. revenues

Net gain (loss) on repurchases Allocated to the segments based on the and interest expense allocation of debt. repayments of debt Net gain (loss) on fair value Directly correlated with a specific segment. adjustments on debt Directly correlated with a specific segment



Other except for gains and losses on foreign revenues - currency exchange and derivatives. These other items are allocated to the segments based on

the interest expense allocation of debt. Directly correlated with a specific segment.



Salaries Other salaries and benefits not directly and

correlated with a specific segment are



benefits allocated to each of the segments based on

services provided. Directly correlated with a specific segment.



Other Other operating expenses not directly operating correlated with a specific segment are expenses allocated to each of the segments based on

services provided.



Insurance

losses and loss Directly correlated with a specific segment. adjustment expenses



We evaluate the performance of each of our segments based on its pretax operating earnings.

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Table of Contents CORE CONSUMER OPERATIONS Pretax operating results for Consumer and Insurance (which are reported on a historical accounting basis) are presented in the table below on an aggregate basis: Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Interest income $ 219,374$ 170,538$ 428,320$ 331,021 Interest expense 40,572 36,188 81,194 73,139 Net interest income 178,802 134,350 347,126 257,882 Provision for finance receivable losses 47,408 (5,946 )



92,340 14,015

Net interest income after provision for finance receivable losses 131,394 140,296 254,786 243,867 Other revenues: Insurance 42,655 35,956 81,039 68,848 Investment 11,663 13,094 21,930 23,479 Net loss on repurchases and repayments of debt - (1,500 ) (1,426 ) (1,500 ) Other 2,421 2,917 4,584 5,140 Total other revenues 56,739 50,467 106,127 95,967 Other expenses: Operating expenses: Salaries and benefits 68,877 64,597 138,910 127,575 Other operating expenses 37,313 32,371 72,115 63,856 Insurance loss and loss adjustment expenses 18,861 16,556 37,472 31,524 Total other expenses 125,051 113,524 248,497 222,955 Pretax operating income $ 63,082$ 77,239$ 112,416$ 116,879 73

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Selected financial statistics for Consumer (which are reported on a historical accounting basis) were as follows:

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30,

(dollars in thousands) 2014 2013 2014 2013 Consumer Net finance receivables $ 3,351,722$ 2,804,834 Number of accounts



857,884 755,066

Average net receivables $ 3,249,434$ 2,675,050$ 3,187,264$ 2,608,863 Yield 27.04 % 25.57 % 27.00 % 25.49 % Gross charge-off ratio (a) 5.78 % 4.36 % 5.67 % 5.50 % Recovery ratio (b) (0.68 )% (5.04 )% (0.62 )% (3.22 )% Charge-off ratio (a) (b) 5.10 % (0.68 )% 5.05 % 2.28 % Delinquency ratio 2.28 % 1.92 % Origination volume $ 938,653$ 897,577$ 1,655,681$ 1,557,091 Number of accounts 208,791 210,448 368,625 370,476

-------------------------------------------------------------------------------- (a) The gross charge-off ratio and charge-off ratio for the six months ended June 30, 2013 reflect $14.5 million of additional charge-offs recorded in March 2013 (on a historical accounting basis) related to our change in charge-off policy for personal loans effective March 31, 2013. Excluding these additional charge-offs, our Consumer gross charge-off ratio would have been 4.37% for the six months ended June 30, 2013. (b) The recovery ratio and charge-off ratio for the three and six months ended June 30, 2013 reflect $25.4 million of recoveries on charged-off core personal loans resulting from a sale of previously charged-off finance receivables in June 2013. Excluding these recoveries, our Consumer charge-off ratio would have been 3.18% for the three months ended June 30, 2013. Excluding the impacts of the $14.5 million of additional charge-offs and the $25.4 million of recoveries on charged-off core personal loans, our Consumer charge-off ratio would have been 3.11% for the six months ended June 30, 2013.



Comparison of Pretax Operating Results for Three Months Ended June 30, 2014 and 2013

Finance charges increased $48.8 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to increases in average net receivables and yield. Average net receivables increased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to increased originations on personal loans resulting from our continued focus on personal loans. Yield increased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to pricing of new personal loans at higher state specific rates with concentrations in states with more favorable returns. Interest expense increased $4.4 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to additional funding required to support increased originations of personal loans. This increase was partially offset by less utilization of financing from unsecured notes that was replaced by consumer loan securitizations, which generally have lower interest rates. Provision for finance receivable losses increased $53.4 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to $25.4 million of recoveries recorded in June 2013 on previously charged-off personal loans resulting from a sale of these loans in June 2013. The increase also reflected additional allowance requirements reflecting increased originations of personal loans in the 2014 period and higher personal loan delinquency ratio at June 30, 2014. 74 --------------------------------------------------------------------------------



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Insurance revenues increased $6.7 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to increases in credit and non-credit earned premiums reflecting higher originations of personal loans in the 2014 period. (dollars in thousands) Three Months Ended June 30, 2014 2013 Salaries and benefits - Consumer $ 63,721$ 60,600 Salaries and benefits - Insurance 5,156 3,997 Total $ 68,877$ 64,597 (dollars in thousands) Three Months Ended June 30, 2014 2013



Other operating expenses - Consumer $ 33,703$ 29,630 Other operating expenses - Insurance 3,610 2,741 Total

$ 37,313$ 32,371



Other operating expenses increased $4.9 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to higher professional fees, advertising, and information technology expenses.

Insurance losses and loss adjustment expenses increased $2.3 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to an unfavorable variance in benefit reserves and claim reserves.

Comparison of Pretax Operating Results for Six Months Ended June 30, 2014 and 2013

Finance charges increased $97.3 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to increases in average net receivables and yield. Average net receivables increased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to increased originations on personal loans resulting from our continued focus on personal loans. Yield increased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to pricing of new personal loans at higher state specific rates with concentrations in states with more favorable returns. Interest expense increased $8.1 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to additional funding required to support increased originations of personal loans. This increase was partially offset by less utilization of financing from unsecured notes that was replaced by consumer loan securitizations, which generally have lower interest rates. Provision for finance receivable losses increased $78.3 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to $25.4 million of recoveries recorded in June 2013 on previously charged-off personal loans resulting from a sale of these loans in June 2013. The increase also reflected additional allowance requirements reflecting increased originations of personal loans in the 2014 period and higher personal loan delinquency ratio at June 30, 2014. Insurance revenues increased $12.2 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to increases in credit and non-credit earned premiums reflecting higher originations of personal loans in the 2014 period. 75

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Table of Contents (dollars in thousands) Six Months Ended June 30, 2014 2013 Salaries and benefits - Consumer $ 129,200$ 120,653 Salaries and benefits - Insurance 9,710 6,922 Total $ 138,910$ 127,575 (dollars in thousands) Six Months Ended June 30, 2014 2013



Other operating expenses - Consumer $ 65,280$ 58,775 Other operating expenses - Insurance 6,835 5,081 Total

$ 72,115$ 63,856



Other operating expenses increased $8.3 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to higher advertising, information technology, and professional expenses.

Insurance losses and loss adjustment expenses increased $5.9 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to an unfavorable variance in claim reserves.



Reconciliation of Income before Provision for Income Taxes on Historical Accounting Basis to Pretax Core Earnings

Pretax core earnings is a key performance measure used by management in evaluating the performance of our Core Consumer Operations. Pretax core earnings represents our income (loss) before provision for (benefit from) income taxes on a historical accounting basis and excludes results of operations from our non-core portfolio (Real Estate) and other non-originating legacy operations and gains (losses) resulting from accelerated long-term debt repayment and repurchases of long-term debt related to Consumer. Pretax core earnings provides us with a key measure of our Core Consumer Operations' performance as it assists us in comparing its performance on a consistent basis. Management believes pretax core earnings is useful in assessing the profitability of our core business and uses pretax core earnings in evaluating our operating performance. Pretax core earnings is a non-GAAP measure and should be considered in addition to, but not as a substitute for or superior to, operating income, net income, operating cash flow, and other measures of financial performance prepared in accordance with U.S. GAAP.



The following is a reconciliation of income before provision for income taxes on a historical accounting basis to pretax core earnings:

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Income (loss) before provision for (benefit from) income taxes - historical accounting basis $ 34,690$ 41,481$ (22,336 )$ 37,642 Adjustments: Pretax operating loss - Non-Core Portfolio Operations 22,280 48,871 127,250 96,185 Pretax operating (income) loss - Other/ non-originating legacy operations 6,112 (13,113 ) 7,502 (16,948 ) Net loss from accelerated repayment/ repurchase of debt - Consumer - 1,500 1,426 1,500 Pretax core earnings $ 63,082$ 78,739$ 113,842$ 118,379 76

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Table of Contents NON-CORE PORTFOLIO



Pretax operating results for Real Estate (which are reported on a historical accounting basis) were as follows:

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Interest income $ 134,961$ 175,618$ 288,206$ 360,574 Interest expense 94,142 139,525 204,490 292,213 Net interest income 40,819 36,093 83,716 68,361 Provision for finance receivable losses 20,615 64,805



81,989 137,053

Net interest income (loss) after provision for finance receivable losses 20,204 (28,712 ) 1,727 (68,692 ) Other revenues: Net loss on repurchases and repayments of debt - (19,600 ) (10,025 ) (19,600 ) Net gain on fair value adjustments on debt - 18,247 8,298 33,211 Net loss on sales of real estate loans and related trust assets * (22,819 ) - (84,995 ) - Other 425 1,600 (684 ) 528 Total other revenues (22,394 ) 247 (87,406 ) 14,139 Other expenses: Operating expenses: Salaries and benefits 8,847 6,493 17,373 12,990 Other operating expenses 11,243 13,913 24,198 28,642 Total other expenses 20,090 20,406 41,571 41,632 Pretax operating loss $ (22,280 )$ (48,871 )$ (127,250 )$ (96,185 )

-------------------------------------------------------------------------------- * Consistent with our segment reporting presentation in Note 16 of the Notes to Condensed Consolidated Financial Statements, we have combined the lower of cost or fair value adjustments recorded on the dates the real estate loans were transferred to finance receivables held for sale with the final gain (loss) on the sales of these loans. 77

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Selected financial statistics for Real Estate (which are reported on a historical accounting basis) were as follows:

At or for the At or for the Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Real estate Net finance receivables $ 7,196,486$ 9,776,984 Number of accounts 103,595 126,026 TDR finance receivables $ 2,949,482$ 3,047,652 Allowance for finance receivables losses - TDR $ 704,400$ 706,001 Provision for finance receivable losses - TDR $ 20,890$ 55,826 $



65,741 $ 101,607

Average net receivables $ 7,752,757$ 9,934,162$ 8,334,087$ 10,089,223 Yield 6.85 % 7.09 % 6.80 % 7.21 % Loss ratio (a) (b) 1.96 % 2.39 % 1.79 % 2.18 % Delinquency ratio 8.88 % 7.49 %

-------------------------------------------------------------------------------- (a) The loss ratio for the six months ended June 30, 2014 reflects $2.2 million of recoveries on charged-off real estate loans resulting from a sale of previously charged-off real estate loans in March 2014, net of a $0.2 million reserve for subsequent buybacks. Excluding these recoveries, our Real Estate loss ratio would have been 1.85% for the six months ended June 2014. (b) The loss ratio for the three and six months ended June 30, 2013 reflect $9.9 million of recoveries on charged-off real estate loans resulting from a sale of previously charged-off finance receivables in June 2013. Excluding these recoveries, our Real Estate loss ratio would have been 2.79% and 2.37%, respectively, for the three and six months ended June 30, 2013. Comparison of Pretax Operating Results for Three Months Ended June 30, 2014 and 2013 (dollars in thousands) Three Months Ended June 30, 2014 2013 Interest income: Finance charges $ 132,409$ 175,618



Interest income on finance receivables held for sale originated as held for investment

2,552 - Total $ 134,961$ 175,618 Finance charges decreased $43.2 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to decreases in average net receivables and yield. Average net receivables decreased for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to the continued liquidation of the real estate portfolio, including the transfers of real estate loans with a total carrying value of $1.4 billion associated with the 2010 and 2009 securitizations and an additional transfer of real estate loans with a carrying value of $77.1 million to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The decrease in yield for the three months ended June 30, 2014 reflected the transfers of the real estate loans to finance receivables held for sale on June 1, 2014. 78 --------------------------------------------------------------------------------



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Interest expense decreased $45.4 million for the three months ended June 30, 2014 when compared to the same period in 2013 primarily due to lower secured term loan and unsecured debt interest expense allocated to Real Estate, partially offset by higher ratio of securitization interest expense reflecting Real Estate's utilization of two real estate loan securitization transactions during the past twelve months. Provision for finance receivable losses decreased $44.2 million for the three months ended June 30, 2014 when compared to the same period in 2013. The decrease in provision for finance receivable losses reflected a reduction in the allowance requirements recorded for the three months ended June 30, 2014 on our real estate loans deemed to be TDR finance receivables subsequent to the Fortress Acquisition as a result of the transfers of real estate loans with a total carrying value of $1.5 billion to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The decrease was partially offset by $9.9 million of recoveries recorded in June 2013 on previously charged-off real estate loans resulting from a sale of these loans in June 2013 and increases to the allowance for finance receivable losses reflecting higher real estate loan delinquency ratio at June 30, 2014. Net loss on repurchases and repayments of debt of $19.6 million for the three months ended June 30, 2013 reflected acceleration of amortization on deferred costs and repurchases of debt at net amounts greater than carrying value for the three months ended June 30, 2013. Net gain on fair value adjustments on debt of $18.2 million for the three months ended June 30, 2013 reflected differences between historical accounting basis and push-down accounting basis. On a historical accounting basis, certain long-term debt components are marked-to-market on a recurring basis and are no longer marked-to-market on a recurring basis after the application of push-down accounting at the time of the Fortress Acquisition. Net loss on sales of real estate loans and related trust assets of $22.8 million for the three months ended June 30, 2014 primarily reflected the lower of cost or fair value adjustments recorded on the date the real estate loans were transferred to finance receivables held for sale. Consistent with our segment reporting presentation, we have combined the lower of cost or fair value adjustments with the final gain (loss) on the sale of these loans. Comparison of Pretax Operating Results for Six Months Ended June 30, 2014 and 2013 (dollars in thousands) Six Months Ended June 30, 2014 2013 Interest income: Finance charges $ 281,076$ 360,574



Interest income on finance receivables held for sale originated as held for investment

7,130 - Total $ 288,206$ 360,574 Finance charges decreased $79.5 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to decreases in average net receivables and yield. Average net receivables decreased for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to the continued liquidation of the real estate portfolio, including the transfers of real estate loans with a total carrying value of $1.4 billion associated with the 2010 and 2009 securitizations and an additional transfer of real estate loans with a carrying value of $77.1 million to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The decrease in yield for the six months ended June 30, 2014 reflected the transfers of the real estate loans to finance receivables held for sale during the first half of 2014. Interest expense decreased $87.7 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to lower secured term loan and unsecured debt interest expense allocated to Real Estate, partially offset by higher ratio of securitization interest expense reflecting Real Estate's utilization of two real estate loan securitization transactions during the past twelve months. 79

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Provision for finance receivable losses decreased $55.1 million for the six months ended June 30, 2014 when compared to the same period in 2013. The decrease in provision for finance receivable losses reflected a reduction in the allowance requirements recorded for the six months ended June 30, 2014 on our real estate loans deemed to be TDR finance receivables subsequent to the Fortress Acquisition as a result of the transfers of real estate loans with a total carrying value of $1.5 billion to finance receivables held for sale and the subsequent sales of these real estate loans during the first half of 2014. The decrease was partially offset by $9.9 million of recoveries recorded in June 2013 on previously charged-off real estate loans resulting from a sale of these loans in June 2013 and increases to the allowance for finance receivable losses reflecting higher real estate loan delinquency ratio at June 30, 2014. Net loss on repurchases and repayments of debt of $10.0 million and $19.6 million for the six months ended June 30, 2014 and 2013, respectively, reflected acceleration of amortization on deferred costs and repurchases of debt at net amounts greater than carrying value for the six month periods. Net gain on fair value adjustments on debt of $8.3 million and $33.2 million for the six months ended June 30, 2014 and 2013, respectively, reflected differences between historical accounting basis and push-down accounting basis. On a historical accounting basis, certain long-term debt components are marked-to-market on a recurring basis and are no longer marked-to-market on a recurring basis after the application of push-down accounting at the time of the Fortress Acquisition. Net loss on sales of real estate loans and related trust assets of $85.0 million for the six months ended June 30, 2014 primarily reflected the lower of cost or fair value adjustments recorded on the dates the real estate loans were transferred to finance receivables held for sale. Consistent with our segment reporting presentation, we have combined the lower of cost or fair value adjustments with the final gain (loss) on the sales of these loans. OTHER "Other" consists of our other non-originating legacy operations, which are isolated by geographic market and/or distribution channel from our prospective Core Consumer Operations and our Non-Core Portfolio. These operations include our legacy operations in 14 states where we have also ceased branch-based personal lending as a result of our restructuring activities during the first half of 2012, 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 the operations of our United Kingdom subsidiary. Effective June 1, 2014, we also report (on a prospective basis) certain real estate loans with equity capacity in Other. These short equity loans, which have liquidated down to an immaterial level, were previously included in our Core Consumer Operations. At June 1, 2014, the transfer date, these loans totaled $16.3 million. 80 --------------------------------------------------------------------------------



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Pretax operating results of the Other components (which are reported on a historical accounting basis) were as follows:

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Interest income $ 4,312$ 12,286$ 9,416$ 27,630 Interest expense 1,827 4,009 3,975 8,869 Net interest income 2,485 8,277 5,441 18,761 Provision for finance receivable losses 4,302 (6,741 )



5,266 (5,748 )

Net interest income (loss) after provision for finance receivable losses (1,817 ) 15,018 175 24,509 Other revenues: Insurance 33 20 71 40 Net loss on repurchases and repayments of debt - (271 ) (48 ) (271 ) Other 1,334 5,469 3,314 9,861 Total other revenues 1,367 5,218 3,337 9,630 Other expenses: Operating expenses: Salaries and benefits 3,596 4,604 7,267 13,080 Other operating expenses 2,066 2,519 3,747 4,111 Total other expenses 5,662 7,123 11,014 17,191



Pretax operating income (loss) $ (6,112 )$ 13,113 $

(7,502 ) $ 16,948



Net finance receivables of the Other components (which are reported on a historical accounting basis) were as follows:

(dollars in thousands) June 30, 2014 2013 Net finance receivables: Personal loans $ 39,849$ 89,706 Real estate loans 7,081 8,053 Retail sales finance 71,449 146,683 Total $ 118,379$ 244,442 Credit Quality Our customers encompass a wide range of borrowers. In the consumer finance industry, they are described as prime or near-prime at one extreme and non-prime or sub-prime (less creditworthy) at the other. Our customers' incomes are generally near the national median but our customers may vary from national norms as to their debt-to-income ratios, employment and residency stability, and/or credit repayment histories. In general, our customers have lower credit quality and require significant levels of servicing. As a result of the Fortress Acquisition, we applied push-down accounting and adjusted the carrying value of our finance receivables (the "FA Loans") to their fair value on November 30, 2010. 81 --------------------------------------------------------------------------------



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Carrying value of finance receivables includes accrued finance charges, unamortized deferred origination costs and unamortized net premiums and discounts on purchased finance receivables. We record an allowance for loan losses to cover expected losses on our finance receivables.

For the FA Loans, we segregate between those considered to be performing ("FA Performing Loans") and those for which it was determined it was probable that we would be unable to collect all contractually required payments ("FA Credit Impaired Loans"). For the FA Performing Loans, we accrete the purchase discount to contractual cash flows over the remaining life of the loan to finance charges. For the FA Credit Impaired Loans, we record the expected credit loss at purchase and recognize finance charges on the expected effective yield. FINANCE RECEIVABLES



Net finance receivables by originated before and after the Fortress Acquisition and the related allowance for finance receivable losses were as follows:

June 30, December 31, (dollars in thousands) 2014 2013 Personal Loans FA Performing Loans at Fortress Acquisition $ 132,844$ 168,386 Originated after Fortress Acquisition 3,253,054



2,991,546

Allowance for finance receivable losses (106,249 )



(94,323 ) Personal loans, less allowance for finance receivable losses

3,279,649



3,065,609

Real Estate Loans FA Performing Loans at Fortress Acquisition 5,061,552



6,504,781

FA Credit Impaired Loans 1,121,609



1,307,882

Originated after Fortress Acquisition* 67,143



72,353

Allowance for finance receivable losses (258,897 )



(236,032 ) Real estate loans, less allowance for finance receivable losses

5,991,407



7,648,984

Retail Sales Finance FA Performing Loans at Fortress Acquisition 44,452



63,158

Originated after Fortress Acquisition 23,974



35,753

Allowance for finance receivable losses (1,350 ) (1,840 ) Retail sales finance, less allowance for finance receivable losses 67,076



97,071

Total net finance receivables, less allowance $ 9,338,132



$ 10,811,664

Allowance for finance receivable losses as a percentage of finance receivables Personal loans 3.14 % 2.98 % Real estate loans 4.14 % 2.99 % Retail sales finance 1.97 % 1.86 %



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* Real estate loan originations in 2014 and 2013 were from advances on home equity lines of credit.

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.

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The following is a summary of net finance receivables by type and by days delinquent: Personal Real Retail (dollars in thousands) Loans Estate Loans



Sales Finance Total

June 30, 2014

Net finance receivables: 60-89 days past due $ 28,204$ 86,695 $ 705 $ 115,604 90-119 days past due 20,614 64,889 623 86,126 120-149 days past due 16,237 47,314 500 64,051 150-179 days past due 14,088 34,325 380 48,793 180 days or more past due 1,493 312,604 87 314,184 Total delinquent finance receivables 80,636 545,827 2,295 628,758 Current 3,255,401 5,537,586 64,425 8,857,412 30-59 days past due 49,861 166,891 1,706 218,458 Total $ 3,385,898$ 6,250,304$ 68,426$ 9,704,628 December 31, 2013 Net finance receivables: 60-89 days past due $ 28,297$ 96,778 $ 1,290 $ 126,365 90-119 days past due 22,648 67,966 1,017 91,631 120-149 days past due 18,662 54,882 757 74,301 150-179 days past due 14,618 45,040 740 60,398 180 days or more past due 934 353,003 173 354,110 Total delinquent finance receivables 85,159 617,669 3,977 706,805 Current 3,027,460 7,092,107 92,093 10,211,660 30-59 days past due 47,313 175,240 2,841 225,394 Total $ 3,159,932$ 7,885,016$ 98,911$ 11,143,859 TROUBLED DEBT RESTRUCTURING We make modifications to our real estate loans to assist borrowers in avoiding foreclosure. When we modify a real estate loan's contractual terms for economic or other reasons related to the borrower's financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable.



Information regarding TDR finance receivables were as follows:

June 30, December 31, (dollars in thousands) 2014 2013 TDR net finance receivables $ 1,343,084$ 1,371,321 Allowance for TDR finance receivable losses $ 194,993$ 177,011 Allowance as a percentage of TDR net finance receivables 14.52 % 12.91 % Number of TDR accounts 15,119 14,538 83

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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 Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (dollars in thousands) 2014 2013 2014 2013 Real Estate Loans Number of TDR accounts 205 203 434 427 TDR net finance receivables* $ 13,174$ 15,711$ 28,677$ 33,961



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

Liquidity and Capital Resources

We have historically financed the majority of our operating liquidity and capital needs through a combination of cash flows from operations, securitization debt, unsecured debt, and borrowings under our secured term loan. In the future, we plan to finance our operating liquidity and capital needs through a combination of cash flows from operations, securitization debt, unsecured debt, other corporate debt facilities, and equity.

As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries' primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses and, to a lesser extent, expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations. Our insurance subsidiaries maintain reserves as liabilities on the balance sheet to cover future claims for certain insurance products. Claims reserves totaled $69.3 million as of June 30, 2014. At June 30, 2014, we had $841.1 million of cash and cash equivalents, and during the six months ended June 30, 2014, we generated net income of $91.5 million. Our net cash inflow from operating and investing activities totaled $1.3 billion for the six months ended June 30, 2014. At June 30, 2014, our remaining scheduled principal and interest payments for 2014 on our existing debt (excluding securitizations) totaled $524.8 million. As of June 30, 2014, we had $1.7 billion UPB of unencumbered personal loans and $2.4 billion UPB of unencumbered real estate loans. Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next twelve months. To reduce the risk associated with unfavorable changes in interest rates on our debt not offset by favorable changes in yield of our finance receivables, we monitor the anticipated cash flows of our assets and liabilities, principally our finance receivables and debt. We have funded finance receivables with a combination of fixed-rate and floating-rate debt and equity and have based the mix of fixed-rate and floating-rate debt issuances, in part, on the nature of the finance receivables being supported. On a historical accounting basis, our floating-rate debt represented 1% of our borrowings at June 30, 2014 and 10% at December 31, 2013. LIQUIDITY Operating Activities



Cash from operations increased $48.1 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to higher net interest income.

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Table of Contents Investing Activities Net cash provided by investing activities increased $794.7 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to sales of finance receivables held for sale originated as held for investment during the first half of 2014. Financing Activities Net cash used for financing activities decreased $357.0 million for the six months ended June 30, 2014 when compared to the same period in 2013 primarily due to the repayments of the secured term loan and the 2013-BAC trust notes in late March 2014.



Liquidity Risks and Strategies

We currently have a significant amount of indebtedness in relation to our equity. SFC's credit ratings are non-investment grade, which have a significant impact on our cost of, and access to, capital. This, in turn, negatively affects our ability to manage our liquidity and our ability and cost to refinance our indebtedness. There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks include, but are not limited, to the following:



our inability to grow our personal loan portfolio with adequate profitability;

the effect of federal, state and local laws, regulations, or regulatory policies and practices;

the liquidation and related losses within our remaining real estate portfolio could be material and result in reduced cash receipts;

potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans; and

the potential for disruptions in bond and equity markets. The principal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing the following strategies:



maintaining disciplined underwriting standards and pricing for loans we originate or purchase and managing purchases of finance receivables;

pursuing additional debt financings (including new securitizations and new unsecured debt issuances, debt refinancing transactions and standby funding facilities), or a combination of the foregoing;

purchasing portions of our outstanding indebtedness through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we or our affiliates may determine; and



obtaining secured revolving credit facilities to allow us to use excess cash to pay down higher cost debt.

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

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Table of Contents OUR INSURANCE SUBSIDIARIES State law restricts the amounts our insurance subsidiaries, Merit and Yosemite, may pay as dividends without prior notice to, or in some cases approval from, the Indiana Department of Insurance. The maximum amount of dividends that can be paid without prior approval in a 12 month period, measured retrospectively from the date of payment, is the greater of 10% of policyholders' surplus as of the prior year-end, or the net gain from operations as of the prior year-end. OUR DEBT AGREEMENTS On December 30, 2013, SHI entered into Guaranty Agreements whereby it agreed to fully and unconditionally guarantee the payment of principal of, premium (if any), and interest on approximately $5.2 billion aggregate principal amount of senior notes on a senior basis and $350.0 million aggregate principal amount of a junior subordinated debenture (collectively, the "notes") on a junior subordinated basis issued by SFC. The notes consist of the following: 8.250% Senior Notes due 2023; 7.750% Senior Notes due 2021; 6.00% Senior Notes due 2020; a 60-year junior subordinated debenture; and all senior notes outstanding on December 30, 2013, issued pursuant to the Indenture dated as of May 1, 1999 (the "1999 Indenture"), between SFC and Wilmington Trust, National Association (the successor trustee to Citibank N.A.). As of December 30, 2013, approximately $3.9 billion aggregate principal amount of senior notes were outstanding under the 1999 Indenture. The 60-year junior subordinated debenture underlies the trust preferred securities sold by a trust sponsored by SFC. On December 30, 2013, SHI entered into a Trust Guaranty Agreement whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities. As of June 30, 2014, approximately $5.1 billion aggregate principal amount of senior notes, including $3.9 billion aggregate principal amount of senior notes under the 1999 Indenture, and $350.0 million aggregate principal amount of a junior subordinated debenture were outstanding. The debt agreements to which SFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. Some or all of these agreements also contain certain restrictions, including restrictions on the ability to create senior liens on property and assets in connection with any new debt financings and SFC's ability to sell or convey all or substantially all of its assets, unless the transferee assumes SFC's obligations under the applicable debt agreement.



With the exception of SFC's junior subordinated debenture and one consumer loan securitization, none of our debt agreements require SFC or any of its subsidiaries to meet or maintain any specific financial targets or ratios.

Under our debt agreements, certain events, including non-payment of principal or interest, bankruptcy or insolvency, or a breach of a covenant or a representation or warranty may constitute an event of default and trigger an acceleration of payments. In some cases, an event of default or acceleration of payments under one debt agreement may constitute a cross-default under other debt agreements resulting in an acceleration of payments under the other agreements.



As of June 30, 2014, we were in compliance with all of the covenants under our debt agreements.

Junior Subordinated Debenture In January 2007, SFC issued $350.0 million aggregate principal amount of 60-year junior subordinated debenture (the "debenture") under an indenture dated January 22, 2007 (the "Junior Subordinated Indenture"), by and between SFC and Deutsche Bank Trust Company, as trustee. The debenture underlies the trust preferred securities sold by a trust sponsored by SFC. SFC can redeem the debenture at par beginning in January 2017. 86 --------------------------------------------------------------------------------



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Pursuant to the terms of the debenture, SFC, upon the occurrence of a mandatory trigger event, is required to defer interest payments to the holders of the debenture (and not make dividend payments to SFI) unless SFC obtains non-debt capital funding in an amount equal to all accrued and unpaid interest on the debenture otherwise payable on the next interest payment date and pays such amount to the holders of the debenture. A mandatory trigger event occurs if SFC's (1) tangible equity to tangible managed assets is less than 5.5% or (2) average fixed charge ratio is not more than 1.10x for the trailing four quarters (where the fixed charge ratio equals earnings excluding income taxes, interest expense, extraordinary items, goodwill impairment, and any amounts related to discontinued operations, divided by the sum of interest expense and any preferred dividends). Based upon SFC's financial results for the twelve months ended March 31, 2014, a mandatory trigger event occurred with respect to the payment due in July 2014 as the average fixed charge ratio was 0.93x. On July 10, 2014, SFC issued one share of SFC common stock to SFI for $10.5 million to satisfy the July 2014 interest payments required by SFC's debentures.



Consumer Loan Securitization

In connection with the Sumner Brook 2013-VFN1 securitization, SFC is required to maintain an available cash covenant and a consolidated tangible net worth covenant. At June 30, 2014, SFC is in compliance with these covenants.

Structured Financings



We execute private securitizations under Rule 144A of the Securities Act. As of June 30, 2014, our structured financings consisted of the following:

Current Current Initial Note Initial Note Current Weighted Amounts Collateral Amounts



Collateral Average Collateral Revolving (dollars in thousands) Issued (a) Balance (b) Outstanding Balance (b) Interest Rate Type Period

Mortgage Securitizations (c) SLFMT 2011-1 $ 365,441$ 496,861$ 227,654$ 352,379 4.94 % Mortgage loans N/A SLFMT 2012-1 394,611 473,009 254,709 368,418 4.17 % Mortgage loans N/A SLFMT 2012-2 770,806 970,034 537,163 799,609 3.39 % Mortgage loans N/A SLFMT 2012-3 794,854 1,030,568 580,510 884,622 2.55 % Mortgage loans N/A SLFMT 2013-1 782,489 1,021,846 634,814 910,152 2.33 % Mortgage loans N/A SLFMT 2013-2 756,878 1,137,307 665,804 1,068,229 2.73 % Mortgage loans N/A SLFMT 2013-3 292,978 500,390 273,088 484,679 2.88 % Mortgage loans N/A Consumer Securitizations SLFMT 2013-A 567,880 662,247 567,880 662,256 2.75 % Personal loans 2 years SLFMT 2013-B 370,170 441,989 370,170 441,997 3.99 % Personal loans 3 years SLFMT 2014-A 559,260 644,331 559,260 644,333 2.55 % Personal loans 2 years Total secured structured financings $ 5,655,367$ 7,378,582$ 4,671,052$ 6,616,674



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(a) Represents securities sold at time of issuance or at a later date and does not include retained notes.

(b) Represents UPB of the collateral supporting the issued and retained notes. (c) In the third quarter of 2014, we entered into an agreement to sell our remaining beneficial interests in the mortgage-backed retained certificates. We expect the sales transaction to be completed on or before August 29, 2014.



In addition to the structured financings included in the table above, we completed one conduit securitization in 2014 and three conduit securitizations in 2013. At June 30, 2014, we had drawn $100 million under these notes.

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Our 2013 and 2014 securitizations have served to partially replace secured and unsecured debt in our capital structure with more favorable non-recourse funding. Our overall funding costs are positively impacted by our increased usage of securitizations as we typically execute these transactions at interest rates significantly below those of our maturing secured and unsecured debt. The weighted average interest rates on our debt on a historical accounting basis were as follows: Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2014 2013 2014 2013 Weighted average interest rate 5.25 % 5.65 % 5.37 % 5.79 %



Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined by SEC rules. We had no off-balance sheet exposure to losses associated with unconsolidated VIEs at June 30, 2014 or December 31, 2013, other than certain representations and warranties associated with the sales of the 2010-1 and 2009-1 retained certificates during the first half of 2014. As of June 30, 2014, we had no repurchase activity related to these sales.



Critical Accounting Policies and Estimates

We describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8 of our 2013 Annual Report on Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment: allowance for finance receivable losses; purchased credit impaired finance receivables; TDR finance receivables; push-down accounting; and fair value measurements. We believe the amount of the allowance for finance receivable losses is the most significant estimate we make. See "-Critical Accounting Policies and Estimates - Allowance for Finance Receivable Losses" in Part II, Item 7 of our 2013 Annual Report on Form 10-K for further discussion of the models and assumptions used to assess the adequacy of the allowance for finance receivable losses.



There have been no significant changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates during the six months ended June 30, 2014.

Recent Accounting Pronouncements

See Note 1 of the Notes to Condensed Consolidated Financial Statements for discussion of recently issued accounting pronouncements.

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Table of Contents Seasonality Our personal loan volume is generally highest during the second and fourth quarters of the year, primarily due to marketing efforts, seasonality of demand, and increased traffic in branches after the winter months. Demand for our personal loans is usually lower in January and February after the holiday season and as a result of tax refunds. Delinquencies on our personal loans tend to peak in the second and third quarters and higher net charge-offs on these loans usually occur at year end. These seasonal trends contribute to fluctuations in our operating results and cash needs throughout the year. 89 --------------------------------------------------------------------------------

Table of Contents Glossary of Terms Average debt average of debt for each day in the period Average net average of net finance receivables at the beginning and receivables end of each month in the period Charge-off ratio annualized net charge-offs as a percentage of the average of net finance receivables at the beginning of each month in the period Delinquency ratio UPB 60 days or more past due (greater than three payments unpaid) as a percentage of UPB Gross charge-off annualized gross charge-offs as a percentage of the ratio average of net finance receivables at the beginning of each month in the period Junior Subordinated capital securities classified as debt for accounting Indenture purposes but due to their terms are afforded, at least in part, equity capital treatment in the calculation of effective leverage by rating agencies Loss ratio annualized net charge-offs, net writedowns on real estate owned, net gain (loss) on sales of real estate owned, and operating expenses related to real estate owned as a percentage of the average of real estate loans at the beginning of each month in the period Net interest income interest income less interest expense Recovery ratio annualized recoveries on net-charge offs as a percentage of the average of net finance receivables at the beginning of each month in the period Tangible equity total equity less accumulated other comprehensive income or loss Weighted average annualized interest expense as a percentage of average interest rate debt Yield annualized finance charges as a percentage of average net receivables 90

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