(1)

See Footnote (4) to the table on page 6 and discussion of Risk Capital on page 36.

        Consumer Finance reported net income of $629 million in the 2005 first quarter, up $62 million or 11% from the 2004 first quarter, reflecting continued growth in North America of $56 million or 13% and improvements in International Consumer Finance of $6 million or 5%. Growth in North America was driven by lower credit losses due to the improved credit environment, lower expenses, and higher revenues due to volumes, partially offset by spread compression. The improved international results reflect increases in Japan from lower credit losses and Asia from personal loan growth, partially offset by a deterioration in EMEA driven by repositioning costs, higher expenses related to branch expansion and higher credit losses in the UK.

        As shown in the preceding table, average loans grew $6.8 billion or 7% compared to the 2004 first quarter, reflecting growth in North America of $5.9 billion or 8%, and in International Consumer Finance of $0.9 billion or 4%. Growth in North America resulted from an increase in all products, driven by real estate-secured and auto loans, with the growth in real-estate-secured loans mainly reflecting portfolio acquisitions. Growth in the international markets was mainly driven by an increase in real estate-secured and personal loan portfolios in EMEA and Asia, and the impact of strengthening currencies, partially offset by a continued decline in EMEA auto loans. In Japan, average loans declined 8% from the comparable 2004 period, as the benefit of foreign currency translation was more than offset by the impact of higher pay-downs and reduced loan demand.

        As shown in the following table, the average net interest margin ratio of 9.84% in the 2005 first quarter decreased 32 basis points from 2004, reflecting spread compression in North America, where the average net interest margin was 8.23%, a decline of 46 basis points from the prior-year quarter. The decline in North America resulted from lower yields in the real estate secured, auto and personal loan businesses, which continue to reflect the shift towards higher-quality loans. The average net interest margin for International Consumer Finance was 15.70% in the 2005 first quarter, increasing 35 basis points from the prior-year quarter, primarily driven by higher yields in Japan and Asia. The increase in Japan was primarily driven by a change in recording adjustments and refunds of interest in Japan. Prior to the 2004 second quarter, a portion of adjustments and refunds of interest charged to customer accounts were treated as reductions in net interest margin. For all subsequent periods, such adjustments and refunds of interest were accounted for in net credit losses. If all adjustments and refunds of interest were accounted for in net credit losses, the average net interest margin ratio for International Consumer Finance in the 2004 first quarter would have been 15.93%.

        Revenues, net of interest expense, of $2.750 billion in the 2005 first quarter, increased $62 million or 2% from the 2004 first quarter. Revenues, net of interest expense, in North America increased $10 million or 1% from 2004, due to growth in receivables, and capital

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gains related to repositioning of assets in the insurance investment portfolio, partially offset by the impact of the lower yields. Revenue in International Consumer Finance increased $52 million or 6% from the 2004 first quarter, mainly due to growth in Asia, EMEA, and Latin America, as well as the impact of foreign currency translation. Japan declined excluding the impact of foreign currency translation due to lower volumes.

        Operating expenses of $960 million in the 2005 first quarter increased $37 million or 4% from the prior-year period due to higher Consumer Finance International expenses of $77 million or 23%, offset by lower expenses in North America of $40 million or 7%. The increase in International was primarily due to repositioning costs in EMEA of $38 million, the impact of foreign currency translation, investment spending associated with branch expansions in Asia, EMEA and Latin America, partially offset by expense savings from branch closings and headcount reductions in Japan. The decline in North America resulted from efficiencies gained from the WMF integration and reductions in legal, and credit and collection costs.

        The provisions for benefits, claims, and credit losses were $817 million in the 2005 first quarter, down from $910 million in the 2004 fourth quarter, and $916 million in the 2004 first quarter, primarily reflecting lower net credit losses due to improved credit conditions, a $17 million credit reserve release and the shift to better credit quality portfolios in the U.S., and lower credit losses in Japan due to lower bankruptcy losses. Net credit losses and the related loss ratio were $797 million and 3.08% in the 2005 first quarter, compared to $872 million and 3.33% in the 2004 fourth quarter, and $870 million and 3.57% in the 2004 first quarter. In North America, the 2005 first quarter net credit loss ratio of 2.40% was down from 2.61% in the 2004 fourth quarter and 2.79% in the 2004 first quarter, primarily reflecting improvements in the auto and real-estate secured loans, reflecting better overall credit conditions in the market and the shift to better credit quality portfolios. The net credit loss ratio for International Consumer Finance was 5.59% in the 2005 first quarter, down from 5.92% in the 2004 fourth quarter and 6.31% in the 2004 first quarter. The decrease was driven by lower bankruptcy losses in Japan, and was offset by higher loss rates in all other regions, but primarily EMEA. Adjusting the 2004 first quarter net credit loss ratio for the change in treatment of adjustments and refunds of interest in Japan, as discussed above, would have resulted in an International Consumer Finance net credit loss ratio of 6.89%.

        Loans delinquent 90 days or more were $1.875 billion or 1.80% of loans at March 31, 2005, compared to $2.014 billion or 1.90% at December 31, 2004 and $2.127 billion or 2.15% at March 31, 2004. The decrease in the delinquency ratio versus the prior quarter and prior year was mainly due to improvements in North America and Japan, and was partially offset by increases in EMEA.

(1)

See Footnote (7) to the table on page 4.

        Consumer Finance reported net income of $2.388 billion in 2004, up $409 million or 21% from 2003, reflecting an increase in North America of $405 million or 28% and an increase in International Consumer Finance of $4 million or 1%. The increase in North America primarily resulted from a higher net interest margin due to higher loan volumes and a lower cost of funds, the benefit of lower credit costs due to an improved credit environment and the successful integration of WMF in 2004. The increase in International Consumer Finance primarily resulted from increases in Latin America and Asia, partially offset by declines in Japan and EMEA. Net income in 2003 of $1.979 billion decreased by $279 million or 12% from 2002, primarily reflecting continued weakness in Japan, partially offset by the acquisition of GSB in November 2002 and a $94 million release of a tax reserve in Japan, related to a settlement with tax authorities.

        As shown in the preceding table, average loans grew $9.3 billion or 10% in 2004 compared to 2003, reflecting growth in North America of $8.5 billion or 12% and International Consumer Finance of $0.8 billion or 4%. North American growth reflected the addition of WMF, which contributed $3.6 billion in average loans, and growth in all

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products driven by real-estate-secured and auto loans. Growth in real-estate-secured loans mainly reflected portfolio acquisitions, partially offset by a decline in cross selling of products through Primerica. Growth in the international markets was mainly driven by increases in the real-estate-secured and personal loan portfolios in both EMEA and Asia, and included the impact of strengthening currencies, partially offset by a decline in EMEA auto loans. In Japan, average loans declined by 6% from 2003 as the benefit of foreign currency translation was more than offset by the impact of higher pay-downs, reduced loan demand and tighter underwriting standards. Average loans grew 11% in 2003, resulting from acquisitions, growth in real-estate-secured loans, the impact of funding auto loan volumes internally and strengthening currencies in the international markets.

        As shown in the following table, the average net interest margin ratio of 9.95% in 2004 declined 22 basis points from 2003, reflecting compression in both the North American and international markets. In North America, higher volumes and the benefit of lower cost of funds were more than offset by lower yields reflecting the lower interest rate environment and the repositioning of portfolios towards higher credit quality. The average net interest margin ratio for International Consumer Finance was 15.80% in 2004, declining 23 basis points from the prior year, primarily driven by a mix shift to lower yielding products in EMEA and lower receivables in Japan, partially offset by a change in recording adjustments and refunds of interest in Japan. From the 2003 second quarter to the 2004 second quarter, a portion of adjustments and refunds of interest charged to customer accounts were treated as reductions in net interest margin. For all other periods presented, such adjustments and refunds of interest were accounted for in net credit losses. If all adjustments and refunds of interest were accounted for in net credit losses, the average net interest margin ratio for International Consumer Finance would have been 16.07% in 2004 and 16.49% in 2003. The average net interest margin ratio of 10.17% in 2003 declined 55 basis points from 2002 primarily reflecting compression in the international markets, driven primarily by Japan and partially offset by margin expansion in Europe. The compression of net interest margin in Japan reflected a decline in higher-yielding personal loans combined with the change in treatment of adjustments and refunds of interest as discussed above.

        Revenues, net of interest expense, of $10.761 billion in 2004 increased $678 million or 7% from 2003. The increase in revenues, net of interest expense, reflected growth of $622 million or 9% in North America, and growth of $56 million or 2% in International Consumer Finance. Revenue growth in North America was primarily driven by the WMF acquisition, growth in receivables and a lower cost of funds, partially offset by the impact of lower yields and declines in insurance related revenues. The increase in revenue for International Consumer Finance was primarily due to the benefit of foreign exchange and higher volumes in all regions excluding Japan. A decline in Japan revenues was driven by lower personal and real estate loan volumes, as well as a decline in yields. Revenues of $10.083 billion in 2003 increased $184 million or 2% from 2002, reflecting higher revenues in North America of $519 million or 9%, primarily due to receivable growth, including the addition of the GSB auto portfolio, partially offset by lower insurance revenues. Declines in International Consumer Finance revenues of $335 million or 9% resulted from lower volumes and spreads in Japan, offset by the timing of acquisitions in 2002, the net effect of foreign currency translation and growth in Asia.

        Operating expenses of $3.600 billion in 2004 increased $112 million or 3% from 2003, reflecting increases of $91 million or 4% in North America and $21 million or 2% in International Consumer Finance. The increase in operating expenses in North America was due to the addition of the WMF portfolio, while the increase in International Consumer Finance reflected the impact of foreign currency translation in Japan and EMEA. Excluding foreign currency translation, a decline in expenses was driven by expense savings from branch closings and headcount reductions which occurred during 2003 in Japan, partially offset by higher 2004 investment expenses including branch expansion in Asia (primarily India) and EMEA. Operating expenses of $3.488 billion in 2003 increased $374 million or 12% from 2002, reflecting increases of $218 million or 12% in North America and $156 million or 13% in International Consumer Finance. The increase in North America resulted from increased volumes, the addition of the GSB auto portfolio and increased staffing, collection and compliance costs. The increase in International Consumer Finance resulted from the impact of foreign currency translation, additional costs in Japan attributable to actions taken to restructure the business and the timing of acquisitions in 2002, partially offset by expense savings from branch closings and headcount reductions in Japan.

        The provisions for benefits, claims, and credit losses were $3.506 billion in 2004, down from $3.727 billion in 2003, primarily reflecting lower net credit losses in North America and Japan, and higher credit reserve releases of $89 million, partially offset by the WMF acquisition. The decline in North American credit losses excluding the impact of WMF was driven by the overall improvement in the credit environment, while the decline in Japan was driven by lower bankruptcy losses. Net credit losses and the related loss ratio were $3.431 billion and 3.43% in 2004, compared to $3.517 billion and 3.88% in 2003, and $3.026 billion and 3.69% in 2002. In North America, net credit losses were $2.065 billion and the related loss ratio was 2.63% in 2004, compared to $2.059 billion and 2.94% in 2003 and $1.865 billion and 3.00% in 2002. The decrease in the net credit loss ratio in 2004 was driven by improvements in all products, the result of better overall credit conditions in the market and the shift to better credit quality portfolios, partially offset by the impact of WMF. The decrease in the net credit loss ratio in 2003 was mainly driven by improvements in the real-estate-secured and auto portfolios, which were partially offset by increased loss rates in the personal loan portfolio. Net credit losses in International Consumer Finance were $1.366 billion and the related loss ratio was 6.32% in 2004, compared to $1.458 billion and 7.02% in 2003 and $1.161 billion and 5.88% in 2002. The decrease in the net credit loss ratio in 2004 was driven by improved credit conditions, including lower bankruptcy losses in Japan, partially offset by higher personal loan losses in EMEA. Adjusting the net credit loss ratios for the change in treatment of adjustments and refunds of interest in Japan, as discussed above, would have resulted in International Consumer Finance net credit loss ratios of 6.60% and 7.48% in 2004 and 2003, respectively. The increase in the net credit loss ratio in 2003 was primarily due to increased bankruptcy and contractual losses in Japan.

        Loans delinquent 90 days or more were $2.014 billion or 1.90% of loans at December 31, 2004, compared to $2.221 billion or 2.36% at December 31, 2003 and $2.197 billion or 2.48% at December 31, 2002. The decrease in the delinquency ratio in 2004 was due to improvements in all regions.

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