Onemain Finance 10Q 2006 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

ACT OF 1934

For the quarterly period ended	September 30, 2006
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from		to

Commission file number1-6155 AMERICAN GENERAL FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana		35-0416090
(State of Incorporation)		(I.R.S. Employer Identification No.)
601 N.W. Second Street, Evansville, IN		47708
(Address of principal executive offices)		(Zip Code)
(812) 424-8031
(Registrant’s telephone number, including area code)

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.

Yesþ No¨

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

Large accelerated filer¨ Accelerated filer¨ Non-accelerated filerþ

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

Yes¨ Noþ

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 November 13, 2006, there were 10,160,012 shares of the registrant’s common stock, $.50 par value, outstanding.

Explanatory Note

As previously announced, on March 20, 2006, American General Finance Corporation (“AGFC”, or collectively with its subsidiaries, whether directly or indirectly owned, the “Company” or “we”) determined that it was necessary to restate our unaudited condensed consolidated financial statements and other financial information at and for the quarters ended March 31, June 30, and September 30, 2005. The restatement related to the correction of errors in our accounting for four cross currency swaps designated as hedges of our foreign currency denominated debt. We included the restated financial information at and for each of the periods being restated in our Annual Report on Form 10-K for the year ended December 31, 2005.

We have included the restated financial information at and for the three and nine months ended September 30, 2005 in this report. See Restatement in Item 2 and Item 4 for further information on this restatement.

TABLE OF CONTENTS

Item

Page

Part I

Financial Statements (Unaudited)

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Controls and Procedures

Part II

Legal Proceedings

Exhibits

AVAILABLE INFORMATION

American General Finance Corporation (AGFC) 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 AGFC) file electronically with the SEC.

The following reports are available free of charge on 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

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.

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in thousands)	2006	2005 Restated	2006	2005 Restated
Revenues Finance charges	$615,149	$579,503	$1,806,019	$1,673,512
Mortgage banking	78,091	1,418	145,212	6,870
Insurance	38,253	39,334	115,568	122,652
Investment	22,854	21,896	66,797	64,427
Net service fees from affiliates	690	97,855	56,554	237,225
Other	(55,231)	40,127	(35,695)	79,627
Total revenues	699,806	780,133	2,154,455	2,184,313
Expenses Interest expense	292,614	230,696	825,987	629,590
Operating expenses: Salaries and benefits	134,920	138,880	418,517	407,693
Other operating expenses	75,879	76,098	221,630	221,593
Provision for finance receivable losses	37,755	116,372	119,009	249,089
Insurance losses and loss adjustment expenses	12,942	17,357	43,048	50,458
Total expenses	554,110	579,403	1,628,191	1,558,423
Income before provision for income taxes	145,696	200,730	526,264	625,890
Provision for Income Taxes	47,933	74,339	185,088	231,026
Net Income	$ 97,763	$126,391	$ 341,176	$ 394,864

See Notes to Condensed Consolidated Financial Statements.

AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30,	December 31,
(dollars in thousands)	2006	2005
Assets Net finance receivables: Real estate loans	$18,419,782	$18,208,723
Non-real estate loans	3,351,273	3,162,567
Retail sales finance	1,715,278	1,498,467
Net finance receivables	23,486,333	22,869,757
Allowance for finance receivable losses	(476,065)	(513,972)
Net finance receivables, less allowance for finance receivable losses	23,010,268	22,355,785
Real estate loans held for sale	860,768	663,705
Investment securities	1,357,711	1,334,081
Cash and cash equivalents	160,044	183,513
Notes receivable from parent	284,494	283,050
Other assets	1,039,058	839,744
Total assets	$26,712,343	$25,659,878
Liabilities and Shareholder’s Equity Long-term debt	$17,841,400	$18,092,860
Short-term debt	4,696,025	3,492,014
Insurance claims and policyholder liabilities	386,600	398,051
Other liabilities	512,149	476,649
Accrued taxes	16,683	19,579
Total liabilities	23,452,857	22,479,153
Shareholder’s equity: Common stock	5,080	5,080
Additional paid-in capital	1,179,906	1,179,906
Accumulated other comprehensive income	25,556	32,858
Retained earnings	2,048,944	1,962,881
Total shareholder’s equity	3,259,486	3,180,725
Total liabilities and shareholder’s equity	$26,712,343	$25,659,878

See Notes to Condensed Consolidated Financial Statements.

AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,	2006	2005
(dollars in thousands)		Restated
Cash Flows from Operating Activities Net income	$ 341,176	$ 394,864
Reconciling adjustments: Provision for finance receivable losses	119,009	249,089
Depreciation and amortization	103,522	118,542
Deferral of finance receivable origination costs	(56,401)	(61,994)
Deferred income tax benefit	(6,200)	(19,550)
Origination of real estate loans held for sale	(6,128,797)	(363,061)
Sales and principal collections of real estate loans held for sale	5,516,579	214,193
Net gain on sales of real estate loans held for sale	(94,462)	(4,845)
Change in other assets and other liabilities	26,835	(54,046)
Change in insurance claims and policyholder liabilities	(11,451)	(18,907)
Change in taxes receivable and payable	1,697	(29,135)
Other, net	(7,134)	(16,859)
Net cash (used for) provided by operating activities	(195,627)	408,291
Cash Flows from Investing Activities Finance receivables originated or purchased	(6,641,158)	(9,400,035)
Principal collections on finance receivables	5,863,318	6,079,479
Sale of finance receivables to AGFI subsidiary for securitization	509,617	-
Investment securities purchased	(153,874)	(319,160)
Investment securities called and sold	115,316	254,031
Investment securities matured	5,125	37,047
Change in notes receivable from parent	(1,444)	22,272
Change in premiums on finance receivables purchased and deferred charges	(992)	(20,023)
Other, net	(19,204)	(18,494)
Net cash used for investing activities	(323,296)	(3,364,883)
Cash Flows from Financing Activities Proceeds from issuance of long-term debt	1,760,420	4,688,515
Repayment of long-term debt	(2,213,864)	(1,229,389)
Change in short-term debt	1,204,011	(507,131)
Capital contribution from parent	-	55,000
Dividends paid	(255,113)	(49,986)
Net cash provided by financing activities	495,454	2,957,009
(Decrease) increase in cash and cash equivalents	(23,469)	417
Cash and cash equivalents at beginning of period	183,513	151,348
Cash and cash equivalents at end of period	$ 160,044	$ 151,765

See Notes to Condensed Consolidated Financial Statements.

AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(dollars in thousands)

2006

2005

Restated

2006

2005

Restated

Net income

$ 97,763

$126,391

$341,176

$394,864

Other comprehensive income (loss):

Net unrealized gains (losses) on investment

securities

39,426

(26,566)

(10,768)

(25,462)

Net unrealized (losses) gains on swap

agreements

(11,028)

16,484

(3,321)

31,452

Minimum pension liability adjustment

(2,516)

(2,247)

Income tax effect:

Net unrealized (gains) losses on investment

securities

(13,799)

9,298

3,769

8,912

Net unrealized losses (gains) on swap

agreements

3,859

(5,768)

1,162

(11,006)

Minimum pension liability adjustment

981

876

Other comprehensive income (loss), net of

tax, before reclassification adjustments

18,458

(6,552)

(10,693)

2,525

Reclassification adjustments for realized

losses included in net income:

Investment securities

158

1,708

4,251

Swap agreements

1,027

758

3,509

758

Income tax effect:

Investment securities

(55)

(12)

(598)

(1,488)

Swap agreements

(359)

(266)

(1,228)

(266)

Realized losses included in net income,

net of tax

771

515

3,391

3,255

Other comprehensive income (loss), net of tax

19,229

(6,037)

(7,302)

5,780

Comprehensive income

$116,992

$120,354

$333,874

$400,644

See Notes to Condensed Consolidated Financial Statements.

AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2006

Note 1. Basis of Presentation

American General Finance Corporation will be referred to as “AGFC” or collectively with its subsidiaries, whether directly or indirectly owned, as the “Company” or “we”. AGFC is a wholly owned subsidiary of American General Finance, Inc. (AGFI). AGFI is an indirect wholly owned subsidiary of American International Group, Inc. (AIG).

We prepared our condensed consolidated financial statements using accounting principles generally accepted in the United States (GAAP). These statements are unaudited. The statements include the accounts of AGFC and its subsidiaries, all of which are wholly owned. We eliminated all material intercompany accounts and transactions. We made all material adjustments, including normal and nonrecurring adjustments, for a fair statement of the Company’s condensed consolidated financial statements. 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 year ended December 31, 2005. To conform to the 2006 presentation, we reclassified certain items in the prior period.

Note 2. Correction of Accounting Errors

We restated our unaudited condensed consolidated financial statements and other financial information at and for the quarters ended March 31, June 30, and September 30, 2005. The restatement related to the correction of errors in our accounting for four cross currency swaps designated as hedges of our foreign currency denominated debt. We included the restated financial information at and for each of the periods being restated in our Annual Report on Form 10-K for the year ended December 31, 2005.

The following tables show the restatement adjustments to our previously reported unaudited condensed consolidated financial data at and for the three and nine months ended September 30, 2005.

Restated

Condensed Consolidated Statement of Income (Unaudited):

Three Months Ended September 30, 2005	As Previously		As
(dollars in thousands)	Reported	Adjustment	Restated
Revenues Finance charges	$579,503	$ -	$579,503
Mortgage banking	1,418	-	1,418
Insurance	39,334	-	39,334
Investment	21,896	-	21,896
Net service fees from affiliates	97,855	-	97,855
Other	10,209	29,918	40,127
Total revenues	750,215	29,918	780,133
Expenses Interest expense	233,653	(2,957)*	230,696
Operating expenses: Salaries and benefits	138,880	-	138,880
Other operating expenses	76,098	-	76,098
Provision for finance receivable losses	116,372	-	116,372
Insurance losses and loss adjustment expenses	17,357	-	17,357
Total expenses	582,360	(2,957)	579,403
Income before provision for income taxes	167,855	32,875	200,730
Provision for Income Taxes	62,833	11,506	74,339
Net Income	$105,022	$21,369	$126,391

Represents the swaps net interest settlements that have been reclassified to other revenue in conjunction with the correction of the accounting.

Restated

Condensed Consolidated Statement of Income (Unaudited):

Nine Months Ended September 30, 2005	As Previously		As
(dollars in thousands)	Reported	Adjustment	Restated
Revenues Finance charges	$1,673,512	$ -	$1,673,512
Mortgage banking	6,870	-	6,870
Insurance	122,652	-	122,652
Investment	64,427	-	64,427
Net service fees from affiliates	237,225	-	237,225
Other	25,098	54,529	79,627
Total revenues	2,129,784	54,529	2,184,313
Expenses Interest expense	638,859	(9,269)*	629,590
Operating expenses: Salaries and benefits	407,693	-	407,693
Other operating expenses	221,593	-	221,593
Provision for finance receivable losses	249,089	-	249,089
Insurance losses and loss adjustment expenses	50,458	-	50,458
Total expenses	1,567,692	(9,269)	1,558,423
Income before provision for income taxes	562,092	63,798	625,890
Provision for Income Taxes	208,697	22,329	231,026
Net Income	$ 353,395	$41,469	$ 394,864

Represents the swaps net interest settlements that have been reclassified to other revenue in conjunction with the correction of the accounting.

Restated

Condensed Consolidated Balance Sheet (Unaudited):

September 30, 2005	As Previously		As
(dollars in thousands)	Reported	Adjustment	Restated
Assets Net finance receivables: Real estate loans	$18,427,052	$ -	$18,427,052
Non-real estate loans	3,088,988	-	3,088,988
Retail sales finance	1,384,522	-	1,384,522
Net finance receivables	22,900,562	-	22,900,562
Allowance for finance receivable losses	(512,288)	-	(512,288)
Net finance receivables, less allowance for finance receivable losses	22,388,274	-	22,388,274
Real estate loans held for sale	165,151	-	165,151
Investment securities	1,382,140	-	1,382,140
Cash and cash equivalents	151,765	-	151,765
Notes receivable from parent	286,651	-	286,651
Other assets	888,550	-	888,550
Total assets	$25,262,531	$ -	$25,262,531
Liabilities and Shareholder’s Equity Long-term debt	$17,714,009	$ -	$17,714,009
Short-term debt	3,495,341	-	3,495,341
Insurance claims and policyholder liabilities	404,050	-	404,050
Other liabilities	487,595	-	487,595
Accrued taxes	23,405	-	23,405
Total liabilities	22,124,400	-	22,124,400
Shareholder’s equity: Common stock	5,080	-	5,080
Additional paid-in capital	1,179,906	-	1,179,906
Accumulated other comprehensive income	84,662	(41,469)	43,193
Retained earnings	1,868,483	41,469	1,909,952
Total shareholder’s equity	3,138,131	-	3,138,131
Total liabilities and shareholder’s equity	$25,262,531	$ -	$25,262,531

Restated

Condensed Consolidated Statement of Cash Flows (Unaudited):

Nine Months Ended September 30, 2005	As Previously		As
(dollars in thousands)	Reported	Adjustment	Restated
Cash Flows from Operating Activities Net Income	$ 353,395	$41,469	$ 394,864
Reconciling adjustments: Provision for finance receivable losses	249,089	-	249,089
Depreciation and amortization	118,542	-	118,542
Deferral of finance receivable origination costs	(61,994)	-	(61,994)
Deferred income tax benefit	(41,879)	22,329	(19,550)
Origination of real estate loans held for sale	(363,061)	-	(363,061)
Sales and principal collections of real estate loans held for sale	214,193	-	214,193
Net gain on sales of real estate loans held for sale	(4,845)	-	(4,845)
Change in other assets and other liabilities	9,752	(63,798)	(54,046)
Change in insurance claims and policyholder liabilities	(18,907)	-	(18,907)
Change in taxes receivable and payable	(29,135)	-	(29,135)
Other, net	(16,859)	-	(16,859)
Net cash provided by operating activities	408,291	- ��	408,291
Cash Flows from Investing Activities Finance receivables originated or purchased	(9,400,035)	-	(9,400,035)
Principal collections on finance receivables	6,079,479	-	6,079,479
Investment securities purchased	(319,160)	-	(319,160)
Investment securities called and sold	254,031	-	254,031
Investment securities matured	37,047	-	37,047
Change in notes receivable from parent	22,272	-	22,272
Change in premiums on finance receivables purchased and deferred charges	(20,023)	-	(20,023)
Other, net	(18,494)	-	(18,494)
Net cash used for investing activities	(3,364,883)	-	(3,364,883)
Cash Flows from Financing Activities Proceeds from issuance of long-term debt	4,688,515	-	4,688,515
Repayment of long-term debt	(1,229,389)	-	(1,229,389)
Change in short-term debt	(507,131)	-	(507,131)
Capital contributions from parent	55,000	-	55,000
Dividends paid	(49,986)	-	(49,986)
Net cash provided by financing activities	2,957,009	-	2,957,009
Increase in cash and cash equivalents	417	-	417
Cash and cash equivalents at beginning of period	151,348	-	151,348
Cash and cash equivalents at end of period	$ 151,765	-	$ 151,765

Restated

Condensed Consolidated Statement of Comprehensive Income (Unaudited):

Three Months Ended September 30, 2005	As Previously		As
(dollars in thousands)	Reported	Adjustment	Restated
Net income	$105,022	$ 21,369	$126,391
Other comprehensive income (loss): Net unrealized losses on investment securities	(26,566)	-	(26,566)
Net unrealized gains on swap agreements	46,435	(29,951)	16,484
Minimum pension liability adjustment	-	-	-
Income tax effect: Net unrealized losses on investment securities	9,298	-	9,298
Net unrealized gains on swap agreements	(16,251)	10,483	(5,768)
Minimum pension liability adjustment	-	-	-
Other comprehensive income (loss), net of tax, before reclassification adjustments	12,916	(19,468)	(6,552)
Reclassification adjustments for realized losses included in net income: Investment securities	35	-	35
Swap agreements	3,682	(2,924)	758
Income tax effect: Investment securities	(12)	-	(12)
Swap agreements	(1,289)	1,023	(266)
Realized losses included in net income, net of tax	2,416	(1,901)	515
Other comprehensive income (loss), net of tax	15,332	(21,369)	(6,037)
Comprehensive income	$120,354	$ -	$120,354

Restated

Condensed Consolidated Statement of Comprehensive Income (Unaudited):

Nine Months Ended September 30, 2005	As Previously		As
(dollars in thousands)	Reported	Adjustment	Restated
Net income	$353,395	$41,469	$394,864
Other comprehensive income: Net unrealized losses on investment securities	(25,462)	-	(25,462)
Net unrealized gains on swap agreements	77,037	(45,585)	31,452
Minimum pension liability adjustment	(2,247)	-	(2,247)
Income tax effect: Net unrealized losses on investment securities	8,912	-	8,912
Net unrealized gains on swap agreements	(26,961)	15,955	(11,006)
Minimum pension liability adjustment	876	-	876
Other comprehensive income, net of tax, before reclassification adjustments	32,155	(29,630)	2,525
Reclassification adjustments for realized losses included in net income: Investment securities	4,251	-	4,251
Swap agreements	18,971	(18,213)	758
Income tax effect: Investment securities	(1,488)	-	(1,488)
Swap agreements	(6,640)	6,374	(266)
Realized losses included in net income, net of tax	15,094	(11,839)	3,255
Other comprehensive income, net of tax	47,249	(41,469)	5,780
Comprehensive income	$400,644	$ -	$400,644

Note 3. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 123R “Share-Based Payment”. This standard is a revision of SFAS 123 “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees”, and its related implementation guidance. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. The cost will be recognized over the period during which an employee is required to provide service in exchange for the share-based payment. We participate in AIG’s stock-based compensation plans, and AIG allocates to us our share of the calculated costs. Effective January 1, 2006, AIG ado pted SFAS 123R utilizing the binominal model to calculate the fair value of stock option grants. The model uses ten years of historical exercise behavior to account for the early exercise of employee options and five years of historical stock price data to infer the implied volatility.

At September 30, 2006, our employees participated in the following stock-based compensation plans:

AIG 1999 Stock Option Plan

Certain key employees of AIG and its subsidiaries and members of the AIG Board of Directors can be granted options to purchase a maximum of 45,000,000 shares of AIG common stock in the aggregate at prices not less than fair market value at the grant date. The maximum number of shares that may be granted to any one grantee is limited to 900,000 in any one year. Options generally vest over four years (25 percent vesting per year) and expire 10 years from the date of grant.

AIG 2002 Stock Incentive Plan

Equity-based or equity-related awards with respect to shares of AIG common stock can be issued to employees of AIG and its subsidiaries in any year up to a maximum of that number of shares equal to (a) 1,000,000 shares plus (b) the number of shares available but not issued in the prior calendar year. The maximum award that a grantee may receive under the plan per year is rights with respect to 250,000 shares.

AIG 1996 Employee Stock Purchase Plan

Eligible employees (those employed at least one year) of AIG and its subsidiaries may be granted the right to purchase up to an aggregate of 10,000,000 shares of AIG common stock at a price equal to 85 percent of the fair market value on the date of the grant of the purchase privilege. Purchase privileges are granted quarterly and are limited to the number of whole shares that can be purchased on an annual basis by an amount equal to the lesser of 10 percent of an employee’s annual salary or $10,000.

SICO’s Deferred Compensation Profit Participation Plans

Starr International Company, Inc. (SICO) has provided a series of two-year Deferred Compensation Profit Participation Plans to certain employees of AIG and its subsidiaries (SICO Plans). The SICO Plans provide that shares of AIG common stock currently held by SICO are set aside for the benefit of the participant and distributed upon retirement. The SICO Board of Directors currently may permit an early payout of units under certain circumstances.

AIG’s 2005-2006 Deferred Compensation Profit Participation Plan (AIG DCPPP)

The AIG DCPPP provides equity-based compensation to key employees of AIG and its subsidiaries. The AIG DCPPP is modeled on the SICO Plans.

AIG Partners Plan

The AIG Partners Plan replaces the AIG DCPPP. Stock-based compensation earned under the AIG DCPPP and the AIG Partners Plan is issued as awards under the AIG 2002 Stock Incentive Plan.

Under SFAS 123R, we recorded operating expenses of $1.5 million for the three months ended September 30, 2006 and $4.5 million for the nine months ended September 30, 2006 for our participation in AIG’s stock-based compensation plans. In 2005, we recorded operating expenses of $0.5 million for the three months ended September 30, 2005 and $1.6 million for the nine months ended September 30, 2005.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, which clarifies the accounting for uncertainty in tax positions. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken, or expected to be taken, in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and additional disclosures. The effective date of this implementation guidance is January 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently assessing the effect of implementing this guidance.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the effect of implementing this standard.

In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. This standard covers an employer’s accounting for defined benefit postretirement plans sponsored for employees and requires that an employer that sponsors one or more defined benefit pension or other postretirement plans recognize an asset or liability for the overfunded or underfunded status of the defined benefit postretirement plan. Further, employers will record all unrecognized prior service costs and credits and unrecognized actuarial gains and losses in accumulated other comprehensive income, net of tax. Any transition asset or transition obligation remaining from the initial application of SFAS 87 and 106 will similarly be recognized as a component of other comprehensive income, net of tax. Amount s recognized in accumulated other comprehensive income will be adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of SFAS 87 and 106. Prior period financial statements will not be retroactively adjusted and the calculation of the annual expense is unchanged. The statement also requires an employer to measure plan assets and benefit obligations as of the date of the employer’s statement of financial position. SFAS 158 is effective for us as of December 31, 2006. The majority of the Company’s employees participate in various benefit plans sponsored by AIG, including a noncontributory qualified defined benefit retirement plan, and post retirement health and welfare plans. Related plan expenses are allocated to the Company by AIG. The Company’s employees in Puerto Rico participate in a defined benefit pension plan sponsored by a subsidiary of AGFC. We are currently assessing the effect of implementing this standard.

Note 4. Finance Receivables

Components of net finance receivables by type were as follows:

September 30, 2006	Real	Non-Real	Retail
(dollars in thousands)	Estate Loans	Estate Loans	Sales Finance	Total
Gross receivables	$18,387,205	$3,673,333	$1,875,819	$23,936,357
Unearned finance charges and points and fees	(165,943)	(397,292)	(189,081)	(752,316)
Accrued finance charges	118,744	40,597	29,280	188,621
Deferred origination costs	28,839	34,417	-	63,256
Premiums, net of discounts	50,937	218	(740)	50,415
Total	$18,419,782	$3,351,273	$1,715,278	$23,486,333

December 31, 2005	Real	Non-Real	Retail
(dollars in thousands)	Estate Loans	Estate Loans	Sales Finance	Total
Gross receivables	$18,145,364	$3,480,437	$1,633,466	$23,259,267
Unearned finance charges and points and fees	(144,048)	(394,114)	(157,988)	(696,150)
Accrued finance charges	116,750	40,751	23,516	181,017
Deferred origination costs	30,930	34,703	-	65,633
Premiums, net of discounts	59,727	790	(527)	59,990
Total	$18,208,723	$3,162,567	$1,498,467	$22,869,757

Unused credit limits extended by AIG Federal Savings Bank (AIG Bank), a non-subsidiary affiliate, (whose private label finance receivables are fully participated to the Company) and the Company to their customers were $4.9 billion at September 30, 2006, and $4.0 billion at December 31, 2005. Company experience has shown that the funded amounts have been substantially less than the credit limits. All unused credit limits, in part or in total, can be cancelled at the discretion of AIG Bank and the Company.

Note 5. Allowance for Finance Receivable Losses

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in thousands)	2006	2005	2006	2005
Balance at beginning of period	$492,907	$457,093	$513,972	$445,731
Provision for finance receivable losses	37,755	116,372	119,009	249,089
Charge-offs	(66,234)	(73,574)	(200,140)	(220,890)
Recoveries	11,637	12,397	43,224	38,358
Balance at end of period	$476,065	$512,288	$476,065	$512,288

Note 6. Derivative Financial Instruments

AGFC uses derivative financial instruments in managing the cost of its debt but is neither a dealer nor a trader in derivative financial instruments. AGFC’s derivative financial instruments consist of interest rate, foreign currency, and equity-indexed swap agreements.

While all of our interest rate, foreign currency, 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 September 30, 2006, equity-indexed debt was immaterial.

Note 7. Accumulated Other Comprehensive Income

Components of accumulated other comprehensive income were as follows:

	September 30,	December 31,
(dollars in thousands)	2006	2005
Net unrealized gains on investment securities	$17,841	$23,730
Net unrealized gains on swap agreements	10,621	10,499
Minimum pension liability adjustment	(2,906)	(1,371)
Accumulated other comprehensive income	$25,556	$32,858

Note 8. 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 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;

originate secured and unsecured non-real estate loans;

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

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

To supplement our lending and retail sales financing activities, we purchase 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:

originate real estate loans for sale to investors with servicing released to the purchaser;

originate real estate loans for transfer to the centralized real estate servicing center; and

service a portfolio of real estate loans generated through:

portfolio acquisitions from third party lenders;

correspondent relationships;

our mortgage origination subsidiaries;

refinancing existing mortgages; or

advances on home equity lines of credit.

Previously, we provided marketing services, certain origination processing services, loan servicing, and related services for AIG Bank. In first quarter 2006, Wilmington Finance, Inc. and MorEquity, Inc., which are subsidiaries of AGFC, terminated their mortgage services agreements with AIG Bank and began originating non-conforming residential real estate loans under their own state licenses.

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

Information about the Company’s segments follows:

Three Months Ended September 30, 2006		Centralized		Total
(dollars in thousands)	Branch	Real Estate	Insurance	Segments
Revenues: External: Finance charges	$446,100	$178,578	$ -	$624,678
Insurance	-	-	38,253	38,253
Other	(2,947)	64,926	24,129	86,108
Intercompany	18,525	491	(15,325)	3,691
Pretax income	96,177	28,333	27,103	151,613

Three Months Ended September 30, 2005		Centralized		Total
(dollars in thousands)	Branch	Real Estate	Insurance	Segments
Revenues: External: Finance charges	$437,611	$173,874	$ -	$611,485
Insurance	171	-	39,163	39,334
Other	(712)	98,831	22,096	120,215
Intercompany	18,862	462	(15,640)	3,684
Pretax income	64,052	93,017	21,529	178,598

Nine Months Ended September 30, 2006		Centralized		Total
(dollars in thousands)	Branch	Real Estate	Insurance	Segments
Revenues: External: Finance charges	$1,343,699	$537,542	$ -	$1,881,241
Insurance	-	-	115,568	115,568
Other	(11,448)	187,103	72,817	248,472
Intercompany	56,225	1,495	(46,381)	11,339
Pretax income	355,893	111,758	77,229	544,880

Nine Months Ended September 30, 2005		Centralized		Total
(dollars in thousands)	Branch	Real Estate	Insurance	Segments
Revenues: External: Finance charges	$1,289,624	$471,345	$ -	$1,760,969
Insurance	518	-	122,134	122,652
Other	(2,890)	242,449	71,337	310,896
Intercompany	58,533	1,266	(48,739)	11,060
Pretax income	329,959	203,106	72,373	605,438

Reconciliations of total segment pretax income to the condensed consolidated financial statement amounts were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in thousands)	2006	2005 Restated	2006	2005 Restated
Pretax income: Segments	$151,613	$178,598	$544,880	$605,438
Corporate	(12,044)	20,050	(25,624)	22,728
Adjustments	6,127	2,082	7,008	(2,276)
Consolidated pretax income	$145,696	$200,730	$526,264	$625,890

Corporate pretax income includes management and administrative revenues and expenses that are not considered pertinent in determining segment performance.

Adjustments for pretax income include realized gains (losses), interest expense due to releveraging of debt, and provision for finance receivable losses due to redistribution of amounts provided for the allowance for finance receivable losses. Adjustments for pretax income in 2005 also included certain other investment revenue.

Note 9. Legal Contingencies

AGFC and certain of its subsidiaries are parties to various lawsuits and proceedings, including certain purported class action claims, arising in the ordinary course of business. In addition, many 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 lawsuits and 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 judgment in any given suit.

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

REPORT OF MANAGEMENT’S RESPONSIBILITY

The Company’s management is responsible for the integrity and fair statement of our condensed consolidated financial statements and all other financial information presented in this report. We prepared our condensed consolidated financial statements using accounting principles generally accepted in the United States (GAAP) for interim periods. We made estimates and assumptions that affect amounts recorded in the financial statements and disclosures of contingent assets and liabilities.

The Company’s management is responsible for designing and maintaining an effective system of internal control over financial reporting. We designed this system to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with GAAP under management’s direction and that financial records are reliable to prepare financial statements. We support the internal control structure with careful selection, training and development of qualified personnel. The Company’s employees are subject to AIG’s Code of Conduct designed to assure that all employees perform their duties with honesty and integrity. Also, AIG’s Director, Executive Officer, and Senior Financial Officer Code of Business Conduct and Ethics covers such directors and officers of AIG and its subsidiaries, including the Company’s Chief Executive Officer, Chief Financial Officer, and Chief Acc ounting Officer. We do not allow loans to executive officers. The aforementioned system includes a documented organizational structure and policies and procedures that we communicate throughout the Company. Our internal auditors report directly to the Senior Vice President and Director of Internal Audit of AIG to strengthen independence. They continually monitor the operation of our internal controls and report their findings to the Company’s management, AIG’s management, and AIG’s internal audit department. We take prompt action to correct control deficiencies and improve the system.

All internal control structures and procedures for financial reporting, no matter how well designed, have inherent limitations. Even internal controls and procedures determined to be effective may not prevent or detect all misstatements. Changes in conditions or the complexity of compliance with policies and procedures creates a risk that the effectiveness of our internal control structure and procedures for financial reporting may vary over time.

The Company’s management, including its Chief Executive Officer and its Chief Financial Officer, evaluates the effectiveness of our disclosure controls and procedures as of the end of each quarter and the changes in internal control over financial reporting for the quarter using the framework and criteria established in “Internal Control – Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on an evaluation of the disclosure controls and procedures as of September 30, 2006, the Company’s principal executive officer and principal financial officer have concluded that the disclosure controls and procedures have functioned effectively and that the condensed consolidated financial statements fairly present our consolidated financial position and the results of our operations for the periods presented. A material weakness existed as of December 31, 2005 and was remedia ted in the first quarter of 2006, prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2005. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2005, we did not maintain effective controls over the accounting for derivatives. Specifically, our controls were not effective in ensuring the proper designation and documentation of our foreign currency swaps, the first of which we entered into in June 2004. As a result of this material weakness, the Company’s Chief Financial Officer and Chief Accounting Officer determined that it was necessary to restate our unaudited condensed consolidated financial statements and other financial information at and for the quarters ended March 31, June 30, and September 30, 2005. We included the restated financial information at and for each of the periods being restated in our Annual Report on Form 10-K for the year ended December 31, 2005. We evaluated the effect of correcting the errors related to our original accounting on our previously reported unaudited condensed consolidated financial statements for each quarter in 2004 and on our annual audited consolidated financial statements at and for the year ended December 31, 2004 using qualitative and quantitative factors and determined that the effect was immaterial. We concluded that the cumulative effect of the correction for the year 2004 should be accounted for in the fourth quarter of 2005. There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2006, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management has also concluded that the Company’s condensed consolidated financial statements contained in t his report fairly present our consolidated financial position and the results of our operations for the periods presented.

American General Finance Corporation

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, which could cause our actual results to differ, possibly materially, include, but are not limited to, the following:

changes in general economic conditions, including the interest rate environment in which we conduct business and the financial markets through which we access capital and 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;

levels of unemployment and personal bankruptcies;

our ability to access capital markets and maintain our credit rating position;

changes in laws, regulations, or regulator policies and practices 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;

the costs and effects of any litigation or governmental inquiries or investigations that are determined adversely to the Company;

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;

our ability to integrate the operations of any acquisitions into our businesses;

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 and collateral and our branches or other operating facilities; and

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

We also direct readers to other risks and uncertainties discussed in other documents we file with the SEC. 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.

RESTATEMENT

As previously announced, on March 20, 2006, we determined that it was necessary to restate our unaudited condensed consolidated financial statements and other financial information at and for the quarters ended March 31, June 30, and September 30, 2005. The restatement related to the correction of errors in our accounting for four cross currency swaps designated as hedges of our foreign currency denominated debt, the first of which we entered into in June 2004. As a result, the originally issued unaudited condensed consolidated financial statements and other related financial information for these periods should no longer be relied upon. We included the restated financial information at and for each of the restated periods in our Annual Report on Form 10-K for the year ended December 31, 2005. We have also included the restated financial information at and for the three and nine months ended September 30, 2005 in this report. See Note 2 of the Notes to Condensed Consolidated Financial Statements and Item 4 for further information on this restatement.

Background

In connection with the preparation of our 2005 annual financial statements, we reviewed our existing accounting for cross currency swaps under Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and determined that our four cross currency swaps did not meet the requirements for hedge accounting under SFAS 133. Previously, we had designated these swaps as hedges of changes in foreign exchange rates related to our foreign currency denominated debt (liabilities of the Company). We documented these swaps originally as “matched terms” hedges, in accordance with paragraph 65 of SFAS 133. However, upon completing our review of these transactions, we concluded that certain significant terms did not meet the requirements of paragraph 65 of SFAS 133. We determined that the hedge documentation, contemporaneously created on the trade date, was not co nsistent with the requirements to support hedge accounting treatment. The swaps might have qualified for “long-haul” hedge accounting, with ineffectiveness reflected in current income; however, SFAS 133 does not allow for subsequent documentation modifications. Since these swaps did not qualify for hedge accounting, we recorded all changes in the fair value of each of our cross currency swaps to income.

Effect of the Restatement

The correction of our accounting treatment related to the cross currency swaps did not adversely affect the Company’s financial position. The hedge accounting correction had no effect on total shareholder’s equity but did affect net income. For future periods, we anticipate greater fluctuations in net income as a result of not using hedge accounting for our cross currency swaps.

The effect of the restatement on net income for each of the quarters in 2005 was as follows:

(dollars in thousands)

Net Income

Adjustment

Three Months ended March 31, 2005

$25,113

Three Months ended June 30, 2005

(5,013)

Three Months ended September 30, 2005

21,369

Nine months ended September 30, 2005

$41,469

In addition, net income for the quarter ended December 31, 2005 included $7.6 million related to the correction of cumulative hedge accounting errors under SFAS 133 arising in the quarters ended June 30, September 30, and December 31, 2004 and a $21,100 charge for other out of period items relating to adjustments in prepaid federal income taxes, state tax reserves, and investment securities that were corrected in fourth quarter 2005 as part of our normal year-end financial reporting process. These errors were immaterial to the unaudited condensed consolidated financial statements for each of the related quarters and to the respective annual audited consolidated financial statements in which the error originated.

The effect of the restatement on the components of shareholder’s equity was as follows:

(dollars in thousands)	Retained Earnings	Accumulated Other Comprehensive Income
March 31, 2005	$25,113	$(25,113)
June 30, 2005	20,100	(20,100)
September 30, 2005	41,469	(41,469)

CRITICAL ACCOUNTING ESTIMATES

We consider our most critical accounting estimate to be the establishment of an adequate allowance for finance receivable losses. Our Credit Strategy and Policy Committee evaluates our finance receivable portfolio monthly. The Credit Strategy and Policy Committee exercises its judgment, based on quantitative analyses, qualitative factors, and each committee member’s experience in the consumer finance industry, when determining the amount of the allowance for finance receivable losses. If its review concludes that an adjustment is necessary, we charge or credit this adjustment to expense through the provision for finance receivable losses. We consider this estimate to be a critical accounting estimate that affects the net income of the Company in total and the pretax operating income of our branch and centralized real estate business segments. We document the adequacy of the allowance for finance receivable losses, the analysis of the trends in credit quality, and the current economic conditions the Credit Strategy and Policy Committee considered to support its conclusions. See Provision for Finance Receivable Losses for further information on the allowance for finance receivable losses.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements as defined by SEC rules.

CAPITAL RESOURCES AND LIQUIDITY

Capital Resources

Our capital varies primarily with the amount of net finance receivables. We base the mix of debt and equity primarily upon maintaining leverage that supports cost-effective funding.

September 30, (dollars in millions)	2006		2005 Restated
	Amount	Percent	Amount	Percent
Long-term debt	$17,841.4	69%	$17,714.0	73%
Short-term debt	4,696.0	18	3,495.4	14
Total debt	22,537.4	87	21,209.4	87
Equity	3,259.5	13	3,138.1	13
Total capital	$25,796.9	100%	$24,347.5	100%
Net finance receivables	$23,486.3		$22,900.6
Debt to equity ratio	6.91x		6.76x
Debt to tangible equity ratio	7.48x		7.38x

Short-term debt increased in 2006 primarily to fund the growth in net originations of real estate loans held for sale resulting from the termination of the mortgage services agreements with AIG Bank.

Reconciliations of equity to tangible equity were as follows:

September 30,	2006	2005
(dollars in millions)		Restated
Equity	$3,259.5	$3,138.1
Goodwill	(220.4)	(220.4)
Accumulated other comprehensive income	(25.6)	(43.2)
Tangible equity	$3,013.5	$2,874.5

We issue a combination of fixed-rate debt, principally long-term, and floating-rate debt, both long-term and short-term. AGFC obtains our fixed-rate funding by publicly issuing long-term debt with maturities generally ranging from three to ten years. AGFC obtains most of our floating-rate funding by issuing and refinancing commercial paper and by publicly issuing long-term, floating-rate debt. We issue commercial paper, with maturities ranging from 1 to 270 days, to banks, insurance companies, corporations, and other institutional investors. At September 30, 2006, short-term debt included $4.3 billion of commercial paper. AGFC also issues extendible commercial notes with initial maturities of up to 90 days, which AGFC may extend to 390 days. At September 30, 2006, short-term debt included$444.4 million of extendible commercial notes.

AGFC uses interest rate, foreign currency, and equity-indexed swap agreements in conjunction with specific long-term debt issuances. AGFC’s objective is to achieve net U.S. dollar, fixed or floating interest rate exposure at costs not materially different from costs AGFC would have incurred by issuing debt for the same net exposure without using derivatives.

AGFC has historically paid dividends to (or received capital contributions from) AGFI to manage our leverage of debt to tangible equity to a targeted amount. The current targeted amount is 7.5 to 1. Certain AGFC financing agreements effectively limit the amount of dividends AGFC may pay.

Liquidity Facilities

We maintain credit facilities to support the issuance of commercial paper and to provide an additional source of funds for operating requirements. AGFC does not guarantee any borrowings of AGFI.

At September 30, 2006, AGFC had committed credit facilities totaling $4.253 billion, including a $2.125 billion multi-year credit facility and a $2.125 billion 364-day credit facility. The 364-day facility allows for the conversion by the borrower of any outstanding loan at expiration into a one-year term loan. AGFI is an eligible borrower under the 364-day facility for up to $400.0 million. The annual commitment fees for the facilities are based upon AGFC’s long-term credit ratings and averaged 0.07% at September 30, 2006. There were no amounts outstanding under these committed credit facilities at September 30, 2006 or 2005.

At September 30, 2006, AGFC and certain of its subsidiaries also had an uncommitted credit facility totaling $75.0 million which was shared with AGFI and could be increased depending upon lender ability to participate its loans under the facility. There were no amounts outstanding under this uncommitted credit facility at September 30, 2006 or 2005.

Liquidity

Our sources of funds include operations, issuances of long-term debt in domestic and foreign markets, short-term borrowings in the commercial paper market, borrowings from banks under credit facilities, and sales of finance receivables for securitizations. AGFC has also received capital contributions from its parent to support finance receivable growth and maintain targeted leverage.

We believe that our overall sources of liquidity will continue to be sufficient to satisfy our operational requirements and financial obligations. The principal factors that could decrease our liquidity are customer non-payment and an inability to access capital markets. The principal factors that could increase our cash needs are significant increases in net originations and purchases of finance receivables. We intend to mitigate liquidity risk by continuing to operate the Company utilizing the following existing strategies:

maintaining a finance receivable portfolio comprised mostly of real estate loans, which generally represent a lower risk of customer non-payment;

monitoring finance receivables using our credit risk and asset/liability management systems;

maintaining an investment securities portfolio of predominantly investment grade, liquid securities; and

maintaining a capital structure appropriate to our asset base.

Principal sources and uses of cash were as follows:

Nine Months Ended September 30,
(dollars in millions)	2006	2005
Principal sources of cash: Net issuances of debt	$ 750.6	$2,952.0
Sale of finance receivables to AGFI subsidiary for securitization	509.6	-
Operations	-	408.3
Capital contribution	-	55.0
Total	$1,260.2	$3,415.3
Principal uses of cash: Net originations and purchases of finance receivables	$ 777.8	$3,320.6
Dividends paid	255.1	50.0
Operations	195.6	-
Total	$1,228.5	$3,370.6

Net originations and purchases of finance receivables and net issuances of debt decreased for the nine months ended September 30, 2006, when compared to the same period in 2005 primarily due to decreases in our centralized real estate loan production caused by a less robust U.S. housing market in 2006 compared to the prior year. Net cash from operations decreased primarily due to an increase in net originations of real estate loans held for sale resulting from the termination of the mortgage services agreements with AIG Bank which had the effect of decreasing service fees from AIG Bank and increasing real estate loans held for sale under our own state licenses.

We believe that consistent execution of our business strategies should result in continued profitability, strong credit ratings, and investor confidence. These results should allow continued access to capital markets to issue our commercial paper and long-term debt. We have implemented programs and operating guidelines to ensure adequate liquidity, to mitigate the impact of any inability to access capital markets, and to provide contingent funding sources. These programs and guidelines include the following:

We manage commercial paper as a percentage of total debt. At September 30, 2006, that percentage was 19% compared to 14% at September 30, 2005.

We spread commercial paper maturities throughout upcoming weeks and months.

We limit the amount of commercial paper that any one investor may hold.

We maintain credit facilities to support the issuance of commercial paper and to provide an additional source of funds for operating requirements. At September 30, 2006, we had $4.253 billion of committed bank credit facilities.

At September 30, 2006, AGFC had the corporate authority to issue up to $14.1 billion of senior long-term debt securities registered under the Securities Act of 1933 using AGFC’s effective shelf registration statements.

We have established AGFC as an issuer in foreign capital markets.

We have the ability to sell, on a whole loan basis, or sell for securitizations, a portion of our finance receivables.

We collect principal payments on our finance receivables, which totaled $7.9 billion during the twelve months ended September 30, 2006. We chose to reinvest most of these collections, plus additional amounts from borrowings, in new finance receivables during this period, but these funds could be made available for other uses, if necessary.

We have the ability to sell a portion of our insurance subsidiaries’ investment securities and to dividend, subject to certain regulatory limits, cash from the securities sales.

ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION

Net Income

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005 Restated	2006	2005 Restated
Net income	$ 97.8	$126.4	$341.2	$394.9
Amount change	$(28.6)	$ 13.3	$(53.7)	$ 75.2
Percent change	(23)%	12%	(14)%	24%
Return on average assets	1.47%	2.02%	1.73%	2.19%
Return on average equity	12.02%	16.12%	14.07%	17.75%
Ratio of earnings to fixed charges	1.49x	1.85x	1.63x	1.97x

See Note 8 of the Notes to Condensed Consolidated Financial Statements for information on the results of the Company’s business segments.

Factors that affected the Company’s operating results were as follows:

Finance Charges

Finance charges by type were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Real estate loans	$ 392.5	$ 380.2	$ 1,164.2	$ 1,076.4
Non-real estate loans	174.3	158.0	508.1	471.1
Retail sales finance	48.3	41.3	133.7	126.0
Total	$ 615.1	$ 579.5	$ 1,806.0	$ 1,673.5
Amount change	$ 35.6	$ 87.0	$ 132.5	$ 264.4
Percent change	6%	18%	8%	19%
Average net receivables	$23,417.7	$22,724.0	$23,176.7	$21,678.1
Yield	10.43%	10.13%	10.41%	10.32%

Finance charges increased due to the following:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Increase in average net receivables	$17.5	$117.8	$108.6	$384.5
Change in yield	18.1	(30.8)	23.9	(114.8)
Decrease in number of days	-	-	-	(5.3)
Total	$35.6	$ 87.0	$132.5	$264.4

Average net receivables by type and changes in average net receivables when compared to the same periods for the previous year were as follows:

Three Months Ended September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Real estate loans	$18,450.6	$168.8	$18,281.8	$4,482.5
Non-real estate loans	3,318.9	234.1	3,084.8	155.0
Retail sales finance	1,648.2	290.8	1,357.4	110.0
Total	$23,417.7	$693.7	$22,724.0	$4,747.5
Percent change		3%		26%

Nine Months Ended September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Real estate loans	$18,386.6	$1,062.6	$17,324.0	$4,821.6
Non-real estate loans	3,230.2	205.2	3,025.0	128.0
Retail sales finance	1,559.9	230.8	1,329.1	81.5
Total	$23,176.7	$1,498.6	$21,678.1	$5,031.1
Percent change		7%		30%

The relatively low interest rate environment, in comparison to historical periods, along with growth in our branch network contributed to the increase in average net receivables. Real estate loan production arising from our centralized real estate origination services represented $1.6 billion of our real estate loan originations during the last twelve months.

Yield by type and changes in yield in basis points (bp) when compared to the same period for the previous year were as follows:

Three Months Ended September 30,	2006		2005
	Yield	Change	Yield	Change
Real estate loans	8.44%	19 bp	8.25%	(17) bp
Non-real estate loans	20.90	50	20.40	(67)
Retail sales finance	11.67	(41)	12.08	(248)
Total	10.43	30	10.13	(78)

Nine Months Ended September 30,	2006		2005
	Yield	Change	Yield	Change
Real estate loans	8.47%	16 bp	8.31%	(37) bp
Non-real estate loans	21.01	21	20.80	(44)
Retail sales finance	11.45	(122)	12.67	(185)
Total	10.41	9	10.32	(98)

Yield increased for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 reflecting higher real estate and non-real estate loan yield, partially offset by lower retail sales finance yield. Retail sales finance yield decreased for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 primarily due to competitive market conditions, which have resulted in a change in the mix to longer term promotional products.

Mortgage Banking Revenues

Mortgage banking revenues were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006		2005
Net gain (loss) on sales of real estate loans held for sale	$54.3	$ (0.2)	$ 94.5	$ 4.9
Interest income on real estate loans held for sale	23.8	1.6	50.7	2.0
Total	$78.1	$ 1.4	$145.2	$ 6.9
Amount change	$76.7	$ 0.3	$138.3	$(6.9)
Percent change	N/M	28%	N/M	(50)%

Mortgage banking revenues increased for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 reflecting the termination of the mortgage services agreements with AIG Bank and the resulting increase in originations of real estate loans held for sale. In first quarter 2006, we terminated the mortgage services agreements with AIG Bank (subsequently resulting in lower net service fees from affiliates) and began originating real estate loans held for sale using our own state licenses.

Insurance Revenues

Insurance revenues were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006		2005
Earned premiums	$38.1	$39.1	$114.9	$122.0
Commissions	0.2	0.2	0.7	0.7
Total	$38.3	$39.3	$115.6	$122.7
Amount change	$(1.0)	$(4.7)	$ (7.1)	$(10.7)
Percent change	(3)%	(11)%	(6)%	(8)%

Earned premiums decreased for the three and nine months ended September 30, 2006 when compared to the same periods in 2005 primarily due to declining credit premium volume in prior periods. Historically, non-real estate loan customers have purchased the majority of our insurance products. We experienced decreases in the number of non-real estate loan customers in prior periods primarily due to the low mortgage interest rate environment.

Investment Revenue

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Investment revenue	$22.9	$21.9	$66.8	$64.4
Amount change	$ 1.0	$ (2.0)	$ 2.4	$ (7.8)
Percent change	4%	(8)%	4%	(11)%

Investment revenue was affected by the following:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Average invested assets	$1,446.3	$1,438.8	$1,428.6	$1,422.1
Investment portfolio yield	6.18%	6.14%	6.28%	6.38%
Net realized losses on investments	$ (0.2)	$ -	$ (1.7)	$ (4.3)

Net Service Fees from Affiliates

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Net service fees from affiliates	$ 0.7	$97.9	$ 56.6	$237.2
Amount change	$(97.2)	$38.2	$(180.6)	$105.3
Percent change	(99)%	64%	(76)%	80%

Net service fees from affiliates decreased for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 reflecting the decrease in AIG Bank’s origination and sale of real estate loans held for sale using our mortgage origination services caused primarily by the termination of the mortgage services agreements with AIG Bank and a less robust U.S. housing market in 2006 compared to the prior year. In first quarter 2006, we terminated the mortgage services agreements with AIG Bank and began originating real estate loans held for sale using our own state licenses.

Other Revenues

Other revenues were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005 Restated	2006	2005 Restated
Fair value adjustments – derivatives	$(63.7)	$ 32.3	$ (67.4)	$56.9
Interest revenue – notes receivable from AGFI	6.5	5.2	24.8	13.6
Writedowns on real estate owned	(2.1)	(1.8)	(6.8)	(5.5)
Recognition of mortgage servicing rights	-	-	3.7	-
Net recovery on sales of real estate owned	0.7	1.2	2.5	3.4
Other	3.4	3.2	7.5	11.2
Total	$(55.2)	$40.1	$ (35.7)	$79.6
Amount change	$(95.3)	$34.3	$(115.3)	$63.1
Percent change	(238)%	597%	(145)%	382%

Other revenues decreased for the three months ended September 30, 2006 when compared to the same period in 2005 primarily due to an unfavorable variance in fair value adjustments on derivatives. Other revenues decreased for the nine months ended September 30, 2006 when compared to the same period in 2005 primarily due to an unfavorable variance in fair value adjustments on derivatives, partially offset by higher interest revenue on notes receivable from AGFI.

Interest Expense

The impact of using the swap agreements that qualify as hedges under GAAP is included in interest expense and the related borrowing statistics below. Interest expense by type was as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005 Restated	2006	2005 Restated
Long-term debt	$ 218.2	$ 192.9	$ 647.4	$ 521.1
Short-term debt	74.4	37.8	178.6	108.5
Total	$ 292.6	$ 230.7	$ 826.0	$ 629.6
Amount change	$ 61.9	$ 65.9	$ 196.4	$ 184.4
Percent change	27%	40%	31%	41%
Average borrowings	$22,581.6	$20,912.9	$22,099.5	$19,952.6
Interest expense rate	5.15%	4.39%	4.98%	4.19%

Interest expense increased due to the following:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005 Restated	2006	2005 Restated
Increase in interest expense rate	$43.2	$21.9	$128.9	$ 50.1
Increase in average borrowings	18.7	44.0	67.5	134.3
Total	$61.9	$65.9	$196.4	$184.4

Average borrowings by type and changes in average borrowings when compared to the same periods for the previous year were as follows:

Three Months Ended September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Long-term debt	$17,097.9	$ (50.5)	$17,148.4	$4,279.1
Short-term debt	5,483.7	1,719.2	3,764.5	117.1
Total	$22,581.6	$1,668.7	$20,912.9	$4,396.2
Percent change		8%		27%

Nine Months Ended September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Long-term debt	$17,389.7	$1,587.6	$15,802.1	$4,145.9
Short-term debt	4,709.8	559.3	4,150.5	480.9
Total	$22,099.5	$2,146.9	$19,952.6	$4,626.8
Percent change		11%		30%

AGFC issued $2.5 billion of long-term debt during the last twelve months. We used the proceeds of these long-term debt issuances to support finance receivable growth and to refinance maturing debt.

Short-term debt average borrowings increased in 2006 primarily to fund the growth in real estate loans held for sale.

Interest expense rate by type and changes in interest expense rate in basis points when compared to the same period for the previous year were as follows:

Three Months Ended September 30,	2006		2005 Restated
	Rate	Change	Rate	Change
Long-term debt	5.07%	60 bp	4.47%	17 bp
Short-term debt	5.40	140	4.00	116
Total	5.15	76	4.39	41

Nine Months Ended September 30,	2006		2005 Restated
	Rate	Change	Rate	Change
Long-term debt	4.95%	58 bp	4.37%	13 bp
Short-term debt	5.08	158	3.50	83
Total	4.98	79	4.19	32

Short-term market interest rates have risen significantly since mid-2004. Our actual future interest expense rates will depend on general interest rate levels and market credit spreads, which are influenced by our credit ratings and the market perception of credit risk for the Company and possibly our affiliates, including our ultimate parent, AIG.

Operating Expenses

Operating expenses were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Salaries and benefits	$134.9	$138.9	$418.5	$407.7
Other	75.9	76.1	221.6	221.6
Total	$210.8	$215.0	$640.1	$629.3
Amount change	$ (4.2)	$ 21.3	$ 10.8	$ 52.1
Percent change	(2)%	11%	2%	9%
Operating expenses as a percentage of average net receivables	3.60%	3.78%	3.68%	3.87%

Salaries and benefits expenses decreased for the three months ended September 30, 2006 when compared to the same period in 2005 primarily due to a decrease in commissions resulting from lower centralized real estate loan production.

Provision for Finance Receivable Losses

	Three Months Ended		At or for the Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Provision for finance receivable losses	$ 37.8	$116.4	$ 119.0	$249.1
Amount change	$(78.6)	$ 48.4	$(130.1)	$ 58.8
Percent change	(68)%	71%	(52)%	31%
Net charge-offs	$ 54.6	$ 61.2	$ 156.9	$182.5
Charge-off ratio	0.93%	1.08%	0.90%	1.13%
Charge-off coverage	2.18x	2.09x	2.28x	2.10x
60 day+ delinquency			$ 465.7	$443.5
Delinquency ratio			1.95%	1.91%
Allowance for finance receivable losses			$ 476.1	$512.3
Allowance ratio			2.03%	2.24%

Net charge-offs by type and changes in net charge-offs when compared to the same periods for the previous year were as follows:

Three Months Ended September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Real estate loans	$16.2	$ 1.4	$14.8	$(2.5)
Non-real estate loans	31.6	(6.9)	38.5	(3.2)
Retail sales finance	6.8	(1.1)	7.9	(0.7)
Total	$54.6	$(6.6)	$61.2	$(6.4)

Nine Months Ended September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Real estate loans	$ 42.5	$ (0.1)	$ 42.6	$ (3.2)
Non-real estate loans	92.8	(22.8)	115.6	(10.5)
Retail sales finance	21.6	(2.7)	24.3	(3.3)
Total	$156.9	$(25.6)	$182.5	$(17.0)

The improvement in total net charge-offs for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 was primarily due to the improving economy. Real estate loan net charge-offs increased slightly for the three months ended September 30, 2006, when compared to the same period in 2005 primarily due to the maturation of the real estate loan portfolio. Net charge-offs for the nine months ended September 30, 2006, benefited from $5.5 million of non-recurring recoveries recorded in first quarter 2006.

Charge-off ratios by type and changes in charge-off ratios in basis points when compared to the same periods for the previous year were as follows:

Three Months Ended September 30,	2006		2005
	Ratio	Change	Ratio	Change
Real estate loans	0.35%	3 bp	0.32%	(19) bp
Non-real estate loans	3.82	(118)	5.00	(70)
Retail sales finance	1.67	(66)	2.33	(42)
Total	0.93	(15)	1.08	(44)

Nine Months Ended September 30,	2006		2005
	Ratio	Change	Ratio	Change
Real estate loans	0.31%	(2) bp	0.33%	(17) bp
Non-real estate loans	3.84	(126)	5.10	(71)
Retail sales finance	1.86	(59)	2.45	(50)
Total	0.90	(23)	1.13	(49)

The improvement in the total charge-off ratios for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 was primarily due to the improving economy. Real estate loan charge-off ratio increased slightly for the three months ended September 30, 2006, when compared to the same period in 2005 reflecting the maturation of the real estate loan portfolio. Net charge-offs for the nine months ended September 30, 2006, benefited from $5.5 million of non-recurring recoveries recorded in first quarter 2006.

Delinquency at September 30, 2006, based on contract terms in effect by type and changes in delinquency when compared to September 30, 2005, were as follows:

September 30,	2006		2005
(dollars in millions)	Amount	Change	Amount	Change
Real estate loans	$295.9	$27.3	$268.6	$ (7.3)
Non-real estate loans	137.6	(6.8)	144.4	(7.3)
Retail sales finance	32.2	1.7	30.5	(2.4)
Total	$465.7	$22.2	$443.5	$(17.0)

The increase in real estate loan delinquency at September 30, 2006, was primarily due to the maturation of the real estate loan portfolio. Retail sales finance delinquency at September 30, 2006, increased slightly when compared to September 30, 2005, reflecting growth in retail sales finance receivables.

Delinquency ratios at September 30, 2006, based on contract terms in effect by type and changes in delinquency ratios in basis points when compared to September 30, 2005, were as follows:

September 30,	2006		2005
	Ratio	Change	Ratio	Change
Real estate loans	1.61%	15 bp	1.46%	(50) bp
Non-real estate loans	3.75	(50)	4.25	(44)
Retail sales finance	1.72	(30)	2.02	(36)
Total	1.95	4	1.91	(55)

The total delinquency ratio at September 30, 2006, increased slightly when compared to September 30, 2005, primarily due to an increase in the real estate loan delinquency ratio, partially offset by decreases in the non-real estate loan and retail sales finance delinquency ratios. The increase in the real estate loan delinquency ratio at September 30, 2006, when compared to September 30, 2005, reflected the maturation of the real estate loan portfolio.

Many of our customers are non-prime or sub-prime. Current economic conditions, such as interest rate and employment levels, have a direct effect on our customers’ ability to repay. Our Credit Strategy and Policy Committee evaluates our finance receivable portfolio monthly to determine the appropriate level of the allowance for finance receivable losses. We believe the amount of the allowance for finance receivable losses is the most significant estimate we make. In our opinion, the allowance is adequate to absorb losses inherent in our existing portfolio. The decrease in the allowance for finance receivable losses at September 30, 2006, when compared to September 30, 2005, was due to decreases to the allowance for finance receivable losses through the provision for finance receivable losses reflecting our quarterly evaluation of our loss exposure relating to Hurricane Katrina and the improving economy. In third quarter 2005, we added $56.8 million to our allowance for finance receivable losses in anticipation of additional finance receivable charge-offs resulting from Hurricane Katrina. As a result of our quarterly evaluations of our loss exposure relating to Hurricane Katrina, we reduced our allowance for finance receivable losses by $26.0 million during 2006 ($22.9 million in third quarter 2006) to reflect our current loss exposure.

The decrease in the allowance ratio at September 30, 2006, when compared to September 30, 2005, was primarily due to decreases to the allowance for finance receivable losses reflecting the Hurricane Katrina effect and the improving economy, partially offset by the transfer of higher credit quality real estate loans to assets held for sale in December 2005 in anticipation of the sale of these real estate loans to an AGFI subsidiary for securitization in first quarter 2006.

Charge-off coverage, which compares the allowance for finance receivable losses to net charge-offs (annualized), improved for the three and nine months ended September 30, 2006, when compared to the same periods in 2005 due to lower net charge-offs, partially offset by a lower allowance for finance receivable losses.

Insurance Losses and Loss Adjustment Expenses

Insurance losses and loss adjustment expenses were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005	2006	2005
Claims incurred	$13.8	$19.6	$46.3	$55.2
Change in benefit reserves	(0.9)	(2.2)	(3.3)	(4.7)
Total	$12.9	$17.4	$43.0	$50.5
Amount change	$(4.5)	$(3.9)	$(7.5)	$(9.9)
Percent change	(25)%	(18)%	(15)%	(16)%

Insurance losses and loss adjustment expenses decreased for the three and nine months ended September 30, 2006 when compared to the same periods in 2005 primarily due to lower credit and non-credit insurance claims incurred, reflecting the decline in the number of credit and non-credit insurance policies in force.

Provision for Income Taxes

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2006	2005 Restated	2006	2005 Restated
Provision for income taxes	$ 47.9	$ 74.3	$185.1	$231.0
Amount change	$ (26.4)	$ 8.3	$ (45.9)	$ 47.0
Percent change	(36)%	13%	(20)%	26%
Pretax income	$145.7	$200.7	$526.3	$625.9
Effective income tax rate	32.90%	37.03%	35.17%	36.91%

Provision for income taxes decreased for the three and nine months ended September 30, 2006 when compared to the same periods in 2005 primarily due to lower pretax income and a lower effective income tax rate. Our effective income tax rate declined for the three and nine months ended September 30, 2006 primarily due to the lower pretax income of a subsidiary operating in a state with a higher tax rate.

Asset/Liability Management

To reduce the risk associated with unfavorable changes in interest rates not offset by favorable changes in yield of our finance receivables, we monitor the anticipated cash flows of our assets and liabilities, principally our finance receivables and debt. We base the mix of fixed-rate and floating-rate debt, in part, on the nature of the finance receivables being supported.We fund finance receivables with a combination of fixed-rate and floating-rate debt and equity. Our real estate loans held for sale are funded primarily with floating-rate debt.

We issue fixed-rate, long-term debt as the primary source of fixed-rate debt. AGFC also alters the nature of certain floating-rate funding by using swap agreements to create synthetic fixed-rate, long-term debt, to limit our exposure to market interest rate increases. Additionally, AGFC has swapped fixed-rate, long-term debt to floating-rate, long-term debt. Including the impact of interest rate swap agreements that effectively fix floating-rate debt or float fixed-rate debt, our floating-rate debt represented 40% of our borrowings at September 30, 2006 compared to 38% at September 30, 2005. Approximately $854 million of our floating-rate debt at September 30, 2006 was attributed to funding real estate loans held for sale. Adjustable-rate net finance receivables represented 6% of our net finance receivables at September 30, 2006 compared to 13% at September 30, 2005.

Item 4. Controls and Procedures.

(a)

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported within required timeframes. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including its principal executive officer and principal financial officer, evaluates the effectiveness of our disclosure controls and procedures as of the end of each quarter using the framework and criteria established in “Internal Control – Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on an evaluation of the disclosure controls and procedures as of September 30, 2006, the Company’s principal executive officer and principal financial officer have concluded that the disclosure controls and procedures have functioned effectively and that the condensed consolidated financial statements fairly present our consolidated financial position and the results of our operations for the periods presented.

(b)

Identification of Material Weakness in Internal Control

A material weakness existed as of December 31, 2005 and was remediated in the first quarter of 2006, prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2005. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2005, we did not maintain effective controls over the accounting for derivatives. Specifically, our controls were not effective in ensuring the proper designation and documentation of our foreign currency swaps, the first of which we entered into in June 2004. As a result of this material weakness, the Company’s Chief Financial Officer and Chief Accounting Officer determined that it was necessary to restate our unaudited condensed cons olidated financial statements and other financial information at and for the quarters ended March 31, June 30, and September 30, 2005. We included the restated financial information at and for each of the periods being restated in our Annual Report on Form 10-K for the year ended December 31, 2005. We evaluated the effect of correcting the errors related to our original accounting on our previously reported unaudited condensed consolidated financial statements for each quarter in 2004 and on our annual audited consolidated financial statements at and for the year ended December 31, 2004 using qualitative and quantitative factors and determined that the effect was immaterial. We concluded that the cumulative effect of the correction for the year 2004 should be accounted for in the fourth quarter of 2005.

(c)

Remediation of Material Weakness

In the first quarter of 2006, management took the following actions to remediate this weakness:

Management established enhanced procedures to be performed by accounting personnel over documentation, evaluation, and classification of new hedge relationships.

Management and accounting personnel involved in derivative transactions will perform quarterly reviews of the derivative portfolio to ensure that acceptable methods for measuring hedge effectiveness are utilized.

Management will review the effect of new interpretations and accounting changes with respect to the application of hedge accounting on existing significant hedging relationships quarterly.

All hedge accounting policies, strategies, and transactions will be approved by the Chief Financial Officer after consultation with financial management at AIG.

(d)

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2006, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 9 of the Notes to Condensed Consolidated Financial Statements in Part I of this Quarterly Report on Form 10-Q.

Item 6. Exhibits.

Exhibits are listed in the Exhibit Index beginning on page 42 herein.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AMERICAN GENERAL FINANCE CORPORATION
					(Registrant)
Date:	November 13, 2006	By	/s/	Donald R. Breivogel, Jr.
				Donald R. Breivogel, Jr.
			Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Exhibit Index

Exhibit

(12)

Computation of Ratio of Earnings to Fixed Charges

(31.1)

Rule 13a-14(a)/15d-14(a) Certifications of the President and Chief Executive Officer of American General Finance Corporation

(31.2)

Rule 13a-14(a)/15d-14(a) Certifications of the Senior Vice President and Chief Financial Officer of American General Finance Corporation

(32)

Section 1350 Certifications

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Onemain Finance 10-Q2006 Q3 Quarterly report

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