SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 number 1-6155
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.
Yes X . No .
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, 2000, there were 10,160,012 shares of the registrant's
common stock, $.50 par value, outstanding.
<PAGE>
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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,
2000 1999 2000 1999
(dollars in thousands)
Revenues
Finance charges $403,791 $355,984 $1,172,629 $1,053,962
Insurance 49,678 48,157 146,597 136,684
Other 31,423 28,129 98,336 81,603
Total revenues 484,892 432,270 1,417,562 1,272,249
Expenses
Interest expense 174,932 140,960 502,586 412,834
Operating expenses 132,768 124,611 397,620 382,282
Provision for finance
receivable losses 48,989 49,437 144,486 147,578
Insurance losses and loss
adjustment expenses 22,565 23,693 69,649 63,127
Total expenses 379,254 338,701 1,114,341 1,005,821
Income before provision for
income taxes 105,638 93,569 303,221 266,428
Provision for Income Taxes 38,354 33,946 110,132 96,751
Net Income $ 67,284 $ 59,623 $ 193,089 $ 169,677
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2000 1999
(dollars in thousands)
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $ 7,015,769 $ 6,918,753
Non-real estate loans 2,914,517 2,526,556
Retail sales finance 1,388,620 1,312,169
Net finance receivables 11,318,906 10,757,478
Allowance for finance receivable losses (372,825) (385,327)
Net finance receivables, less allowance
for finance receivable losses 10,946,081 10,372,151
Investment securities 1,075,759 985,483
Cash and cash equivalents 146,873 118,151
Notes receivable from parent 259,022 189,883
Other assets 701,703 798,434
Total assets $13,129,438 $12,464,102
Liabilities and Shareholder's Equity
Long-term debt $ 5,756,580 $ 5,709,755
Short-term notes payable:
Commercial paper 4,674,993 4,245,961
Other - 559
Insurance claims and policyholder
liabilities 506,754 462,100
Other liabilities 392,834 322,362
Accrued taxes 24,688 21,406
Total liabilities 11,355,849 10,762,143
Shareholder's equity:
Common stock 5,080 5,080
Additional paid-in capital 877,514 877,514
Accumulated other comprehensive loss (7,964) (6,694)
Retained earnings 898,959 826,059
Total shareholder's equity 1,773,589 1,701,959
Total liabilities and shareholder's equity $13,129,438 $12,464,102
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<PAGE> 4
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2000 1999
(dollars in thousands)
Cash Flows from Operating Activities
Net income $ 193,089 $ 169,677
Reconciling adjustments:
Provision for finance receivable losses 144,486 147,578
Depreciation and amortization 103,984 93,557
Deferral of finance receivable origination
costs (38,809) (37,583)
Deferred income tax charge 3,992 6,208
Change in other assets 77,942 (12,666)
Change in other liabilities 70,476 (12,060)
Change in insurance claims and policyholder
liabilities 44,654 11,954
Change in taxes receivable and payable 7,479 8,033
Other, net 2,050 17,832
Net cash provided by operating activities 609,343 392,530
Cash Flows from Investing Activities
Finance receivables originated or purchased (4,625,888) (4,392,859)
Principal collections on finance receivables 3,881,160 3,744,765
Investment securities purchased (372,060) (262,253)
Investment securities called, matured and sold 277,370 199,832
Change in notes receivable from parent (69,139) (12,081)
Transfer of liabilities to parent - (22,996)
Change in premiums on finance receivables
purchased and deferred charges (10,926) (26,396)
Other, net (13,625) (27,400)
Net cash used for investing activities (933,108) (799,388)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,240,329 679,518
Repayment of long-term debt (1,196,122) (347,877)
Change in short-term notes payable 428,473 242,602
Dividends paid (120,193) (166,520)
Net cash provided by financing activities 352,487 407,723
Increase in cash and cash equivalents 28,722 865
Cash and cash equivalents at beginning of period 118,151 129,500
Cash and cash equivalents at end of period $ 146,873 $ 130,365
Supplemental Disclosure of Cash Flow
Information
Income taxes paid $ 98,598 $ 85,678
Interest paid $ 519,571 $ 429,745
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in thousands)
Net income $ 67,284 $ 59,623 $193,089 $169,677
Other comprehensive income:
Net unrealized gains (losses)
on investment securities 9,467 (14,026) 1,340 (54,766)
Income tax effect (3,315) 4,833 (468) 19,168
Net unrealized gains (losses)
on investment securities,
net of tax 6,152 (9,193) 872 (35,598)
Reclassification adjustment
for realized (gains) losses
included in net income (1,005) 1,025 (3,295) 66
Income tax effect 351 (282) 1,153 (23)
Realized (gains) losses
included in net income,
net of tax (654) 743 (2,142) 43
Other comprehensive income
(loss), net of tax 5,498 (8,450) (1,270) (35,555)
Comprehensive income $ 72,782 $ 51,173 $191,819 $134,122
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<PAGE> 6
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000
Note 1. Principles of Consolidation
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". We prepared the accompanying unaudited condensed
consolidated financial statements using generally accepted accounting
principles for interim periods. They include the accounts of AGFC and its
subsidiaries, all of which are wholly owned. We eliminated all
intercompany items. We did not include per share information because AGFC
is a wholly-owned subsidiary of American General Finance, Inc. (AGFI). AGFI
is a wholly-owned subsidiary of American General Corporation (American
General).
Note 2. Adjustments and Reclassifications
Our condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, that we considered
necessary for a fair presentation of the Company's consolidated financial
position at September 30, 2000 and December 31, 1999, our consolidated
results of operations for the three months and nine months ended September
30, 2000 and 1999, our consolidated cash flows for the nine months ended
September 30, 2000 and 1999, and our consolidated comprehensive income for
the three months and nine months ended September 30, 2000 and 1999. Our
condensed consolidated financial statements should be read 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, 1999.
To conform with the 2000 presentation, we reclassified certain items in the
prior period.
Note 3. Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires all derivative
instruments to be recognized at fair value in the balance sheet. Changes
in the fair value of a derivative instrument will be reported as earnings
or other comprehensive income, depending upon the intended use of the
derivative instrument. We have identified our derivative instruments and
are currently documenting hedging activities as required by SFAS 133. We
will be prepared to adopt SFAS 133 on January 1, 2001. We do not expect
adoption to have a material impact on the Company's consolidated results
of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements," which provides criteria for revenue recognition. SAB 101 must
be adopted no later than fourth quarter 2000. There will be no changes to
the Company's revenue recognition policies as a result of SAB 101.
Note 4. Derivative Financial Instruments
AGFC makes limited use of derivative financial instruments to manage the
cost of its debt and is neither a dealer nor a trader in derivative
financial instruments. AGFC has generally limited its use of derivative
<PAGE> 7
financial instruments to interest rate swap agreements.
AGFC uses interest rate swap agreements to reduce its exposure to market
interest rate increases by synthetically converting certain floating-rate
debt to a fixed-rate basis. At September 30, 2000, interest rate swap
agreements in which AGFC contracted to pay interest at fixed rates and
receive interest at floating rates totaled $1.9 billion in notional amount,
with a weighted average pay rate of 6.83% and a weighted average receive
rate of 6.77%.
As an alternative to fixed-rate term debt, AGFC's interest rate swap
agreements did not have a material effect on the Company's weighted-average
interest rate or reported interest expense in the first nine months of 2000
or 1999.
Note 5. Segment Information
We have two business segments: consumer finance and insurance. Our
segments are defined by financial service product. During first quarter
2000, the centralized real estate operation was decentralized and merged
into the then-existing consumer branches operation. The resulting new
segment has been named the consumer finance operation. The consumer
finance operation originates home equity and consumer loans, purchases
loans and portfolios of loans originated by various lenders, extends lines
of credit, offers retail sales financing to merchants, and sells credit and
non-credit insurance products. The insurance operation writes and assumes
credit and non-credit insurance through products that are sold principally
by the consumer finance operation.
Because segment information is not calculated separately for the Company,
the remaining information is for AGFI and its subsidiaries.
The following tables display information about AGFI and its subsidiaries'
segments as well as a reconciliation of their total segment pretax income
to their condensed consolidated financial statement amounts.
For the three months ended September 30, 2000:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $432,557 $ - $432,557
Insurance 224 49,454 49,678
Other (703) 21,799 21,096
Intercompany 20,220 (19,447) 773
Pretax income 101,027 21,216 122,243
For the three months ended September 30, 1999:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $378,700 $ - $378,700
Insurance 401 47,756 48,157
Other 3,699 20,018 23,717
Intercompany 20,359 (19,756) 603
Pretax income 92,565 16,153 108,718
<PAGE> 8
For the nine months ended September 30, 2000:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $1,256,621 $ - $1,256,621
Insurance 834 145,763 146,597
Other (797) 65,952 65,155
Intercompany 56,507 (54,159) 2,348
Pretax income 240,795 64,601 305,396
For the nine months ended September 30, 1999:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $1,118,622 $ - $1,118,622
Insurance 1,255 135,429 136,684
Other 7,029 59,927 66,956
Intercompany 55,479 (53,650) 1,829
Pretax income 253,006 55,610 308,616
Reconciliation of total segment pretax income to the condensed consolidated
financial statement amounts is summarized below:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in thousands)
Pretax income:
Segments $122,243 $108,718 $305,396 $308,616
Corporate (24,811) (20,317) (69,093) (49,589)
Adjustments (1,219) (3,299) (3,346) (7,515)
Total consolidated
pretax income $ 96,213 $ 85,102 $232,957 $251,512
Note 6. Legal Contingencies
AGFC and certain of its subsidiaries are parties to various lawsuits and
proceedings, including certain 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 that will ultimately
be paid, if any, arising from these lawsuits and proceedings will not have
a material adverse effect on the Company's consolidated results of
operations and financial position. However, the frequency of large damage
awards, including large punitive damage awards that bear little or no
relation to actual economic damages incurred by plaintiffs in some
jurisdictions, continues to create the potential for an unpredictable
judgment in any given suit.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our sources of funds include operations, issuances of long-term debt,
short-term borrowings in the commercial paper market, and borrowings from
banks under credit facilities. AGFI has also contributed capital to AGFC
when needed for finance receivable growth or other circumstances.
The following table shows principal sources and uses of cash:
Nine Months Ended
September 30,
2000 1999
(dollars in millions)
Principal sources of cash:
Operations $ 609.3 $392.5
Net issuance of debt 472.7 574.2
Principal sources of cash $1,082.0 $966.7
Principal uses of cash:
Net originations and purchases
of finance receivables $ 744.7 $648.1
Dividends paid 120.2 166.5
Principal uses of cash $ 864.9 $814.6
We believe that our overall sources of liquidity will continue to be
sufficient to satisfy our foreseeable financial obligations and operational
requirements.
Capital Resources
September 30,
2000 1999
(dollars in millions)
Long-term debt $ 5,756.6 $ 5,496.3
Short-term debt 4,675.0 3,728.3
Total debt 10,431.6 9,224.6
Equity 1,773.6 1,590.9
Total capital $12,205.2 $10,815.5
Net finance receivables $11,318.9 $ 9,974.5
Debt to tangible equity ratio 6.46x 6.52x
Our capital varies directly with the level of net finance receivables. The
capital mix of debt and equity is based primarily upon maintaining leverage
that supports cost-effective funding.
We issue a combination of fixed-rate debt, principally long-term, and
floating-rate debt, principally short-term. AGFC obtains our fixed-rate
debt through issuances of medium-term notes and underwritten debt offerings
with maturities generally ranging from two to ten years. AGFC obtains most
of our floating-rate debt through sales of commercial paper. Commercial
paper, with maturities ranging from 1 to 270 days, is sold directly to
<PAGE> 10
banks, insurance companies, corporations, and other institutional
investors. AGFC also sells extendible commercial notes with initial
maturities of up to 90 days, which may be extended by AGFC to 390 days.
AGFC has paid dividends to (or received capital contributions from) AGFI
to manage our leverage of debt to tangible equity (equity less goodwill and
net unrealized gains or losses on investment securities) to 6.50 to 1. An
AGFC financing agreement limits the amount of dividends AGFC may pay but
has not prevented the Company from managing its capital to targeted
leverage.
Liquidity Facilities
We participate in credit facilities to support the issuance of commercial
paper and to provide an additional source of funds for operating
requirements. AGFC is an eligible borrower under committed credit
facilities extended to American General and certain of its subsidiaries
(the "shared committed facilities"). At September 30, 2000, the annual
commitment fees for the shared committed facilities ranged from .05% to
.07%. We pay only an allocated portion of the commitment fees for the
shared committed facilities. AGFC and certain subsidiaries also have
uncommitted credit facilities. In addition, AGFC is an eligible borrower
under uncommitted credit facilities extended to American General and
certain of its subsidiaries (the "shared uncommitted facilities").
Available borrowings under all facilities are reduced by any outstanding
borrowings.
Information concerning the credit facilities follows:
September 30,
2000 1999
(dollars in millions)
Committed credit facilities:
Shared committed facilities $6,200.0 $5,000.0
Borrowings - -
Remaining availability $6,200.0 $5,000.0
Uncommitted credit facilities:
Company uncommitted facilities $ 51.0 $ 91.0
Shared uncommitted facilities 50.0 50.0
Borrowings - -
Remaining availability $ 101.0 $ 141.0
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
Net Income
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Net income $ 67.3 $ 59.6 $193.1 $169.7
Return on average
assets (annualized) 2.05% 2.08% 2.00% 2.00%
Return on average
equity (annualized) 15.06% 15.00% 14.77% 13.97%
Ratio of earnings to
fixed charges 1.59x 1.63x
<PAGE> 11
Net income increased $7.7 million, or 13%, for the three months ended
September 30, 2000 and $23.4 million, or 14%, for the nine months ended
September 30, 2000 when compared to the same periods in 1999. See Note 5.
of the Notes to Condensed Consolidated Financial Statements for information
on the results of the Company's business segments.
Factors that specifically affected the Company's operating results are as
follows:
Finance Charges
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Finance charges $ 403.8 $ 356.0 $ 1,172.6 $ 1,054.0
Average net receivables $11,343.6 $ 9,828.6 $11,052.4 $ 9,681.8
Yield 14.18% 14.40% 14.17% 14.54%
Finance charges increased $47.8 million, or 13%, for the three months ended
September 30, 2000 and $118.6 million, or 11%, for the nine months ended
September 30, 2000 when compared to the same periods in 1999 primarily due
to higher average net receivables, partially offset by lower yield.
The following table shows average net receivables by type of finance
receivable:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Real estate loans $ 7,031.8 $ 6,165.9 $ 7,017.9 $ 5,999.0
Non-real estate loans 2,929.4 2,451.8 2,689.1 2,452.8
Retail sales finance 1,382.4 1,210.9 1,345.4 1,230.0
Total average net
receivables $11,343.6 $ 9,828.6 $11,052.4 $ 9,681.8
Average net receivables increased $1.5 billion, or 15%, for the three
months ended September 30, 2000 and $1.4 billion, or 14%, for the nine
months ended September 30, 2000 when compared to the same periods in 1999.
The following table shows yield by type of finance receivable:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Real estate loans 11.42% 11.36% 11.33% 11.56%
Non-real estate loans 21.06% 21.93% 21.68% 21.97%
Retail sales finance 13.63% 14.62% 13.96% 14.26%
Total yield 14.18% 14.40% 14.17% 14.54%
Yield decreased 22 basis points for the three months ended September 30,
2000 when compared to the same period in 1999 primarily due to a decline
in non-real estate loan yield. Yield decreased 37 basis points for the
nine months ended September 30, 2000 when compared to the same period in
1999 primarily due to a slightly larger proportion of average net
receivables in real estate loans, which generally have lower yields, and
a decline in real estate loan yield.
<PAGE> 12
Insurance Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Insurance revenues $ 49.7 $ 48.2 $146.6 $136.7
Premiums earned $ 49.0 $ 47.2 $144.4 $134.1
Insurance revenues
(annualized)as a
percentage of
average net
receivables 1.75% 1.96% 1.77% 1.88%
Insurance revenues increased $1.5 million, or 3%, for the three months
ended September 30, 2000 and $9.9 million, or 7%, for the nine months ended
September 30, 2000 when compared to the same periods in 1999 primarily due
to higher earned premiums. Earned premiums increased primarily due to
higher written premium volume in 1999 and 2000.
Other Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Other revenues $ 31.4 $ 28.1 $ 98.3 $ 81.6
Investment revenue $ 22.4 $ 18.7 $ 68.1 $ 58.9
Interest revenue -
notes receivable
from parent $ 7.1 $ 5.9 $ 23.7 $ 15.2
Other revenues increased $3.3 million, or 12%, for the three months ended
September 30, 2000 and $16.7 million, or 21%, for the nine months ended
September 30, 2000 when compared to the same periods in 1999 primarily due
to higher investment revenue and higher interest revenue on notes
receivable from AGFI. The increase in investment revenue for the three
months ended September 30, 2000 was primarily due to growth in average
invested assets and higher realized gains, partially offset by lower
adjusted portfolio yield. The increase in investment revenue for the nine
months ended September 30, 2000 was primarily due to growth in average
invested assets, higher realized gains, and higher adjusted portfolio
yield. The increase in interest revenue - notes receivable from parent for
the three months and nine months ended September 30, 2000 reflected
increased funding to AGFI.
Interest Expense
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Interest expense $ 174.9 $ 141.0 $ 502.6 $ 412.8
Average borrowings $10,433.0 $ 9,076.7 $10,221.4 $ 8,865.5
Borrowing cost 6.69% 6.20% 6.55% 6.21%
Interest expense increased $33.9 million, or 24%, for the three months
ended September 30, 2000 and $89.8 million, or 22%, for the nine months
ended September 30, 2000 when compared to the same periods in 1999
primarily due to higher average borrowings and higher borrowing cost.
Average borrowings increased $1.4 billion, or 15%, for the three months and
nine months ended September 30, 2000 when compared to the same periods in
1999 primarily to support finance receivable growth. Borrowing cost
<PAGE> 13
increased 49 basis points for the three months ended September 30, 2000 and
34 basis points for the nine months ended September 30, 2000 when compared
to the same periods in 1999 due to higher rates on short-term debt.
Operating Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Operating expenses $132.8 $124.6 $397.6 $382.3
Operating expenses
(annualized)as a
percentage of
average net
receivables 4.68% 5.07% 4.80% 5.26%
Operating expenses increased $8.2 million, or 7%, for the three months
ended September 30, 2000 and $15.3 million, or 4%, for the nine months
ended September 30, 2000 when compared to the same periods in 1999
primarily due to increases in salaries and data processing expenses,
partially offset by lower litigation expenses.
The improvement in operating expenses as a percentage of average net
receivables for the three months and nine months ended September 30, 2000
when compared to the same periods in 1999 reflects continued improvement
in operating efficiencies.
Provision for Finance Receivable Losses
At or for the
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Provision for finance
receivable losses $ 49.0 $ 49.4 $144.5 $147.6
Net charge-offs $ 49.0 $ 49.4 $144.5 $147.6
60 day+ delinquency $399.8 $389.1
Allowance for finance
receivable losses $372.8 $376.7
Provision for finance receivable losses remained near the same for the
three months ended September 30, 2000 and decreased $3.1 million, or 2%,
for the nine months ended September 30, 2000 when compared to the same
periods in 1999. The decrease in the provision for finance receivable
losses for the nine months ended September 30, 2000 was due to lower net
charge-offs.
The following table shows charge-off ratios by type of finance receivable:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Real estate loans 0.57% 0.70% 0.63% 0.58%
Non-real estate loans 4.33% 5.08% 4.51% 5.25%
Retail sales finance 2.08% 2.52% 2.03% 2.68%
Total charge-off ratio 1.73% 2.02% 1.74% 2.04%
<PAGE> 14
The decrease in the charge-off ratio for the three months and nine months
ended September 30, 2000 when compared to the same periods in 1999
reflected the results of past and ongoing credit quality improvement
efforts, including consistent adherence to strict underwriting guidelines.
The following table shows delinquency ratios by type of finance receivable:
September 30,
2000 1999
Real estate loans 3.34% 3.33%
Non-real estate loans 4.23 5.45
Retail sales finance 1.74 1.97
Total delinquency ratio 3.37 3.71
The decrease in the delinquency ratio at September 30, 2000 when compared
to September 30, 1999 reflected the improvement in credit quality and the
sale of fully-reserved delinquent net finance receivables totaling $27.1
million (gross balances totaling $34.8 million) in first quarter 2000.
These receivables consisted of non-real estate loans ($25.0 million) and
retail sales finance ($2.1 million). This sale reduced the delinquency
ratio by approximately 30 basis points at the time of sale.
The following table shows selected statistics relating to the allowance for
finance receivable losses:
At or for the
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Allowance ratio 3.29% 3.78%
Charge-off coverage 1.90x 1.90x 1.94x 1.91x
We periodically evaluate our finance receivable portfolio to determine the
level of the allowance for finance receivable losses. In our opinion, the
allowance is adequate to absorb anticipated losses in our existing
portfolio. The allowance as a percentage of net finance receivables has
declined, reflecting the sale of fully-reserved net finance receivables
totaling $27.1 million in first quarter 2000 and the improvement in credit
quality. The charge-off coverage, which compares the allowance for finance
receivable losses to net charge-offs (annualized), has been essentially
flat for the three months and nine months ended September 30, 2000 when
compared to the same periods in 1999.
Insurance Losses and Loss Adjustment Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Claims incurred $ 20.9 $ 21.2 $ 63.3 $ 60.6
Change in benefit
reserves $ 1.7 $ 2.5 $ 6.3 $ 2.5
Insurance losses and loss
adjustment expenses $ 22.6 $ 23.7 $ 69.6 $ 63.1
Insurance losses and loss adjustment expenses decreased $1.1 million, or
5%, for the three months ended September 30, 2000 and increased $6.5
million, or 10%, for the nine months ended September 30, 2000 when compared
to the same periods in 1999. Provision for future benefits increased $3.8
million for the nine months ended September 30, 2000 primarily due to
<PAGE> 15
increased sales of non-credit insurance products. Claims increased $2.7
million for the nine months ended September 30, 2000 primarily due to
increased loss experience.
Provision for Income Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Provision for income
taxes $ 38.4 $ 33.9 $110.1 $ 96.8
Pretax income $105.6 $ 93.6 $303.2 $266.4
Effective income
tax rate 36.31% 36.28% 36.32% 36.31%
The provision for income taxes increased $4.5 million, or 13%, for the
three months ended September 30, 2000 and $13.3 million, or 14%, for the
nine months ended September 30, 2000 when compared to the same periods in
1999 primarily due to higher taxable income.
Asset/Liability Management
We manage anticipated cash flows of our assets and liabilities in an effort
to reduce the risk associated with unfavorable changes in interest rates.
Management determines the mix of fixed-rate and floating-rate debt based,
in part, on the nature of the assets being supported. We limit our
exposure to market interest rate increases by fixing interest rates that
we pay for term periods. The primary means by which we accomplish this is
through the issuance of fixed-rate debt. To supplement fixed-rate debt
issuances, AGFC also uses interest rate swap agreements to synthetically
create fixed-rate debt by altering the nature of certain floating-rate
funding, thereby limiting our exposure to market interest rate increases.
Floating-rate debt represented 38% of our average borrowings for the three
months ended September 30, 2000 and 36% for the nine months ended September
30, 2000, compared to 32% for the three months ended September 30, 1999 and
30% for the nine months ended September 30, 1999. These percentages
include the effect of interest rate swap agreements that converted
floating-rate debt to a fixed rate.
FORWARD-LOOKING STATEMENTS
All statements, trend analyses, and other information contained in this
report relative to trends in our operations or financial results, as well
as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," and other similar expressions,
constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. We have made these forward-looking
statements based upon our current expectations and beliefs concerning
future developments and their potential effects on the Company. There can
be no assurance that future developments affecting the Company will be
those we anticipated. Actual results may differ materially from those
included in the forward-looking statements.
These forward-looking statements involve risks and uncertainties including,
but not limited to, the following: (1) changes in general economic
conditions, including the performance of financial markets, interest rates,
and the level of personal bankruptcies; (2) customer responsiveness to both
products and distribution channels; (3) competitive, regulatory,
accounting, or tax changes that affect the cost of, or demand for, our
products; (4) our ability to secure necessary regulatory approvals; (5) our
ability to realize projected expense savings; (6) adverse litigation
<PAGE> 16
results or resolution of litigation; and (7) the formation of strategic
alliances or business combinations among our competitors or business
partners. Readers are also directed to other risks and uncertainties
discussed in other documents we filed with the Securities and Exchange
Commission. We undertake no obligation to update or revise any forward-
looking information, whether as a result of new information, future
developments, or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk is primarily related to changes in interest
rates. Quantitative and qualitative disclosures about our market risk
resulting from changes in interest rates are included in Item 7A. in our
1999 Annual Report on Form 10-K. There have been no material changes in
such risks or our asset/liability management program during the nine months
ended September 30, 2000. See Note 4. of the Notes to Condensed
Consolidated Financial Statements for information about our derivative
financial instruments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 6. of the Notes to Condensed Consolidated Financial Statements in
Part I of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(4) a. The following instrument is filed pursuant to Item
601(b)(4)(ii) of Regulation S-K as a result of certain debt
issuances in the third quarter of 2000. In the aggregate,
the outstanding issuances of debt under the Indenture
referred to under item (1) below exceed 10% of the total
assets of the Company on a consolidated basis.
(1) Indenture dated as of May 1, 1999 between American
General Finance Corporation and Citibank, N.A.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated July 26, 2000, with respect to the
issuance of an Earnings Release announcing certain unaudited
financial results of the Company for the quarter ended June 30, 2000.
Current Report on Form 8-K dated October 26, 2000, with respect to
the issuance of an Earnings Release announcing certain unaudited
financial results of the Company for the quarter ended September 30,
2000.
<PAGE>
<PAGE> 17
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, 2000 By /s/ Robert A. Cole
Robert A. Cole
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 18
Exhibit Index
Exhibit
(4) a. The following instrument is filed pursuant to Item 601(b)(4)(ii)
of Regulation S-K as a result of certain debt issuances in the
third quarter of 2000. In the aggregate, the outstanding
issuances of debt under the Indenture referred to under item (1)
below exceed 10% of the total assets of the Company on a
consolidated basis.
(1) Indenture dated as of May 1, 1999 between American General
Finance Corporation and Citibank, N.A.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
