UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

þ

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

ACT OF 1934

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

Yes þ      No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer ¨         Accelerated filer ¨          Non-accelerated filer þ         Smaller reporting company ¨

(Do not check if a smaller

reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨      No þ

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

At August 11, 2010, there were 2,000,000 shares of the registrant’s common stock, $.50 par value, outstanding.

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TABLE OF CONTENTS

AVAILABLE INFORMATION

American General Finance, Inc. (AGFI) files annual, quarterly, and current reports and other information with the Securities and Exchange Commission (the SEC). The SEC’s website, www.sec.gov, contains these reports and other information that registrants (including AGFI) file electronically with the SEC.

The following reports are available free of charge through our website, www.agfinance.com, as soon as reasonably practicable after we file them with or furnish them to the SEC:

·

Annual Reports on Form 10-K;

·

Quarterly Reports on Form 10-Q;

·

Current Reports on Form 8-K; and

·

any amendments to those reports.

The information on our website is not incorporated by reference into this report. The website addresses listed above are provided for the information of the reader and are not intended to be active links.

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Part I – FINANCIAL INFORMATION

Item 1.  Financial Statements

AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
(dollars in thousands)	2010	2009	2010	2009
Revenues Finance charges	$ 456,113	$ 570,466	$   929,551	$1,175,067
Insurance	31,361	33,980	62,881	69,038
Finance receivables held for sale originated as held for investment	9,547	(68,243)	20,418	(82,935)
Investment	10,616	14,736	18,267	23,415
Other	(2,614)	(47,872)	75,560	(83,907)
Total revenues	505,023	503,067	1,106,677	1,100,678
Expenses Interest expense	269,979	259,363	535,807	538,690
Operating expenses: Salaries and benefits	97,951	115,719	197,339	228,966
Other operating expenses	85,780	88,576	166,870	164,828
Provision for finance receivable losses	54,951	260,093	239,575	614,818
Insurance losses and loss adjustment expenses	11,246	16,480	26,830	33,269
Total expenses	519,907	740,231	1,166,421	1,580,571
Loss before benefit from income taxes	(14,884)	(237,164)	(59,744)	(479,893)
Benefit from Income Taxes	(55,949)	(10,852)	(108,436)	(5,521)
Net Income (Loss)	$  41,065	$(226,312)	$    48,692	$ (474,372)

See Notes to Condensed Consolidated Financial Statements.

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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

	June 30,	December 31,
(dollars in thousands)	2010	2009
Assets Net finance receivables: Real estate loans (includes loans of consolidated VIEs of $3.1 billion in 2010 and $2.2 billion in 2009)	$14,362,900	$14,519,909
Non-real estate loans	2,890,200	3,190,056
Retail sales finance	733,201	1,129,220
Net finance receivables	17,986,301	18,839,185
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $110.1 million in 2010 and $70.3 million in 2009)	(1,432,612)	(1,532,485)
Net finance receivables, less allowance for finance receivable losses	16,553,689	17,306,700
Finance receivables held for sale	-	693,675
Investment securities	797,876	733,263
Cash and cash equivalents	596,390	1,311,842
Notes receivable from affiliate	750,044	1,550,906
Restricted cash (includes restricted cash of consolidated VIEs of $34.3 million in 2010 and $27.6 million in 2009)	214,700	57,754
Other assets	1,118,141	1,133,246
Total assets	$20,030,840	$22,787,386
Liabilities and Shareholder’s Equity Long-term debt (includes debt of consolidated VIEs of $1.5 billion in 2010 and $1.2 billion in 2009)	$17,385,647	$17,743,343
Short-term debt	-	2,450,000
Insurance claims and policyholder liabilities	332,015	350,874
Other liabilities	307,366	320,183
Accrued taxes	7,045	6,333
Total liabilities	18,032,073	20,870,733
Shareholder’s equity: Common stock	1,000	1,000
Additional paid-in capital	1,982,604	1,971,175
Accumulated other comprehensive income	23,839	1,846
Accumulated deficit	(8,676)	(57,368)
Total shareholder’s equity	1,998,767	1,916,653
Total liabilities and shareholder’s equity	$20,030,840	$22,787,386

See Notes to Condensed Consolidated Financial Statements.

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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,
(dollars in thousands)	2010	2009
Cash Flows from Operating Activities Net income (loss)	$     48,692	$   (474,372)
Reconciling adjustments: Provision for finance receivable losses	239,575	614,818
Depreciation and amortization	75,107	60,065
Deferral of finance receivable origination costs	(18,046)	(17,694)
Deferred income tax benefit	(216)	(1,549)
Origination of finance receivables held for sale	-	(3,518)
Sales and principal collections of finance receivables originated as held for sale	-	5,903
Mark to market provision on finance receivables held for sale originated as held for investment	-	78,627
Net loss on sales of finance receivables held for sale originated as held for investment	-	14,853
Net realized losses on investment securities	7,103	4,439
Change in other assets and other liabilities	(88,208)	1,172
Change in insurance claims and policyholder liabilities	(18,859)	(23,410)
Change in taxes receivable and payable	(108,045)	(29,801)
Change in accrued finance charges	22,565	34,185
Change in restricted cash	(3,366)	(1,652)
Other, net	804	8,432
Net cash provided by operating activities	157,106	270,498
Cash Flows from Investing Activities Finance receivables originated or purchased	(709,694)	(1,366,150)
Principal collections on finance receivables	1,838,029	2,803,047
Net cash paid in acquisition of Ocean Finance and Mortgages Limited	-	(29,535)
Sales and principal collections on finance receivables held for sale originated as held for investment	37,764	1,402,501
Investment securities purchased	(74,409)	(31,913)
Investment securities called and sold	31,224	64,447
Investment securities matured	5,070	4,610
Change in notes receivable from affiliate	800,862	(800,510)
Change in restricted cash	(153,645)	(5,793)
Change in premiums on finance receivables purchased and deferred charges	(4,894)	1,041
Change in real estate owned	510	(19,104)
Other, net	(3,530)	(12,733)
Net cash provided by investing activities	1,767,287	2,009,908
Cash Flows from Financing Activities Proceeds from issuance of long-term debt	3,418,705	-
Repayment of long-term debt	(3,619,640)	(1,729,536)
Change in short-term debt	(2,450,000)	(648,536)
Capital contributions from parent	11,429	601,142
Net cash used for financing activities	(2,639,506)	(1,776,930)
Effect of exchange rate changes	(339)	(479)
(Decrease) increase in cash and cash equivalents	(715,452)	502,997
Cash and cash equivalents at beginning of period	1,311,842	916,318
Cash and cash equivalents at end of period	$   596,390	$1,419,315

See Notes to Condensed Consolidated Financial Statements.

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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
(dollars in thousands)	2010	2009	2010	2009
Net income (loss)	$ 41,065	$(226,312)	$ 48,692	$(474,372)
Other comprehensive gain (loss): Cumulative effect of change in accounting principle	-	(29,792)	-	(29,792)
Net unrealized gains (losses) on: Investment securities on which other-than- temporary impairments were taken	2,188	1,034	6,924	1,034
All other investment securities	11,897	22,072	20,064	22,970
Swap agreements	35,064	(58,053)	2,054	35,333
Foreign currency translation adjustments	(1,928)	16,038	(10,472)	14,506
Income tax effect: Cumulative effect of change in accounting principle	-	10,427	-	10,427
Net unrealized (gains) losses on: Investment securities on which other-than- temporary impairments were taken	(765)	(362)	(2,423)	(362)
All other investment securities	(4,164)	(7,732)	(7,023)	(8,039)
Swap agreements	(12,273)	20,318	(719)	(12,367)
Valuation allowance on deferred tax assets for: Investment securities	8,032	9,821	8,252	9,105
Swap agreements	12,273	(20,318)	719	12,367
Other comprehensive gain (loss), net of tax, before reclassification adjustments	50,324	(36,547)	17,376	55,182
Reclassification adjustments included in net income (loss): Realized losses (gains) on: Investment securities	1,859	(1,207)	7,103	4,439
Income tax effect: Realized (losses) gains on: Investment securities	(651)	429	(2,486)	(1,554)
Reclassification adjustments included in net income (loss), net of tax	1,208	(778)	4,617	2,885
Other comprehensive gain (loss), net of tax	51,532	(37,325)	21,993	58,067
Comprehensive income (loss)	$ 92,597	$(263,637)	$ 70,685	$(416,305)

See Notes to Condensed Consolidated Financial Statements.

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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2010

Note 1.  Basis of Presentation

American General Finance, Inc. (AGFI, or collectively with its subsidiaries, whether directly or indirectly owned, the Company, we, or our) is a direct wholly-owned subsidiary of AIG Capital Corporation, a direct wholly-owned subsidiary of American International Group, Inc. (AIG). AGFI’s principal subsidiary is American General Finance Corporation (AGFC).

We prepared our condensed consolidated financial statements using accounting principles generally accepted in the United States of America (GAAP). These statements are unaudited. The statements include the accounts of AGFI and its subsidiaries, all of which are wholly owned. We eliminated all material intercompany accounts and transactions. We made estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. Ultimate results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date through August 11, 2010, the date that we filed our financial statements with the SEC. You should read these statements in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. To conform to the 2010 presentation, we reclassified certain items in the prior period.

In second quarter 2010, we revised our condensed consolidated statement of cash flows to change the classification of restricted cash related to our securitization transactions. We have historically included restricted cash related to our securitization transactions as a change in other assets and other liabilities in cash flows from operating activities. After further review, management has concluded that the appropriate reporting is to include this item in cash flows from investing activities as a change in restricted cash. The operating and investing sections of our condensed consolidated cash flow statement were revised by equal and offsetting amounts. This revision had the effect of increasing the previously reported cash flows provided by operating activities by $5.8 million for the six months ended June 30, 2009, $24.5 million for the nine months ended September 30, 2009, $27.6 million for the year ended December 31, 2009, and $24.7 million for the three months ended March 31, 2010 and decreasing the previously reported cash flows provided by investing activities by the same amounts. Management has evaluated the effects of these reclassifications and concluded that they are not material to any of our previously issued quarterly and annual consolidated financial statements.

GOING CONCERN CONSIDERATION

Our condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These statements do not include any adjustments relating to the recoverability and classification of recorded assets, nor relating to the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern.

Liquidity of the Company

Since the events of September 2008 and through the filing of this report, our access to capital markets has been limited and obtained primarily through funding structures different than our more traditional borrowing transactions prior to 2008. This alternative funding approach was due to a combination of the challenges facing AIG, our operating results, downgrades of our debt credit ratings, and market concerns as to our available sources of funding following the turmoil in the capital markets beginning in 2008.

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While overall credit markets and our near-term liquidity position each have improved compared to late 2008 and much of 2009, we cannot determine when, or to what extent, access to our more traditional borrowing sources will become available to us again.

Progress on Management’s Plan for Stabilization of the Company and Repayment of Our Obligations as They Become Due

In addition to finance receivable collections, management has developed initiatives to support our liquidity and raise capital to meet our financial and operating obligations. These initiatives include additional borrowings, on-balance sheet securitizations, portfolio sales, expense reductions, and branch closures, while continuing to limit our new lending. The exact nature and magnitude of any additional measures will be driven by our available resources and needs, prevailing market conditions, and the results of our operations.

During the first half of 2010, we made substantial progress in assessing our liquidity needs and continued to demonstrate our ability to manage liquidity and generate additional funding. In March 2010, we securitized $1.0 billion of real estate loans and sold $501.3 million in senior certificates (while retaining subordinated notes for possible future sale) and separately received AIG’s repayment of its $1.6 billion in demand promissory notes to us. In April 2010, we executed and fully drew down on a $3.0 billion five-year secured term loan. AGFC and AGFI used a portion of the proceeds from these transactions to repay the $2.450 billion one-year term loans in March 2010 ($2.050 billion repaid by AGFC and $400.0 million repaid by AGFI) and the AGFC $2.125 billion multi-year credit facility in April 2010, both prior to their due dates in July 2010. With these repayments, there are no remaining AGFC or AGFI debt agreements that require AGFC to maintain a minimum specified dollar amount of AGFC consolidated net worth, or require AIG to maintain majority ownership of AGFC or AGFI. Based upon our estimates and taking into account the risks and uncertainties of operating 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.

As disclosed in AIG’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, based on our level of increased liquidity and expected future sources of funding, including future cash flows from operations, AIG expects that we will be able to meet our existing obligations as they become due for at least the next twelve months solely from our own future cash flows. Therefore, while AIG has acknowledged its intent to support us through February 28, 2011, at the current time AIG believes that any further extension of such support will not be necessary.

On August 10, 2010, AIG entered into a Stock Purchase Agreement (the Purchase Agreement) with FCFI Acquisition LLC, (the Acquiror), an affiliate of Fortress Investment Group LLC. Under the Purchase Agreement, among other things, the Acquiror will indirectly acquire 80% of AGFI, and AIG will retain a 20% interest in the AGFI business. The parties expect that this transaction (the FCFI Transaction) will close by the end of the first quarter of 2011, subject to regulatory approvals and customary closing conditions. The potential effect of the proposed FCFI Transaction on the Company’s financial position and results of operations cannot be determined at this time.

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Management’s Assessment and Conclusion

In assessing our current financial position and developing operating plans for the future, management has made significant judgments and estimates with respect to the potential financial and liquidity effects of our risks and uncertainties, including but not limited to:

·

the amount of cash expected to be received from our finance receivable portfolio through collections (including prepayments) and receipt of finance charges, which could be materially different than our estimates;

·

the potential for declining financial flexibility and reduced income should we use more of our higher performing assets for on-balance sheet securitizations and portfolio sales;

·

reduced income due to the possible deterioration of the credit quality of our finance receivable portfolios;

·

our ability to complete on favorable terms, as needed, additional borrowings, on-balance sheet securitizations, portfolio sales, and the costs associated with these funding sources, including sales at less than carrying value and limits on the types of assets that can be securitized or sold, which will affect profitability;

·

our ability to comply with our debt covenants;

·

our significant reliance upon debt to fund our operations;

·

our access to unsecured debt markets and other sources of funding, and the potential increased cost of funding sources as compared to historic borrowing rates;

·

adverse credit ratings actions on our debt;

·

constraints on our business resulting from AIG’s credit agreement (as amended, the FRBNY Credit Agreement) with the Federal Reserve Bank of New York (FRBNY) and other AIG agreements, including limitations on our ability to pursue (and retain proceeds from) certain funding sources, such as additional on-balance sheet securitizations and portfolio sales, without AIG receiving prior consent from the FRBNY;

·

the potential for additional unforeseen cash demands or accelerations of obligations;

·

reduced income due to loan modifications where the borrower’s interest rate is reduced, principal payments are deferred, or other concessions are made;

·

the potential for declines in bond and equity markets;

·

the potential effect on us if the capital levels of our regulated and unregulated subsidiaries prove inadequate to support current business plans;

·

the potential loss of key personnel;

·

the ability and intent of AIG to provide funding to us through February 28, 2011, including as a result of the proposed FCFI Transaction; and

·

the potential adverse effect on us relating to intercompany transactions with AIG, including derivatives and intercompany borrowings, if AIG’s liquidity position deteriorates or if AIG is not able to continue as a going concern.

Based on our estimates and taking into account the risks and uncertainties of such 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.

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 about the potential effects of these risks and uncertainties could prove to be materially incorrect. If one or more of these possible outcomes is realized and third party financing is not available, we may need additional support to meet our obligations as they become due. Under these adverse assumptions, without additional support in the future, there could exist substantial doubt about our ability to continue as a going concern.

In addition, the potential effect of the proposed FCFI Transaction on the Company’s financial position and results of operations cannot be determined at this time.

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Note 2.  Additional Significant Accounting Policies

VARIABLE INTEREST ENTITIES

An entity is a variable interest entity (VIE) if the entity does not have sufficient equity at risk for the entity to finance its activities without additional financial support or has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated into the financial statements of its primary beneficiary. When we have a variable interest in a VIE, we qualitatively assess whether we have a controlling financial interest in the entity and, if so, whether we are the primary beneficiary. In applying the qualitative assessment to identify the primary beneficiary of a VIE, we are determined to have a controlling financial interest if we have (1) the power to direct the activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We consider the VIE’s purpose and design, including the risks that the entity was designed to create and pass through to its variable interest holders. Determining a VIE’s primary beneficiary is an ongoing assessment.

Note 3.  Recent Accounting Standards

We adopted the following accounting standards in 2010:

Accounting for Transfers of Financial Assets

In June 2009, the Financial Accounting Standards Board (FASB) issued an accounting standard addressing transfers of financial assets that removed the concept of a qualifying special-purpose entity (QSPE) from the FASB Accounting Standards Codification and removed the exception that exempted transferors from applying the consolidation rules to QSPEs. The new standard was effective for interim and annual periods beginning on January 1, 2010 for us. Earlier application was prohibited. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued an accounting standard that amended the rules addressing consolidation of VIEs with an approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly affect the entity’s economic performance and has (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The new standard also requires enhanced financial reporting by enterprises involved with VIEs. We adopted the new standard on January 1, 2010. The adoption of this new standard did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

In February 2010, the FASB issued an update to the aforementioned accounting standard that deferred the revised consolidation rules for those VIEs that have attributes of, or that are similar to, an investment company or money market fund. The adoption of this update did not have a material effect on our consolidated financial condition, results of operations, or cash flows.

We will adopt the following accounting standard in the future:

Accounting for Embedded Credit Derivatives

In March 2010, the FASB issued an accounting standard that amends the accounting for embedded credit derivative features in structured securities that redistribute credit risk in the form of subordination of one financial instrument to another. The new standard clarifies how to determine whether embedded credit derivative features are considered to be embedded derivatives that require bifurcation and separate

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accounting. The new standard is effective for interim and annual periods beginning on July 1, 2010 for us. We do not expect the adoption of this new standard to have a material effect on our consolidated financial condition, results of operations, or cash flows.

Disclosures about Credit Quality of Finance Receivables and Allowance for Finance Receivable Losses

In July 2010, the FASB issued an accounting standard that amends the rules for disclosures that an entity provides about the credit quality of its finance receivables and the related allowance for finance receivable losses. The new standard requires us to disaggregate, by portfolio segment or class of finance receivable, certain existing disclosures and provide certain new disclosures about our finance receivables and related allowance for finance receivable losses. The new standard is effective for interim and annual periods ending on or after December 15, 2011 for us. Because the new standard only requires additional disclosures about finance receivables and the related allowance for finance receivable losses, it will have no effect on our consolidated financial condition, results of operations, or cash flows.

Note 4.  Finance Receivables

Components of net finance receivables by type were as follows:

	Real	Non-Real	Retail
(dollars in thousands)	Estate Loans	Estate Loans	Sales Finance	Total
June 30, 2010 Gross receivables	$14,443,188	$3,133,046	$   802,328	$18,378,562
Unearned finance charges and points and fees	(157,881)	(307,294)	(77,334)	(542,509)
Accrued finance charges	86,766	36,671	6,216	129,653
Deferred origination costs	17,153	26,831	-	43,984
Premiums, net of discounts	(26,326)	946	1,991	(23,389)
Total	$14,362,900	$2,890,200	$   733,201	$17,986,301
December 31, 2009 Gross receivables	$14,540,362	$3,446,460	$1,245,600	$19,232,422
Unearned finance charges and points and fees	(165,302)	(329,454)	(132,782)	(627,538)
Accrued finance charges	93,885	41,769	13,978	149,632
Deferred origination costs	17,820	29,582	-	47,402
Premiums, net of discounts	33,144	1,699	2,424	37,267
Total	$14,519,909	$3,190,056	$1,129,220	$18,839,185

Included in the table above are finance receivables associated with the securitizations that remain on our balance sheet totaling $3.1 billion at June 30, 2010 and $2.2 billion at December 31, 2009. See Note 5 and Note 10 for further discussion regarding our securitization transactions. Also included in the table above are finance receivables totaling $7.6 billion at June 30, 2010 that have been pledged as collateral for our secured term loan.

Unused credit limits extended to customers by the Company or by AIG Federal Savings Bank (AIG Bank), a non-subsidiary affiliate (whose private label finance receivables are fully participated to us), totaled $184.2 million at June 30, 2010 and $205.0 million at December 31, 2009. All unused credit limits, in part or in total, can be cancelled at the discretion of the Company or AIG Bank.

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To support our liquidity, we have sold certain finance receivables as an alternative funding source. During 2009, we transferred $1.9 billion of real estate loans from finance receivables to finance receivables held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future.

In February 2010, we transferred $170.7 million of real estate loans at the lower of cost or fair value from finance receivables held for sale back to finance receivables held for investment in preparation for an on-balance sheet securitization that was completed in March 2010. In June 2010, we transferred $484.9 million of real estate loans at the lower of cost or fair value from finance receivables held for sale back to finance receivables held for investment due to management’s intent to hold these finance receivables for the foreseeable future. As of June 30, 2010, it is probable that we will hold the remainder of the finance receivable portfolio for the foreseeable future.

Information regarding troubled debt restructuring (TDR) finance receivables (which are all real estate loans) was as follows:

	June 30,	December 31,
(dollars in thousands)	2010	2009
TDR net finance receivables	$1,828,112	$1,381,561
TDR net finance receivables that have a valuation allowance	$1,828,112	$1,381,561
Allowance for TDR finance receivable losses	$   413,270	$   302,500

We have no commitments to lend additional funds on these TDR finance receivables.

TDR average net receivables and finance charges recognized on TDR finance receivables were as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
(dollars in thousands)	2010	2009	2010	2009
TDR average net receivables	$1,768,164	$1,065,548	$1,648,944	$951,051
TDR finance charges recognized	$     21,938	$     12,453	$     41,674	$  24,403

On March 4, 2009, the United States Department of the Treasury issued uniform guidance for loan modifications to be utilized by the mortgage industry in connection with the Home Affordable Modification Program (HAMP). The HAMP is designed to assist certain eligible homeowners who are at risk of foreclosure by applying loan modification requirements in a stated order of succession until their monthly payments are lowered to a specified percentage target of their monthly gross income. The modification guidelines require the servicer to use a uniform loan modification process to provide a borrower with sustainable monthly payments. Effective April 5, 2010, a new program under the HAMP provided certain incentives to borrowers, servicers, and investors to encourage short sales and deeds in lieu of foreclosure as a way to avoid the foreclosure process. The HAMP guidelines are likely to be subject to additional changes and requirements as the United States Department of the Treasury makes adjustments to the program.

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As part of a Securities Purchase Agreement and a Securities Exchange Agreement between AIG and the United States Department of the Treasury dated April 17, 2009, AIG agreed that its subsidiaries that were eligible would join the HAMP and would comply with the HAMP guidelines. In third quarter 2009, MorEquity, Inc. (MorEquity), a direct wholly-owned subsidiary of AGFC, entered into a Commitment to Purchase Financial Instrument and Servicer Participation Agreement (the Agreement) with the Federal National Mortgage Association as financial agent for the United States Department of the Treasury, which provides for participation in the HAMP. MorEquity entered into the Agreement as the servicer with respect to our centralized real estate finance receivables, with an effective date of September 1, 2009. As of June 30, 2010, MorEquity had completed 660 HAMP modifications and 280 trial HAMP modifications were in process. We are making the required system changes necessary to implement HAMP in our branch operations, and they plan to join the HAMP during the fourth quarter of 2010.

Note 5.  On-Balance Sheet Securitization Transactions

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

We have limited continued involvement with the finance receivables that have been included in these securitization transactions. Our 2009 securitization transaction, which closed on July 30, 2009, utilizes a third-party servicer to service the finance receivables. We service the finance receivables for our other existing securitization transactions. In the case of each existing securitization transaction, the related finance receivables have been legally isolated and are only available for payment of the debt and other obligations issued or arising in the applicable securitization transaction. The cash and cash equivalent balances relating to securitization transactions are used only to support the on-balance sheet securitization transactions and are recorded as restricted cash in other assets. We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in our securitization transactions. The asset-backed debt has been issued by consolidated VIEs. Refer to Notes 2 and 10 for further discussion regarding these VIEs and the related assets and liabilities included in our financial statements as part of these secured debt arrangements.

Our 2010 securitization transaction, which closed on March 30, 2010, included the sale of approximately $1.0 billion of our centralized real estate loans to a wholly-owned consolidated special purpose vehicle, Sixth Street Funding LLC (Sixth Street), which concurrently formed a trust to issue trust certificates totaling $716.9 million in initial principal balance to Sixth Street in exchange for the loans. In connection with the securitization, Sixth Street sold to a third party $501.3 million of senior certificates with a 5.15% coupon. Sixth Street received cash proceeds, including accrued interest after the sales discount but before expenses, of $503.3 million and retained subordinated and residual interest trust certificates. As a result of the combination of over-collateralization and the initially retained subordinated and residual interest trust certificates, we received a subordinated economic interest in approximately 50% of the assets transferred.

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

(dollars in thousands)	Real Estate Loans	Long-term Debt
June 30, 2010 2003 securitization	$     21,172	$  19,261
2006 securitization	258,632	225,266
2009 securitization	1,791,908	819,418
2010 securitization	981,459	474,937
December 31, 2009 2003 securitization	$     22,989	$  20,793
2006 securitization	278,822	247,443
2009 securitization	1,889,193	900,143

Note 6.  Allowance for Finance Receivable Losses

Changes in the allowance for finance receivable losses were as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
(dollars in thousands)	2010	2009	2010	2009
Balance at beginning of period	$1,532,485	$1,294,212	$1,532,485	$1,140,421
Provision for finance receivable losses	54,951	260,093	239,575	614,818
Charge-offs	(171,549)	(225,710)	(372,311)	(433,034)
Recoveries	16,725	13,528	32,863	25,866
Transfers to finance receivables held for sale (a)	-	(9,413)	-	(15,361)
Balance at end of period	$1,432,612	$1,332,710	$1,432,612	$1,332,710

(a)

During the three and six months ended June 30, 2009, we decreased the allowance for finance receivable losses as a result of the transfers of real estate loans ($761.8 million and $1.3 billion, respectively) from finance receivables to finance receivables held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future.

We estimate our allowance for finance receivable losses primarily using the authoritative guidance for contingencies. We base our allowance for finance receivable losses primarily on historical loss experience using migration analysis and the Monte Carlo technique applied to sub-portfolios of large numbers of relatively small homogenous accounts. Both techniques are historically-based statistical techniques that attempt to predict the future amount of losses for existing pools of finance receivables. We adjust the amounts determined by migration and Monte Carlo for management’s estimate of the effects of model imprecision, any changes to its underwriting criteria, portfolio seasoning, and current economic conditions, including the levels of unemployment and personal bankruptcies.

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

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

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Note 7.  Investment Securities

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

(a)

Represents the amount of other-than-temporary impairment losses in accumulated other comprehensive income (loss), which, starting April 1, 2009, were not included in earnings. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

(b)

Excludes interest in a limited partnership that we account for using the equity method ($1.3 million at June 30, 2010 and $1.4 million at December 31, 2009).

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

	12 Months or Less			More Than 12 Months			Total
(dollars in thousands)	Fair Value	Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
June 30, 2010 Bonds: U.S. government and government sponsored entities	$     -	$      -		$     541	$       (12)		$       541	$       (12)
Obligations of states, municipalities, and political subdivisions	7,281	(49)		1,080	(20)		8,361	(69)
Corporate debt	15,573	(202)		26,652	(957)		42,225	(1,159)
RMBS	6	-		16,171	(4,154)		16,177	(4,154)
CMBS	-	-		9,312	(4,303)		9,312	(4,303)
CDO/ABS	2,920	(1,080)		10,009	(6,030)		12,929	(7,110)
Total	25,780	(1,331)		63,765	(15,476)		89,545	(16,807)
Other long-term investments	1,766	(235)		-	-		1,766	(235)
Common stocks	2	-		-	-		2	-
Total	$  27,548	$(1,566)		$63,765	$(15,476)		$  91,313	$(17,042)
December 31, 2009 Bonds: U.S. government and government sponsored entities	$       480	$       (72)		$    -	$      -		$       480	$       (72)
Obligations of states, municipalities, and political subdivisions	20,394	(140)		2,075	(119)		22,469	(259)
Corporate debt	48,701	(1,139)		57,095	(4,770)		105,796	(5,909)
RMBS	51,025	(2,236)		14,576	(4,571)		65,601	(6,807)
CMBS	7,178	(8,747)		947	(1,890)		8,125	(10,637)
CDO/ABS	10,395	(7,870)		3,837	(696)		14,232	(8,566)
Total	138,173	(20,204)		78,530	(12,046)		216,703	(32,250)
Preferred stocks	3,644	(347)		-	-		3,644	(347)
Other long-term investments	2,201	(769)		-	-		2,201	(769)
Common stocks	136	(99)		-	-		136	(99)
Total	$144,154	$(21,419)		$78,530	$(12,046)		$222,684	$(33,465)

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

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We did not recognize in earnings the unrealized losses on fixed-maturity securities at June 30, 2010, because management neither intends to sell the securities nor does it believe that it is more likely than not that it will be required to sell these securities before recovery of their amortized cost basis. Furthermore, management expects to recover the entire amortized cost basis of these securities (that is, they are not credit impaired).

As of June 30, 2010, unrealized losses on bond investments in an unrealized loss position of more than 50% for more than 12 months totaled $2.3 million relating to originally investment grade structured securities that are floating-rate or that have low fixed coupons relative to current market yields. As part of our credit evaluation procedures applied to these and other securities, we consider the nature of both the specific securities and the general market conditions for those securities. Current market spreads continue to be significantly wider for securities supported by real estate related assets, compared to spreads at the securities’ respective purchase date, largely due to the continued effects of the recession and the economic and market uncertainties regarding future performance of commercial and residential real estate. In addition, declining LIBOR rates have made floating-rate securities less attractive as a class.

We believe that the lack of demand for commercial and residential real estate collateral-based investments, low contractual coupons and interest rate spreads, and the deterioration in the level of collateral support due to real estate market conditions are the primary reasons for the securities trading at significant price discounts. Based on management’s analysis, we continue to believe the expected cash flows from these securities will be sufficient to recover the amortized cost of our investment. We continue to monitor these positions for potential credit impairments resulting from further deterioration in commercial and residential real estate fundamentals.

Fair value and unrealized losses on investment securities by type and length of time in a continuous unrealized loss position for which an other-than-temporary impairment was recognized and only the amount related to a credit loss was recognized in earnings, were as follows:

	12 Months or Less			More Than 12 Months			Total
(dollars in thousands)	Fair Value	Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
June 30, 2010 Bonds: RMBS	$   -	$   -		$  8,757	$(3,121)		$  8,757	$(3,121)
CMBS	-	-		1,757	(833)		1,757	(833)
Total	$   -	$   -		$10,514	$(3,954)		$10,514	$(3,954)
December 31, 2009 Bonds: RMBS	$   502	$(1,152)		$  5,186	$(1,957)		$  5,688	$(3,109)
CMBS	1,821	(5,582)		-	-		1,821	(5,582)
Total	$2,323	$(6,734)		$  5,186	$(1,957)		$  7,509	$(8,691)

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The net realized (losses) gains on investment securities were as follows:

	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2010	2009		2010	2009
Total other-than-temporary impairment losses	$   (171)	$  (499)		$(1,977)	$(3,234)
Portion of loss recognized in accumulated other comprehensive income (loss)	(1,620)	(38)		(4,062)	(38)
Net impairment losses recognized in net income (loss)	(1,791)	(537)		(6,039)	(3,272)
Other net realized (losses) gains on investment securities	(68)	1,744		(1,064)	(1,167)
Total net realized (losses) gains on investment securities	$(1,859)	$1,207		$(7,103)	$(4,439)

Credit impairments recognized in earnings on investment securities for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income (loss) were as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
(dollars in thousands)	2010	2009	2010	2009
Balance at beginning of period	$7,368	$3,845	$3,150	$3,845
Additions: Due to other-than-temporary impairments: Not previously impaired/impairment not previously recognized	-	339	9	339
Previously impaired/impairment previously recognized	1,705	-	5,940	-
Reductions: Realized due to sales with no prior intention to sell	-	-	-	-
Realized due to intention to sell	-	-	-	-
Accretion of credit impaired securities	(57)	-	(83)	-
Balance at end of period	$9,016	$4,184	$9,016	$4,184

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

	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2010	2009		2010	2009
Fair value	$53,728	$9,592		$137,779	$42,962
Realized gains	$     -	$1,964		$         37	$  2,041
Realized losses	(68)	(218)		(133)	(3,207)
Net realized gains (losses)	$     (68)	$1,746		$       (96)	$ (1,166)

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Contractual maturities of fixed-maturity investment securities at June 30, 2010 were as follows:

June 30, 2010	Fair	Amortized
(dollars in thousands)	Value	Cost
Fixed maturities, excluding mortgage-backed securities: Due in 1 year or less	$    5,340	$    5,191
Due after 1 year through 5 years	128,533	121,198
Due after 5 years through 10 years	230,448	214,607
Due after 10 years	240,256	228,848
Mortgage-backed securities	177,744	189,432
Total	$782,321	$759,276

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

Note 8.  Restricted Cash

Restricted cash at June 30, 2010 included funds related to our $3.0 billion secured term loan executed in April 2010, escrow deposits, and funds to be used for future debt payments relating to our securitization transactions (see Note 5). Restricted cash at December 31, 2009 included escrow deposits and funds to be used for future debt payments relating to our securitization transactions.

Note 9.  Related Party Transactions

AFFILIATE LENDING

On May 11, 2010, AGFC made a loan of $750.0 million to AIG under a demand note agreement between AGFC and AIG dated May 11, 2010. The cash used to fund the loan came from operations and AGFC’s secured term loan, which closed in April 2010. The interest rate for the unpaid principal balance is one-month London Interbank Offered Rate (LIBOR) plus 178 basis points. AIG may repay principal and interest at any time without penalty. At June 30, 2010, notes receivable from AIG totaled $750.0 million, which included interest receivable of $44,000.

On March 24, 2009, AGFC made a loan of $800.0 million to AIG under a demand note agreement between AGFC and AIG dated March 24, 2009. On August 11, 2009, AGFC made an additional loan of $750.0 million to AIG under the March 24, 2009 demand note agreement. The cash used to fund these loans came from asset sale and securitization proceeds, operations, insurance subsidiary dividends, and the AIG capital contribution received in March 2009. At December 31, 2009, notes receivable from AIG totaled $1.6 billion, which included interest receivable of $0.9 million. On March 25, 2010, AIG repaid these demand promissory notes of $1.6 billion, which included interest payable to AGFC of $0.7 million. The interest rate for the unpaid principal balance was LIBOR plus 50 basis points. (AIG could repay principal and interest at any time without penalty.)

Each of these loans were made as short-term investment sources for excess cash and to facilitate AIG’s obligation to manage its excess cash and excess cash held by its subsidiaries under the credit facility with the FRBNY, subject to a subordination agreement in favor of the FRBNY. Interest revenue on these notes receivable from AIG for the three and six months ended June 30, 2010 totaled $2.3 million and $4.7 million, respectively. Interest revenue on these notes receivable from AIG for the three and six months ended June 30, 2009 totaled $1.5 million and $1.7 million, respectively.

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COST SHARING AGREEMENTS

In addition, we are party to cost sharing agreements, including tax sharing arrangements, with AIG. Generally, these agreements provide for the allocation of shared corporate costs based upon a proportional allocation of costs to all AIG subsidiaries. We also reimburse AIG Bank for costs associated with the remediation program related to the Supervisory Agreement with the Office of Thrift Supervision (OTS) dated June 7, 2007 (the Supervisory Agreement). See Note 13 for further information on the tax sharing arrangements, Note 16 for further information on the Supervisory Agreement, and Note 20 for information on the Purchase Agreement.

DERIVATIVES

All of our derivative financial instruments are with AIG Financial Products Corp. (AIGFP), a non-subsidiary affiliate that receives credit support from AIG, its parent. See Note 11 for further information on these derivatives.

CONTRIBUTION OF SUBSIDIARIES TO AGFC

Effective January 1, 2010, AGFI contributed two of its wholly-owned subsidiaries to AGFC. The contribution included $300.3 million of finance receivables. At December 31, 2009, these subsidiaries owed an aggregate total of $278.9 million to AGFI under intercompany notes. As part of the January 1, 2010 transaction, AGFC established direct notes to the subsidiaries in the same amount and as a result, AGFI then reduced its intercompany borrowings from AGFC. Because the transaction was between entities under common control, we recorded the transaction by transferring the assets, liability, and equity from AGFI to AGFC at the carrying value that existed as of January 1, 2010.

Note 10.  VIEs

CONSOLIDATED VIES

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

The asset-backed securities are backed by the expected cash flows from securitized real estate loans. Other than servicing fees and prepayment penalties (for our 2003 and 2006 securitizations only), payments from these real estate loans are not available to us until the repayment of the debt issued in connection with the securitization transactions has occurred. We recorded these transactions as “on-balance sheet” secured financings because the transfer of these real estate loans to the trusts did not qualify for sale accounting treatment. We retain interests in these securitization transactions, including senior and subordinated securities issued by the VIEs and residual interests. We retain credit risk in the securitizations because our retained interests include the most subordinated interest in the securitized assets, which are the first to absorb credit losses on the securitized assets. These retained interests are primarily comprised of $1.4 billion, or 45%, of the assets transferred in connection with the on-balance sheet securitizations. We expect that any credit losses in the pools of securitized assets would likely be limited to our retained interests. We have no obligation to repurchase or replace qualified securitized

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assets that subsequently become delinquent or are otherwise in default. See Note 5 for further discussion regarding these securitization transactions.

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

(dollars in thousands)	June 30, 2010	December 31, 2009
Assets
Finance receivables	$3,053,171	$2,191,004
Allowance for finance receivable losses	110,060	70,312
Restricted cash	34,345	27,645
Liabilities
Long-term debt	$1,538,882	$1,168,379

We had no off-balance sheet exposure associated with our variable interests in the consolidated VIEs. No additional support to these VIEs beyond what was previously contractually required has been provided by us. Consolidated interest expense related to these VIEs for the three and six months ended June 30, 2010 totaled $44.9 million and $87.7 million, respectively. Consolidated interest expense related to these VIEs for the three and six months ended June 30, 2009 totaled $4.2 million and $9.2 million, respectively.

UNCONSOLIDATED VIE

We have established a VIE, primarily related to a debt issuance, of which we are not the primary beneficiary, and in which we do not have a variable interest. Therefore, we do not consolidate such entity. We calculate our maximum exposure to loss primarily to be the amount of debt issued to or equity invested in a VIE. Our on-balance sheet maximum exposure to loss associated with this unconsolidated VIE was $349.4 million at June 30, 2010 and $349.3 million at December 31, 2009. We had no off-balance sheet exposure to loss associated with this VIE at June 30, 2010 and December 31, 2009.

Note 11.  Derivative Financial Instruments

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

While all of our interest rate, cross currency, cross currency interest rate, and equity-indexed swap agreements mitigate economic exposure of related debt, not all of these swap agreements currently qualify as cash flow or fair value hedges under GAAP. At June 30, 2010, equity-indexed debt and related swaps were immaterial.

In the first quarter of 2010, we re-examined our accounting for our de-designated trade and determined that our method for amortizing the debt basis adjustments related to hedge accounting for this second quarter 2009 de-designated trade contained two errors. The debt basis adjustment to be amortized incorrectly included an accounting adjustment on the hedged debt. Secondly, the amortization method did not take into account all cash flows on the debt when calculating the effective yield amortization. In addition, we did not record the foreign exchange translation on the unamortized debt basis. As a result of these errors, we recorded an out-of-period adjustment, which reduced other revenues by $8.2 million

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during the three months ended March 31, 2010. The impact of this error did not have a material effect on our financial condition or results of operations for previously reported periods.

Fair value of derivative instruments presented on a gross basis (excludes the effect of master netting arrangements) by type and the effect of master netting arrangements were as follows:

	Notional	Hedging	Non-Designated Hedging
(dollars in thousands)	Amount	Instruments	Instruments
June 30, 2010 Derivatives – Other Assets:
Cross currency and cross currency interest rate	$1,245,250	$      7,931	$   34,905
Equity-indexed	6,886	-	1,839
Total excluding effect of master netting arrangements	1,252,136	7,931	36,744
Effect of master netting arrangements	N/A*	(7,931)	(34,905)
Total	N/A	$        -	$     1,839
Derivatives – Other Liabilities: Interest rate	$1,475,250	$   86,461	$        -
Equity-indexed	6,886	-	507
Total excluding effect of master netting arrangements	1,482,136	86,461	507
Effect of master netting arrangements	N/A	(42,836)	-
Total	N/A	$   43,625	$       507
December 31, 2009 Derivatives – Other Assets:
Cross currency and cross currency interest rate	$1,870,500	$ 184,826	$105,791
Equity-indexed	6,886	-	1,645
Total excluding effect of master netting arrangements	1,877,386	184,826	107,436
Effect of master netting arrangements	N/A	(70,740)	(40,490)
Total	N/A	$ 114,086	$  66,946
Derivatives – Other Liabilities: Interest rate	$1,000,000	$   72,183	$       -
Cross currency and cross currency interest rate	622,300	39,047	-
Equity-indexed	6,886	-	483
Total excluding effect of master netting arrangements	1,629,186	111,230	483
Effect of master netting arrangements	N/A	(111,230)	-
Total	N/A	$        -	$      483

* not applicable

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

	Effective			Ineffective
(dollars in thousands)	AOCI(L)*	From AOCI(L) to Revenues		Revenues
Three Months Ended June 30, 2010 Interest rate	$13,133	$       278		$     (749)
Cross currency and cross currency interest rate	6,982	(15,227)		(20,006)
Total	$20,115	$(14,949)		$(20,755)
Three Months Ended June 30, 2009 Interest rate	$  (2,088)	$  (2,184)		$     (878)
Cross currency and cross currency interest rate	(73,806)	(15,657)		10,085
Total	$(75,894)	$(17,841)		$   9,207
Six Months Ended June 30, 2010 Interest rate	$ 20,539	$   2,634		$  (1,575)
Cross currency and cross currency interest rate	41,230	57,081		(26,404)
Total	$ 61,769	$ 59,715		$(27,979)
Six Months Ended June 30, 2009 Interest rate	$ 27,415	$    9,473		$  (1,798)
Cross currency and cross currency interest rate	(22,088)	(39,479)		(14,523)
Total	$   5,327	$(30,006)		$(16,321)

* accumulated other comprehensive income (loss)

We immediately recognize the portion of the gain or loss in the fair value of a derivative instrument in a cash flow hedge that represents hedge ineffectiveness in current period earnings. We recognized losses related to ineffectiveness of $20.8 million for the three months ended June 30, 2010 and losses of $28.0 million for the six months ended June 30, 2010 in other revenues. We recognized gains related to ineffectiveness of $9.2 million for the three months ended June 30, 2009 and losses of $16.3 million for the six months ended June 30, 2009 in other revenues. We included all components of each derivative’s gain or loss in the assessment of hedge effectiveness.

At June 30, 2010, we expect $104.9 million of the deferred net loss on cash flow hedges in accumulated other comprehensive income to be reclassified to earnings during the twelve months ending June 30, 2011. This will be partially offset by a $56.0 million foreign exchange gain reclassification to earnings during the twelve months ending June 30, 2011 due to a maturity of foreign currency denominated debt. For the six months ended June 30, 2010, there were no instances in which we reclassified amounts from accumulated other comprehensive income (loss) to earnings as a result of a discontinuance of a cash flow hedge due to it becoming probable that the original forecasted transaction would not occur at the end of the originally specified time period.

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The amount recognized in other revenues for the fair value hedge that no longer qualifies for hedge accounting, the related hedged item, the matured cash flow hedges, and the non-designated hedging instruments were as follows:

	Fair Value Hedge			Non-Designated Hedging
(dollars in thousands)	Derivative	Hedged Item		Instruments
Three Months Ended June 30, 2010
Cross currency and cross currency interest rate	$      -	$      -		$(56,192)
Equity-indexed	-	-		78
Total	$      -	$      -		$(56,114)
Three Months Ended June 30, 2009
Cross currency and cross currency interest rate	$      -	$      -		$(11,583)
Equity-indexed	-	-		67
Total	$      -	$      -		$(11,516)
Six Months Ended June 30, 2010
Cross currency and cross currency interest rate	$      -	$      -		$(10,128)
Equity-indexed	-	-		160
Total	$      -	$      -		$  (9,968)
Six Months Ended June 30, 2009
Cross currency and cross currency interest rate	$(13,641)	$14,926		$(11,075)
Equity-indexed	-	-		121
Total	$(13,641)	$14,926		$(10,954)

During the three months ended June 30, 2010, we recognized a mark to market loss of $61.4 million on our non-designated cross currency derivative. During the six months ended June 30, 2010, we recognized a mark to market loss of $95.7 million on our non-designated cross currency derivative, partially offset by gains of $68.8 million on the release of other comprehensive income related to cash flow hedge maturities. We recognized no gains or losses during the three months ended June 30, 2009 and net gains of $1.3 million during the six months ended June 30, 2009 in other revenues related to the ineffective portion of our fair value hedging instruments. We included all components of each derivative’s gain or loss in the assessment of hedge effectiveness.

AGFC is exposed to credit risk if counterparties to swap agreements do not perform. AGFC regularly monitors counterparty credit ratings throughout the term of the agreements. AGFC’s exposure to market risk is limited to changes in the value of swap agreements offset by changes in the value of the hedged debt. In compliance with the authoritative guidance for fair value measurements, our valuation methodology for derivatives incorporates the effect of our non-performance risk and the non-performance risk of our counterparties. We recorded a $3.8 million credit valuation adjustment gain in other revenues on our non-designated derivative and an $11.8 million credit valuation adjustment gain in accumulated other comprehensive income on our cash flow hedges for the three months ended June 30, 2010. We recorded a $12.9 million credit valuation adjustment gain in other revenues on our non-designated derivative and a $29.0 million credit valuation adjustment gain in accumulated other comprehensive income on our cash flow hedges for the six months ended June 30, 2010. We recorded a $38.4 million credit valuation adjustment loss in other revenues on our non-designated derivative and a $77.7 million credit valuation adjustment loss in accumulated other comprehensive loss on our cash flow hedges for the three months ended June 30, 2009. We recorded a $36.8 million credit valuation adjustment loss in other revenues on our non-designated derivative and a $46.8 million credit valuation adjustment loss in

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accumulated other comprehensive loss on our cash flow hedges for the six months ended June 30, 2009. If we do not exit these derivatives prior to maturity and no counterparty defaults occur, the credit valuation adjustment will result in no impact to earnings over the life of the agreements. We do not anticipate exiting these derivatives prior to maturity. These derivatives are with AIGFP, a non-subsidiary affiliate that receives credit support from AIG, its parent.

See Note 17 for information on how we determine fair value on our derivative financial instruments.

Note 12.  Accumulated Other Comprehensive Income

Components of accumulated other comprehensive income were as follows:

	June 30,	December 31,
(dollars in thousands)	2010	2009
Net unrealized gains on: Investment securities	$ 35,662	$ 5,251
Swap agreements	5,735	3,681
Foreign currency translation adjustments	(15,392)	(4,920)
Retirement plan liabilities adjustment	(2,166)	(2,166)
Accumulated other comprehensive income	$ 23,839	$ 1,846

As of June 30, 2010, we have recognized losses of $2.3 million, compared to $5.6 million at December 31, 2009, in accumulated other comprehensive income related to investment securities for which the credit-related portion of an other-than-temporary impairment has been recognized in earnings. In addition, accumulated other comprehensive income related to investment securities as of June 30, 2010 includes a valuation allowance of $18.9 million against the related deferred tax assets, compared to $10.6 million at December 31, 2009.

Note 13.  Income Taxes

Benefit from income taxes for the three and six months ended June 30, 2010 reflected AIG’s projection that it will have sufficient taxable income in 2010 to utilize our current year estimated tax losses. AGFI files its federal income tax return as a member of AIG’s consolidated tax return group. Current income tax expense or benefit is allocated pro rata to AGFI, and other members of the AIG group, to the extent that AGFI’s income or loss is included in or reduces AIG’s current taxable income before use of tax carryforwards at the consolidated level. Deferred tax expense is determined on a separate company basis.

The income tax benefit of $108.5 million principally relates to $111.4 million income tax receivable from AIG and an $86.0 million change in net deferred tax assets offset by an equal release of the valuation allowance. On August 10, 2010, AIG entered into the Purchase Agreement with the Acquiror, an affiliate of Fortress Investment Group LLC. In connection with entering into the Purchase Agreement, AIG and AGFI have agreed to amend their tax sharing agreement, which will terminate on the closing of FCFI Transaction, (i) to provide that, subject to the closing of the FCFI Transaction, the parties’ payment obligations under the tax sharing agreement shall be limited to the payments required to be made by AIG to AGFI with respect to the 2009 taxable year in accordance with the tax sharing agreement, and (ii) to include the terms of the promissory note to be issued by AIG in satisfaction of its 2009 taxable year payment obligation to AGFI. If the closing of the FCFI Transaction occurs, we will not be reimbursed for our 2010 current tax benefit of $111.4 million. Accordingly AGFI will record a distribution to AIG during the period the purchase closes. See Note 20 for further discussion regarding the Purchase Agreement.

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As of June 30, 2010, we had a deferred tax asset valuation allowance of $445.6 million, compared to $531.6 million at December 31, 2009, to reduce net deferred tax assets to amounts we considered more likely than not (a likelihood of more than 50 percent) to be realized. After the valuation allowance, we had a net deferred tax asset of $5.6 million at June 30, 2010 and $9.1 million at December 31, 2009, which reflected the net deferred tax asset of our Puerto Rico subsidiary.

When making our assessment about the realization of our deferred tax assets, we consider all available evidence, including:

·

the nature, frequency, and severity of current and cumulative financial reporting losses;

·

the carryforward periods for the net operating and capital loss carryforwards;

·

the sources and timing of future taxable income, giving greater weight to discrete sources and to earlier future years in the forecast period; and

·

tax planning strategies that would be implemented, if necessary, to accelerate taxable amounts.

Realization of our net deferred tax asset depends on the ability of the relevant subsidiary to generate sufficient taxable income of the appropriate character within the carryforward periods of the jurisdictions in which the net operating and capital losses, deductible temporary differences and credits of that subsidiary were generated.

At June 30, 2010, other assets included $573.4 million of net current federal income tax receivable, compared to $464.9 million at December 31, 2009.

Note 14.  Supplemental Cash Flow Information

Supplemental disclosure of non-cash activities was as follows:

Six Months Ended June 30,
(dollars in thousands)	2010	2009
Transfer of finance receivables held for sale to finance receivables held for investment	$655,565	$         -
Transfer of finance receivables held for investment to finance receivables held for sale (prior to deducting allowance for finance receivable losses)	$      -	$1,305,577

Note 15.  Segment Information

We have three business segments:  branch, centralized real estate, and insurance. We define our segments by types of financial service products we offer, nature of our production processes, and methods we use to distribute our products and to provide our services, as well as our management reporting structure.

In our branch business segment, we:

·

originate secured and unsecured non-real estate loans;

·

originate real estate loans secured by first or second mortgages on residential real estate, which may be closed-end accounts or open-end home equity lines of credit and are generally considered non-conforming;

·

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

·

purchase private label finance receivables originated by AIG Bank under a participation agreement.

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

In our centralized real estate business segment, we:

·

service a portfolio of residential real estate loans generated through:

·

portfolio acquisitions from third party lenders;

·

our mortgage origination subsidiaries;

·

refinancing existing mortgages;

·

advances on home equity lines of credit; or

·

correspondent relationships;

·

originated and have historically acquired residential real estate loans for transfer to the centralized real estate servicing center;

·

originated residential real estate loans directly with consumers for sale to investors with servicing released to the purchaser; and

·

originated residential real estate loans through mortgage brokers for sale to investors with servicing released to the purchaser.

In our insurance business segment, we write and reinsure credit life, credit accident and health, credit-related property and casualty, and credit involuntary unemployment insurance covering our customers and the property pledged as collateral through products that the branch business segment offers to its customers. We also offer non-credit insurance products.

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The following table presents information about our segments as well as reconciliations to our condensed consolidated financial statement amounts.

	Branch	Centralized Real Estate	Insurance	All		Consolidated
(dollars in thousands)	Segment	Segment	Segment	Other	Adjustments	Total
Three Months Ended June 30, 2010 Revenues: External: Finance charges	$ 360,653	$  91,984	$     -	$   3,476	$     -	$   456,113
Insurance	100	-	31,148	113	-	31,361
Other	(3,037)	10,983	14,760	(2,120)	(3,037)	17,549
Intercompany	16,541	198	(12,391)	(4,348)	-	-
Pretax income (loss)	30,843	(17,069)	16,659	(42,280)	(3,037)	(14,884)
Three Months Ended June 30, 2009 Revenues: External: Finance charges	$ 450,240	$ 118,039	$     -	$   2,187	$     -	$   570,466
Insurance	121	-	33,870	(11)	-	33,980
Other	(7,926)	(69,345)	14,241	(39,556)	1,207	(101,379)
Intercompany	16,961	577	(13,479)	(4,059)	-	-
Pretax (loss) income	(69,440)	(104,685)	12,034	(76,280)	1,207	(237,164)
Six Months Ended June 30, 2010 Revenues: External: Finance charges	$ 735,694	$ 186,829	$     -	$   7,028	$     -	$   929,551
Insurance	206	-	62,582	93	-	62,881
Other	(1,532)	22,064	28,367	73,592	(8,246)	114,245
Intercompany	32,819	594	(24,915)	(8,498)	-	-
Pretax income (loss)	37,984	(105,680)	28,065	(11,867)	(8,246)	(59,744)
Six Months Ended June 30, 2009 Revenues: External: Finance charges	$ 919,780	$ 251,176	$     -	$   4,111	$     -	$1,175,067
Insurance	248	-	68,704	86	-	69,038
Other	(16,965)	(90,327)	29,338	(61,034)	(4,439)	(143,427)
Intercompany	34,091	1,358	(27,355)	(8,094)	-	-
Pretax (loss) income	(181,738)	(194,814)	25,337	(124,239)	(4,439)	(479,893)

The “All Other” column includes:

·

corporate revenues and expenses such as management and administrative revenues and expenses and derivatives adjustments and foreign exchange gain or loss on foreign currency denominated debt that are not considered pertinent in determining segment performance; and

·

revenues from our foreign subsidiary, Ocean Finance and Mortgages Limited (Ocean).

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The “Adjustments” column includes realized gains (losses) on investment securities and commercial mortgage loans.

Note 16.  Supervisory Agreement

As disclosed in AGFI’s Current Report on Form 8-K dated June 7, 2007, AIG Bank, Wilmington Finance, Inc. (WFI) (a wholly-owned subsidiary of AGFC), and AGFI entered into the Supervisory Agreement with the OTS on June 7, 2007. The Supervisory Agreement pertains to certain mortgage loans originated in the name of AIG Bank by WFI from July 2003 through early May 2006 pursuant to a mortgage services agreement between WFI and AIG Bank. The mortgage services agreement was terminated in February 2006.

Pursuant to the terms of the Supervisory Agreement, AIG Bank, WFI, and AGFI implemented a financial remediation program whereby certain borrowers may be provided loans on more affordable terms and/or reimbursed for certain fees. Pursuant to the requirements of the Supervisory Agreement, we engaged the services of an external consultant to monitor, evaluate, and periodically report to the OTS on our compliance with the remediation program. The Supervisory Agreement will remain in effect until terminated, modified or suspended in writing by the OTS. Failure to comply with the terms of the Supervisory Agreement could result in the initiation of formal enforcement action by the OTS.

AIG Bank, WFI, and AGFI also made a commitment to donate a total of $15 million over a three-year period to certain not-for-profit organizations to support their efforts to promote financial literacy and credit counseling. As of June 30, 2010, we have donated $10.4 million to this cause.

In accordance with WFI’s surviving obligations under the mortgage services agreement with AIG Bank, we established a reserve of $128 million (pretax) as a reduction to net service fees from affiliates (included in other revenues) as of March 31, 2007, reflecting management’s then best estimate of the expected costs of the remediation program. After completion of discussions with the OTS and the execution of the Supervisory Agreement, we recorded an additional reserve of $50 million, inclusive of the $15 million donation commitment, in second quarter 2007. As of June 30, 2010, we have made reimbursements of $61.8 million for payments made by AIG Bank to refund certain fees to customers pursuant to the terms of the Supervisory Agreement. As of June 30, 2010, we have also reduced the reserve by $85.6 million as an addition to net service fees from affiliates (included in other revenues) resulting from our subsequent evaluations of our loss exposure. At June 30, 2010, this reserve totaled $12.2 million. As the estimate is based on judgments and assumptions made by management, the actual cost of the remediation program may differ from our estimate.

Note 17.  Fair Value Measurements

The fair value of a financial instrument is the amount that would be received if an asset were to be sold or the amount that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. An other-than-active market is one in which there are few transactions, the prices are not current, price quotations vary substantially either over time or among market makers, or little information is released publicly for the asset or liability being valued. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is listed on an exchange or traded over-the-counter or is new to the market and not yet established, the characteristics specific to the transaction, and general market conditions.

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Management is responsible for the determination of the value of the financial assets and financial liabilities carried at fair value and the supporting methodologies and assumptions. Third party valuation service providers are employed to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments. When the valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted internal valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, currency rates, and other market-observable information as of the measurement date as well as the specific attributes of the security being valued, including its term interest rate, credit rating, industry sector, and other issue or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We assess the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, we may validate the reasonableness of fair values by comparing information obtained from the valuation service providers to other third party valuation sources for selected securities. We also validate prices for selected securities obtained from brokers through reviews by members of management who have relevant expertise and who are independent of those charged with executing investing transactions.

FAIR VALUE HIERARCHY

We measure and classify assets and liabilities recorded at fair value in the consolidated balance sheet in a hierarchy for disclosure purposes consisting of three “Levels” based on the observability of inputs available in the market place used to measure the fair values. In general, we determine the fair value measurements classified as Level 1 based on inputs utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. We generally obtain market price data from exchange or dealer markets. We do not adjust the quoted price for such instruments.

We determine the fair value measurements classified as Level 2 based on inputs utilizing other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. We outsource the investment of a portion of our liquid assets to AIG, which, as agent, invests our liquid assets together with other AIG subsidiaries and maintains these assets in common pools. Our interest in these jointly owned investments that are disclosed in the fair value table represents negotiable instruments. The carrying value of these negotiable instruments approximates fair value, as similar and identical instruments trade at price levels with a similar discount to par. The prices for trades of similar and identical instruments are observable and therefore are consistent with Level 2 in the fair value hierarchy.

Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

In certain cases, the inputs we use to measure the fair value of an asset may fall into different levels of the fair value hierarchy. In such cases, we determine the level in the fair value hierarchy within which the fair value measurement in its entirety falls based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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Fair Value Measurements – Recurring Basis

On a recurring basis, we measure the fair value of investment securities, cash and cash equivalents, short-term investments, and derivative assets and liabilities. The following table presents information about our assets and liabilities measured at fair value on a recurring basis and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:

	Fair Value Measurements Using			Counterparty	Total Carried
(dollars in thousands)	Level 1	Level 2	Level 3	Netting (a)	At Fair Value
June 30, 2010 Assets Investment securities: Bonds: U.S. government and government sponsored entities	$     -	$    9,674	$     -	$       -	$    9,674
Obligations of states, municipalities, and political subdivisions	-	228,372	-	-	228,372
Corporate debt	-	338,988	27,543	-	366,531
RMBS	-	140,038	573	-	140,611
CMBS	-	2,625	11,887	-	14,512
CDO/ABS	-	9,948	12,673	-	22,621
Total	-	729,645	52,676	-	782,321
Preferred stocks	-	4,397	-	-	4,397
Other long-term investments (b)	-	-	7,087	-	7,087
Common stocks (c)	2,169	-	6	-	2,175
Total	2,169	734,042	59,769	-	795,980
Cash and cash equivalents in AIG pools	-	7,336	-	-	7,336
Short-term investments	-	64	-	-	64
Derivatives: Cross currency and cross currency interest rate	-	42,836	-	(42,836)	-
Equity-indexed	-	-	1,839	-	1,839
Total	-	42,836	1,839	(42,836)	1,839
Total	$2,169	$784,278	$61,608	$  (42,836)	$805,219
Liabilities
Derivatives: Cross currency and cross currency interest rate	$     -	$  86,461	$       -	$  (42,836)	$  43,625
Equity-indexed	-	507	-	-	507
Total	$     -	$  86,968	$       -	$  (42,836)	$  44,132
December 31, 2009 Assets Investment securities: Bonds: U.S. government and government sponsored entities	$     -	$    9,184	$     -	$       -	$    9,184
Obligations of states, municipalities, and political subdivisions	-	234,252	-	-	234,252
Corporate debt	-	308,236	49,978	-	358,214
RMBS	-	79,242	449	-	79,691
CMBS	-	5,357	7,841	-	13,198
CDO/ABS	-	11,300	11,381	-	22,681
Total	-	647,571	69,649	-	717,220
Preferred stocks	-	3,644	-	-	3,644
Other long-term investments (b)	-	-	7,758	-	7,758
Common stocks	3,013	-	261	-	3,274
Total	3,013	651,215	77,668	-	731,896
Cash and cash equivalents in AIG pools	-	36,123	-	-	36,123
Derivatives	-	290,617	1,645	(111,230)	181,032
Total	$3,013	$977,955	$79,313	$(111,230)	$949,051
Liabilities
Derivatives	$     -	$111,713	$       -	$(111,230)	$       483

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(a)

Represents netting of derivative exposures covered by a qualifying master netting agreement in accordance with the authoritative guidance for certain contracts.

(b)

Other long-term investments excluded our interest in a limited partnership that we account for using the equity method of $1.3 million at June 30, 2010 and $1.4 million at December 31, 2009.

(c)

Common stocks excluded stocks not carried at fair value of $0.6 million at June 30, 2010.

We had no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2010.

The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended June 30, 2010 and 2009:

		Net (losses) gains included in:
(dollars in thousands)	Balance at beginning of period	Other revenues	Other comprehensive income	Purchases sales, issuances, settlements	Transfers in (out) of Level 3	Other (a)	Balance at end of period
Three Months Ended June 30, 2010 Investment securities: Bonds: Corporate debt	$36,938	$    -	$ 1,022	$   (92)	$(10,325)	$    -	$27,543
RMBS	547	1	25	-	-	-	573
CMBS	12,119	(1,676)	1,694	(250)	-	-	11,887
CDO/ABS	11,240	(1)	(170)	(337)	1,941	-	12,673
Total	60,844	(1,676)	2,571	(679)	(8,384)	-	52,676
Other long-term investments (b)	7,119	672	129	(833)	-	-	7,087
Common stocks	261	-	-	301	(556)	-	6
Total investment securities	68,224	(1,004)	2,700	(1,211)	(8,940)	-	59,769
Derivatives	1,860	(26)	-	5	-	-	1,839
Total assets	$70,084	$(1,030)	$ 2,700	$(1,206)	$  (8,940)	$    -	$61,608
Three Months Ended June 30, 2009 Investment securities: Bonds: Corporate debt	$60,424	$    1	$   9,747	$     (33)	$(1,624)	$    -	$68,515
RMBS	399	5	(762)	-	-	684	326
CMBS	9,451	29	(5,538)	(91)	-	5,727	9,578
CDO/ABS	16,237	117	(15,180)	(936)	-	13,571	13,809
Total	86,511	152	(11,733)	(1,060)	(1,624)	19,982	92,228
Other long-term investments (b)	6,443	223	61	(223)	-	-	6,504
Common stocks	7	-	-	-	-	-	7
Total investment securities	92,961	375	(11,672)	(1,283)	(1,624)	19,982	98,739
Derivatives	324	484	-	23	-	-	831
Total assets	$93,285	$859	$(11,672)	$(1,260)	$(1,624)	$19,982	$99,570

(a)

We adopted a new accounting standard relating to the recognition and presentation of other-than-temporary impairments on April 1, 2009 and recorded a cumulative effect adjustment to increase the cost/amortized cost of level 3 investment securities by $20.0 million.

(b)

Other long-term investments excluded our interest in a limited partnership that we account for using the equity method of $1.3 million at June 30, 2010 and June 30, 2009.

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During the three months ended June 30, 2010, we transferred into Level 3 approximately $1.9 million of assets, consisting of certain CDO/ABS. Transfers into Level 3 for investments in CDO/ABS are primarily due to a decrease in market transparency and downward credit migration of these securities.

During the three months ended June 30, 2009, we transferred into Level 3 approximately $18.5 million of assets, consisting of certain private placement corporate debt. Transfers into Level 3 for private placement corporate debt are primarily the result of our over-riding third party matrix pricing information downward to better reflect the additional risk premium associated with those securities that we believe were not captured in the matrix.

Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the asset, a specific event, one or more significant input(s) becoming observable, or when a long-term interest rate significant to a valuation becomes short-term and thus observable. During the three months ended June 30, 2010, we transferred approximately $10.9 million of assets out of Level 3, consisting of certain private placement corporate debt and common stock. Transfers out of Level 3 for private placement corporate debt and common stock are primarily the result of using observable pricing information or a third party pricing quote that appropriately reflects the fair value of those securities, without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market. During the three months ended June 30, 2009, we transferred approximately $20.1 million of assets out of Level 3, consisting of certain private placement corporate debt.

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The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2010 and 2009:

		Net (losses) gains included in:
(dollars in thousands)	Balance at beginning of period	Other revenues	Other comprehensive income	Purchases sales, issuances, settlements	Transfers in (out) of Level 3	Other (a)	Balance at end of period
Six Months Ended June 30, 2010 Investment securities: Bonds: Corporate debt	$49,978	$    -	$ 1,927	$(3,571)	$(20,791)	$    -	$27,543
RMBS	449	2	122	-	-	-	573
CMBS	7,841	(4,745)	4,985	(331)	4,137	-	11,887
CDO/ABS	11,381	(3)	532	(1,178)	1,941	-	12,673
Total	69,649	(4,746)	7,566	(5,080)	(14,713)	-	52,676
Other long-term investments (b)	7,758	(139)	533	(1,065)	-	-	7,087
Common stocks	261	(2)	2	301	(556)	-	6
Total investment securities	77,668	(4,887)	8,101	(5,844)	(15,269)	-	59,769
Derivatives	1,645	184	-	10	-	-	1,839
Total assets	$79,313	$(4,703)	$ 8,101	$(5,834)	$(15,269)	$    -	$61,608
Six Months Ended June 30, 2009 Investment securities: Bonds: Corporate debt	$47,323	$     49	$   6,781	$   (114)	$14,476	$    -	$68,515
RMBS	394	(13)	(739)	-	-	684	326
CMBS	9,633	52	(5,534)	(300)	-	5,727	9,578
CDO/ABS	5,672	(1,556)	(15,206)	(1,235)	12,563	13,571	13,809
Total	63,022	(1,468)	(14,698)	(1,649)	27,039	19,982	92,228
Other long-term investments (b)	9,579	217	(3,075)	(217)	-	-	6,504
Common stocks	7	-	-	-	-	-	7
Total investment securities	72,608	(1,251)	(17,773)	(1,866)	27,039	19,982	98,739
Derivatives	1,341	(572)	-	62	-	-	831
Total assets	$73,949	$(1,823)	$(17,773)	$(1,804)	$27,039	$19,982	$99,570

(a)

We adopted a new accounting standard relating to the recognition and presentation of other-than-temporary impairments on April 1, 2009 and recorded a cumulative effect adjustment to increase the cost/amortized cost of level 3 investment securities by $20.0 million.

(b)

Other long-term investments excluded our interest in a limited partnership that we account for using the equity method of $1.3 million at June 30, 2010 and June 30, 2009.

During the six months ended June 30, 2010, we transferred into Level 3 approximately $6.1 million of assets, consisting of certain CMBS and CDO/ABS. Transfers into Level 3 for investments in CMBS and CDO/ABS are primarily due to a decrease in market transparency and downward credit migration of these securities.

During the six months ended June 30, 2009, we transferred into Level 3 approximately $48.2 million of assets, consisting of certain private placement corporate debt and CDO/ABS. Transfers into Level 3 for private placement corporate debt are primarily the result of our over-riding third party matrix pricing information downward to better reflect the additional risk premium associated with those securities that we believe were not captured in the matrix. Transfers into Level 3 for investments in CDO/ABS are primarily due to a decrease in market transparency and downward credit migration of these securities.

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Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the asset, a specific event, one or more significant input(s) becoming observable, or when a long-term interest rate significant to a valuation becomes short-term and thus observable. During the six months ended June 30, 2010, we transferred approximately $21.3 million of assets out of Level 3, consisting of certain private placement corporate debt and common stock. Transfers out of Level 3 for private placement corporate debt and common stock are primarily the result of using observable pricing information or a third party pricing quote that appropriately reflects the fair value of those securities, without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market. During the six months ended June 30, 2009, we transferred approximately $21.2 million of assets out of Level 3, consisting of certain private placement corporate debt.

There were no unrealized gains or losses recognized in earnings on instruments held at June 30, 2010 or 2009.

We used observable and/or unobservable inputs to determine the fair value of positions that we have classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the table above may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Fair Value Measurements – Non-recurring Basis

We measure the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. These assets include real estate owned and finance receivables held for sale.

Impairment charges recorded on assets measured at fair value on a non-recurring basis were as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in thousands)	2010	2009	2010	2009
Real estate owned	$9,873	$  7,259	$17,605	$19,770
Finance receivables held for sale	-	68,698	-	78,627
Total	$9,873	$75,957	$17,605	$98,397

Assets measured at fair value on a non-recurring basis on which we recorded impairment charges were as follows:

	Fair Value Measurements Using
(dollars in thousands)	Level 1	Level 2	Level 3	Total
June 30, 2010 Real estate owned	$   -	$   -	$166,869	$166,869
December 31, 2009 Real estate owned	$   -	$   -	$168,303	$168,303
Finance receivables held for sale	-	-	693,675	693,675
Total	$   -	$   -	$861,978	$861,978

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In accordance with the authoritative guidance for the accounting for the impairment of long-lived assets, we wrote down certain real estate owned reported in our branch and centralized real estate business segments to their fair value for the three and six months ended June 30, 2010 and 2009 and recorded the writedowns in other revenues. The fair values disclosed in the tables above are unadjusted for transaction costs as required by the authoritative guidance for fair value measurements. The amounts recorded on the balance sheet are net of transaction costs as required by the authoritative guidance for accounting for the impairment of long-lived assets.

In accordance with the authoritative guidance for the accounting for certain mortgage banking activities, we wrote down certain finance receivables held for sale reported in our centralized real estate business segment to their fair value for the three and six months ended June 30, 2009 and recorded the writedowns in other revenues. We did not record any impairment charges on our finance receivables held for sale during the six months ended June 30, 2010.

Financial Instruments Not Measured at Fair Value

In accordance with the amended authoritative guidance for the fair value disclosures of financial instruments, we present the carrying values and estimated fair values of certain of our financial instruments below. Readers should exercise care in drawing conclusions based on fair value, since the fair values presented below can be misinterpreted since they were estimated at a particular point in time and do not include the value associated with all of our assets and liabilities.

	June 30, 2010		December 31, 2009
(dollars in thousands)	Carrying Value	Fair Value	Carrying Value	Fair Value
Assets Net finance receivables, less allowance for finance receivable losses	$16,553,689	$15,139,746	$17,306,700	$16,179,436
Cash and cash equivalents (excluding cash and cash equivalents in AIG pools and short-term investments)	588,990	588,990	1,275,719	1,275,719
Liabilities Long-term debt	17,385,647	15,718,829	17,743,343	14,941,477
Short-term debt	-	-	2,450,000	2,411,709
Off-balance sheet financial instruments Unused customer credit limits	-	-	-	-

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FAIR VALUE MEASUREMENTS –

VALUATION METHODOLOGIES AND ASSUMPTIONS

We used the following methods and assumptions to estimate fair value.

Finance Receivables

We estimated fair values of net finance receivables, less allowance for finance receivable losses using projected cash flows, computed by category of finance receivable, discounted at the weighted-average interest rates offered in the market for similar finance receivables at the balance sheet date. We based cash flows on contractual payment terms adjusted for delinquencies and estimates of finance receivable losses. The fair value estimates do not reflect the value of the underlying customer relationships or the related distribution systems.

Real Estate Owned

We initially based our estimate of the fair value on third party appraisals at the time we took title to real estate owned. Subsequent changes in fair value are based upon management’s judgment of national and local economic conditions to estimate a price that would be received in a then current transaction to sell the asset.

Finance Receivables Held for Sale

Originated as held for sale. We determined the fair value of finance receivables held for sale that were originated as held for sale by reference to available market indicators such as current investor yield requirements, outstanding forward sale commitments, or negotiations with prospective purchasers, if any.

Originated as held for investment. We determined the fair value of finance receivables held for sale that were originated as held for investment based on negotiations with prospective purchasers (if any) or by using projected cash flows discounted at the weighted-average interest rates offered for similar finance receivables. We based cash flows on contractual payment terms adjusted for estimates of prepayments and credit related losses.

Investment Securities

To measure the fair value of investment securities (which consist primarily of bonds), we maximized the use of observable inputs and minimized the use of unobservable inputs. Whenever available, we obtained quoted prices in active markets for identical assets at the balance sheet date to measure investment securities at fair value. We generally obtained market price data from exchange or dealer markets.

We estimated the fair value of fixed maturity investment securities not traded in active markets by referring to traded securities with similar attributes, using dealer quotations and a matrix pricing methodology, or discounted cash flow analyses. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, prepayment rates and other relevant factors. For fixed maturity investment securities that are not traded in active markets or that are subject to transfer restrictions, we adjusted the valuations to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

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We initially estimated the fair value of equity instruments not traded in active markets by reference to the transaction price. We adjusted this valuation only when changes to inputs and assumptions were corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations, and other transactions across the capital structure, offerings in the equity capital markets, and changes in financial ratios or cash flows. For equity securities that are not traded in active markets or that are subject to transfer restrictions, we adjusted the valuations to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

Cash and Cash Equivalents

We estimated the fair value of cash and cash equivalents using quoted prices where available and industry standard valuation models using market-based inputs when quoted prices were unavailable.

Short-term Investments

We estimated the fair value of short-term investments using quoted prices where available and industry standard valuation models using market-based inputs when quoted prices were unavailable.

Derivatives

Our derivatives are not traded on an exchange. The valuation model used to calculate fair value of our derivative instruments includes a variety of observable inputs, including contractual terms, interest rate curves, foreign exchange rates, yield curves, credit curves, measure of volatility, and correlations of such inputs. Valuation adjustments may be made in the determination of fair value. These adjustments include amounts to reflect counterparty credit quality and liquidity risk, as well as credit and market valuation adjustments. The credit valuation adjustment adjusts the valuation of derivatives to account for nonperformance risk of our counter-party with respect to all net derivative assets positions. The credit valuation adjustment also accounts for our own credit risk in the fair value measurement of all net derivative liabilities’ positions, when appropriate. The market valuation adjustment adjusts the valuation of derivatives to reflect the fact that we are an “end-user” of derivative products. As such, the valuation is adjusted to take into account the bid-offer spread (the liquidity risk), as we are not a dealer of derivative products.

Long-term Debt

Where market-observable prices are not available, we estimated the fair values of long-term debt using projected cash flows discounted at each balance sheet date’s market-observable implicit-credit spread rates for our long-term debt and adjusted for foreign currency translations.

Short-term Debt

We estimated the fair values of bank short-term debt using projected cash flows discounted at each balance sheet date’s market-observable implicit-credit spread rates for similar types of borrowings with maturities consistent with those remaining for the short-term debt being valued. The fair values of the remaining short-term debt approximated the carrying values.

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Unused Customer Credit Limits

The unused credit limits available to the customers of AIG Bank, which sells private label receivables to us under a participation agreement, and to our customers have no fair value. The interest rates charged on these facilities can be changed at AIG Bank’s discretion for private label, or are adjustable and reprice frequently for loan and retail revolving lines of credit. These amounts, in part or in total, can be cancelled at the discretion of AIG Bank or us.

Note 18.  Legal Settlements

In March 2010, WFI and AIG Bank settled a civil lawsuit brought by the United States Department of Justice (DOJ) for alleged violations of the Fair Housing Act and the Equal Credit Opportunity Act. The DOJ alleged that WFI and AIG Bank allowed independent wholesale mortgage loan brokers to charge certain minority borrowers higher broker fees than were charged to certain other borrowers between 2003 and 2006. WFI and AIG Bank denied any legal violation, and maintained that at all times they conducted their lending and other activities in compliance with fair-lending and other laws. As part of the settlement, WFI and AIG Bank agreed to provide $6.1 million for borrower remediation. In March 2010, we paid $6.1 million into an escrow account pursuant to the terms of the settlement agreement with the DOJ. Upon completion of the remediation, all remaining funds will be distributed for consumer education purposes. In the event that the remaining funds do not total at least $1 million, AIG Bank and WFI have agreed to replenish the fund up to $1 million for distribution for educational purposes. In addition, AIG Bank and WFI will incur certain costs associated with administering the settlement.

In June 2010, MorEquity settled certain claims relating to the sale of mortgage loans by MorEquity. The opposing parties alleged that they had a binding contract to purchase such loans in 2008, while MorEquity claimed that no such contract existed. MorEquity paid $12.5 million to resolve the dispute.

Note 19.  Legal Contingencies

AGFI and certain of its subsidiaries are parties to various legal proceedings, including certain purported class action claims, arising in the ordinary course of business. Some of these proceedings are pending in jurisdictions that permit damage awards disproportionate to the actual economic damages alleged to have been incurred. Based upon information presently available, we believe that the total amounts, if any, that will ultimately be paid arising from these legal proceedings will not have a material adverse effect on our consolidated results of operations or financial position. However, the continued occurrences of large damage awards in general in the United States, including, in some jurisdictions, large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs, create the potential for an unpredictable result in any given proceeding.

Note 20.  Subsequent Events

On August 10, 2010, AIG entered into the Purchase Agreement with the Acquiror, an affiliate of Fortress Investment Group LLC. Under the Purchase Agreement, among other things, the Acquiror will indirectly acquire 80% of AGFI, and AIG will retain a 20% interest in the AGFI business. The parties expect that the FCFI Transaction will close by the end of the first quarter of 2011.

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Each of AIG and the Acquiror has made certain customary representations, warranties and covenants in the Purchase Agreement. The closing of the FCFI Transaction is subject to customary closing conditions, including receipt of necessary regulatory approvals. In connection with entering into the Purchase Agreement, AIG and AGFI have agreed to amend their tax sharing agreement, which will terminate on the closing of the FCFI Transaction, (i) to provide that, subject to the closing of the FCFI Transaction, the parties’ payment obligations under the tax sharing agreement shall be limited to the payments required to be made by AIG to AGFI with respect to the 2009 taxable year in accordance with the tax sharing agreement, and (ii) to include the terms of the promissory note to be issued by AIG in satisfaction of its 2009 taxable year payment obligation to AGFI. The potential effect of the proposed FCFI Transaction on the Company’s financial position and results of operations cannot be determined at this time.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and our other publicly available documents may include, and the Company’s officers and representatives may from time to time make, statements which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent only our belief regarding future events, many of which are inherently uncertain and outside of our control. These statements may address, among other things, our strategy for growth, product development, regulatory approvals, market position, financial results and reserves. Our actual results and financial condition may differ from the anticipated results and financial condition indicated in these forward-looking statements. The important factors, many of which are outside of our control, that could cause our actual results to differ, possibly materially, include, but are not limited to, the following:

·

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

·

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

·

the impacts of our on-balance sheet securitizations and borrowings;

·

our ability to comply with our debt covenants;

·

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 the insurance business segment;

·

changes in the competitive environment in which we operate, including the demand for our products, customer responsiveness to our distribution channels, and the formation of business combinations among our competitors;

·

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

·

shifts in collateral values, contractual delinquencies, and credit losses;

·

shifts in residential real estate values;

·

levels of unemployment and personal bankruptcies;

·

credit ratings actions on our debt;

·

constraints on our business resulting from the FRBNY Credit Agreement, including on our ability to pursue (and retain proceeds from) certain funding sources without AIG receiving prior consent from the FRBNY;

·

changes in laws, regulations, or regulatory policies and practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) discussed in “Regulation”, 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 effects of our participation in the HAMP;

·

the costs and effects of any litigation or governmental inquiries or investigations involving us, including those that are determined adversely to us;

·

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;

·

the effects of the potential FCFI Transaction, whether or not consummated, and our ability to mitigate any adverse effects that may otherwise occur as a result of AIG’s exploration of divestiture opportunities for certain of its businesses and assets;

·

the ability and intent of AIG to provide funding to us through February 28, 2011;

·

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

·

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

·

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

·

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

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We also direct readers to other risks and uncertainties discussed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in other documents we file with the SEC (including “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009). We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.

RECENT DEVELOPMENTS

On August 10, 2010, AIG entered into the Purchase Agreement with the Acquiror, an affiliate of Fortress Investment Group LLC. Under the Purchase Agreement, among other things, the Acquiror will indirectly acquire 80% of AGFI, and AIG will retain a 20% interest in the AGFI business. The parties expect that the proposed FCFI Transaction will close by the end of the first quarter of 2011, subject to regulatory approvals and customary closing conditions. The potential effect of the proposed FCFI Transaction on the Company’s financial position and results of operations cannot be determined at this time.

GOING CONCERN CONSIDERATION

Liquidity of the Company

Since the events of September 2008 and through the filing of this report, our access to capital markets has been limited and obtained primarily through funding structures different than our more traditional borrowing transactions prior to 2008. This alternative funding approach was due to a combination of the challenges facing AIG, our operating results, downgrades of our debt credit ratings, and market concerns as to our available sources of funding following the turmoil in the capital markets beginning in 2008. While overall credit markets and our near-term liquidity position each have improved compared to late 2008 and much of 2009, we cannot determine when, or to what extent, access to our more traditional borrowing sources will become available to us again.

Progress on Management’s Plan for Stabilization of the Company and Repayment of Our Obligations as They Become Due

In addition to finance receivable collections, management has developed initiatives to support our liquidity and raise capital to meet our financial and operating obligations. These initiatives include additional borrowings, on-balance sheet securitizations, portfolio sales, expense reductions, and branch closures, while continuing to limit our new lending. The exact nature and magnitude of any additional measures will be driven by our available resources and needs, prevailing market conditions, and the results of our operations.

During the first half of 2010, we made substantial progress in assessing our liquidity needs and continued to demonstrate our ability to manage liquidity and generate additional funding. In March 2010, we securitized $1.0 billion of real estate loans and sold $501.3 million in senior certificates (while retaining subordinated notes for possible future sale) and separately received AIG’s repayment of its $1.6 billion in demand promissory notes to us. In April 2010, we executed and fully drew down on a $3.0 billion five-year secured term loan. AGFC and AGFI used a portion of the proceeds from these transactions to repay the $2.450 billion one-year term loans in March 2010 ($2.050 billion repaid by AGFC and $400.0 million repaid by AGFI) and the AGFC $2.125 billion multi-year credit facility in April 2010, both prior to their due dates in July 2010. With these repayments, there are no remaining AGFC or AGFI debt agreements that require AGFC to maintain a minimum specified dollar amount of AGFC consolidated net worth, or require AIG to maintain majority ownership of AGFC or AGFI. Based upon our estimates and taking into account the risks and uncertainties of operating plans, we believe that we will have adequate liquidity to

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finance and operate our businesses and repay our obligations as they become due for at least the next twelve months.

As disclosed in AIG’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, based on our level of increased liquidity and expected future sources of funding, including future cash flows from operations, AIG expects that we will be able to meet our existing obligations as they become due for at least the next twelve months solely from our own future cash flows. Therefore, while AIG has acknowledged its intent to support us through February 28, 2011, at the current time AIG believes that any further extension of such support will not be necessary.

On August 10, 2010, AIG entered into the Purchase Agreement with the Acquiror, an affiliate of Fortress Investment Group LLC. Under the Purchase Agreement, among other things, the Acquiror will indirectly acquire 80% of AGFI, and AIG will retain a 20% interest in the AGFI business. The parties expect that the proposed FCFI Transaction will close by the end of the first quarter of 2011, subject to regulatory approvals and customary closing conditions. The potential effect of the proposed FCFI Transaction on the Company’s financial position and results of operations cannot be determined at this time.

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Management’s Assessment and Conclusion

In assessing our current financial position and developing operating plans for the future, management has made significant judgments and estimates with respect to the potential financial and liquidity effects of our risks and uncertainties, including but not limited to:

·

the amount of cash expected to be received from our finance receivable portfolio through collections (including prepayments) and receipt of finance charges, which could be materially different than our estimates;

·

the potential for declining financial flexibility and reduced income should we use more of our higher performing assets for on-balance sheet securitizations and portfolio sales;

·

reduced income due to the possible deterioration of the credit quality of our finance receivable portfolios;

·

our ability to complete on favorable terms, as needed, additional borrowings, on-balance sheet securitizations, portfolio sales, and the costs associated with these funding sources, including sales at less than carrying value and limits on the types of assets that can be securitized or sold, which will affect profitability;

·

our ability to comply with our debt covenants;

·

our significant reliance upon debt to fund our operations;

·

our access to unsecured debt markets and other sources of funding, and the potential increased cost of funding sources as compared to historic borrowing rates;

·

adverse credit ratings actions on our debt;

·

constraints on our business resulting from the FRBNY Credit Agreement and other AIG agreements, including limitations on our ability to pursue (and retain proceeds from) certain funding sources, such as additional on-balance sheet securitizations and portfolio sales, without AIG receiving prior consent from the FRBNY;

·

the potential for additional unforeseen cash demands or accelerations of obligations;

·

reduced income due to loan modifications where the borrower’s interest rate is reduced, principal payments are deferred, or other concessions are made;

·

the potential for declines in bond and equity markets;

·

the potential effect on us if the capital levels of our regulated and unregulated subsidiaries prove inadequate to support current business plans;

·

the potential loss of key personnel;

·

the ability and intent of AIG to provide funding to us through February 28, 2011, including as a result of the proposed FCFI Transaction; and

·

the potential adverse effect on us relating to intercompany transactions with AIG, including derivatives and intercompany borrowings, if AIG’s liquidity position deteriorates or if AIG is not able to continue as a going concern.

Based on our estimates and taking into account the risks and uncertainties of such 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.

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 about the potential effects of these risks and uncertainties could prove to be materially incorrect. If one or more of these possible outcomes is realized and third party financing is not available, we may need additional support to meet our obligations as they become due. Under these adverse assumptions, without additional support in the future, there could exist substantial doubt about our ability to continue as a going concern.

In addition, the potential effect of the proposed FCFI Transaction on the Company’s financial position and results of operations cannot be determined at this time.

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CAPITAL RESOURCES AND LIQUIDITY

Capital Resources

Our capital has varied primarily with the amount of net finance receivables. We have historically based our mix of debt and equity, or “leverage”, primarily upon maintaining leverage that supports cost-effective funding.