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 June 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 August 8, 2000, there were 10,160,012 shares of the registrant's common
stock, $.50 par value, outstanding.
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues
Finance charges $388,203 $348,302 $768,838 $697,978
Insurance 48,752 45,593 96,919 88,527
Other 31,021 27,265 66,913 53,474
Total revenues 467,976 421,160 932,670 839,979
Expenses
Interest expense 167,113 136,568 327,654 271,874
Operating expenses 131,877 127,605 264,852 257,671
Provision for finance
receivable losses 47,699 47,297 95,497 98,141
Insurance losses and loss
adjustment expenses 22,097 19,561 47,084 39,434
Total expenses 368,786 331,031 735,087 667,120
Income before provision for
income taxes 99,190 90,129 197,583 172,859
Provision for Income Taxes 36,158 32,749 71,778 62,805
Net Income $ 63,032 $ 57,380 $125,805 $110,054
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE> 3
<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, December 31,
2000 1999
(dollars in thousands)
<S> <C> <C>
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $ 7,056,744 $ 6,918,753
Non-real estate loans 2,932,081 2,526,556
Retail sales finance 1,367,603 1,312,169
Net finance receivables 11,356,428 10,757,478
Allowance for finance receivable losses (372,829) (385,327)
Net finance receivables, less allowance
for finance receivable losses 10,983,599 10,372,151
Investment securities 1,037,836 985,483
Cash and cash equivalents 155,639 118,151
Notes receivable from parent 242,954 189,883
Other assets 712,158 798,434
Total assets $13,132,186 $12,464,102
Liabilities and Shareholder's Equity
Long-term debt $ 5,845,241 $ 5,709,755
Short-term notes payable:
Commercial paper 4,611,048 4,245,961
Other - 559
Insurance claims and policyholder
liabilities 474,819 462,100
Other liabilities 418,331 322,362
Accrued taxes 22,712 21,406
Total liabilities 11,372,151 10,762,143
Shareholder's equity:
Common stock 5,080 5,080
Additional paid-in capital 877,514 877,514
Accumulated other comprehensive loss (13,462) (6,694)
Retained earnings 890,903 826,059
Total shareholder's equity 1,760,035 1,701,959
Total liabilities and shareholder's equity $13,132,186 $12,464,102
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE> 4
<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
2000 1999
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 125,805 $ 110,054
Reconciling adjustments:
Provision for finance receivable losses 95,497 98,141
Depreciation and amortization 69,287 61,629
Deferral of finance receivable origination
costs (26,110) (24,773)
Deferred income tax charge 753 3,587
Change in other assets 76,395 (39,357)
Change in other liabilities 95,968 30,392
Change in insurance claims and policyholder
liabilities 12,719 4,399
Change in taxes receivable and payable 10,312 (1,631)
Other, net 2,711 23,757
Net cash provided by operating activities 463,337 266,198
Cash Flows from Investing Activities
Finance receivables originated or purchased (3,330,044) (2,869,853)
Principal collections on finance receivables 2,598,094 2,464,241
Investment securities purchased (178,468) (173,355)
Investment securities called, matured and sold 117,006 123,717
Change in notes receivable from parent (53,071) 1,442
Transfer of liabilities to parent - (22,996)
Change in premiums on finance receivables
purchased and deferred charges (7,460) (12,969)
Other, net (9,243) (15,727)
Net cash used for investing activities (863,186) (505,500)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 830,754 454,867
Repayment of long-term debt (696,985) (185,750)
Change in short-term notes payable 364,528 76,014
Dividends paid (60,960) (136,045)
Net cash provided by financing activities 437,337 209,086
Increase (decrease) in cash and cash equivalents 37,488 (30,216)
Cash and cash equivalents at beginning of period 118,151 129,500
Cash and cash equivalents at end of period $ 155,639 $ 99,284
Supplemental Disclosure of Cash Flow
Information
Income taxes paid $ 60,086 $ 58,897
Interest paid $ 326,152 $ 260,249
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE> 5
<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 63,032 $ 57,380 $125,805 $110,054
Other comprehensive income:
Net unrealized losses on
investment securities (4,351) (25,082) (8,127) (40,740)
Income tax effect 1,526 8,841 2,847 14,335
Net unrealized losses on
investment securities,
net of tax (2,825) (16,241) (5,280) (26,405)
Reclassification adjustment
for realized losses (gains)
included in net income 1,381 (654) (2,290) (959)
Income tax effect (483) 166 802 259
Realized losses (gains)
included in net income,
net of tax 898 (488) (1,488) (700)
Other comprehensive loss,
net of tax (1,927) (16,729) (6,768) (27,105)
Comprehensive income $ 61,105 $ 40,651 $119,037 $ 82,949
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 6
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 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 June 30, 2000 and December 31, 1999, our consolidated results
of operations for the three months and six months ended June 30, 2000 and
1999, our consolidated cash flows for the six months ended June 30, 2000
and 1999, and our consolidated comprehensive income for the three months
and six months ended June 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 will 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.
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
financial instruments to interest rate swap agreements.
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<PAGE> 7
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 June 30, 2000, interest rate swap
agreements in which AGFC contracted to pay interest at fixed rates and
receive interest at floating rates totaled $1.7 billion in notional amount,
with a weighted average pay rate of 6.95% and a weighted average receive
rate of 6.76%.
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 six 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 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.
The following tables display information about the Company's segments as
well as a reconciliation of total segment pretax income to the condensed
consolidated financial statement amounts.
Because segment information is not calculated separately for the Company,
the remaining information is for AGFI.
For the three months ended June 30, 2000:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $415,198 $ - $415,198
Insurance 363 48,389 48,752
Other (536) 22,133 21,597
Intercompany 16,893 (16,093) 800
Pretax income 42,429 24,592 67,021
For the three months ended June 30, 1999:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $368,729 $ - $368,729
Insurance 411 45,182 45,593
Other 774 20,041 20,815
Intercompany 17,609 (16,994) 615
Pretax income 79,256 21,331 100,587
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<PAGE> 8
For the six months ended June 30, 2000:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $824,064 $ - $824,064
Insurance 610 96,309 96,919
Other (94) 44,153 44,059
Intercompany 36,287 (34,712) 1,575
Pretax income 139,768 43,385 183,153
For the six months ended June 30, 1999:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $739,922 $ - $739,922
Insurance 854 87,673 88,527
Other 3,330 39,909 43,239
Intercompany 35,120 (33,894) 1,226
Pretax income 160,441 39,457 199,898
Reconciliation of total segment pretax income to the condensed consolidated
financial statement amounts is summarized below:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in thousands)
Pretax income:
Segments $ 67,021 $100,587 $183,153 $199,898
Corporate (20,329) (12,227) (44,282) (29,272)
Adjustments (3,599) (1,689) (2,127) (4,216)
Total consolidated
pretax income $ 43,093 $ 86,671 $136,744 $166,410
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 claims arise in
jurisdictions, such as Alabama and Mississippi, 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>
<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:
Six Months Ended
June 30,
2000 1999
(dollars in millions)
Principal sources of cash:
Operations $463.3 $266.2
Net issuance of debt 498.3 345.1
Principal sources of cash $961.6 $611.3
Principal uses of cash:
Net originations and purchases
of finance receivables $732.0 $405.6
Dividends paid 61.0 136.0
Principal uses of cash $793.0 $541.6
We believe that our overall sources of liquidity will continue to be
sufficient to satisfy our foreseeable financial obligations and operational
requirements.
Capital Resources
June 30,
2000 1999
(dollars in millions)
Long-term debt $ 5,845.2 $ 5,432.9
Short-term debt 4,611.1 3,561.7
Total debt 10,456.3 8,994.6
Equity 1,760.0 1,570.2
Total capital $12,216.3 $10,564.8
Net finance receivables $11,356.4 $ 9,773.1
Debt to tangible equity ratio 6.51 6.50
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
and one of its subsidiaries obtain most of our floating-rate debt through
sales of commercial paper. Commercial paper, with maturities ranging from
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<PAGE> 10
1 to 270 days, is sold directly to 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 June 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:
June 30,
2000 1999
(dollars in millions)
Committed credit facilities:
Shared committed facilities $5,600.0 $5,000.0
Borrowings - -
Remaining availability $5,600.0 $5,000.0
Uncommitted credit facilities:
Company uncommitted facilities $ 51.0 $ 141.0
Shared uncommitted facilities 50.0 150.0
Borrowings - -
Remaining availability $ 101.0 $ 291.0
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
Net Income
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Net income $ 63.0 $ 57.4 $125.8 $110.1
Return on average
assets (annualized) 1.95% 2.03% 1.97% 1.96%
Return on average
equity (annualized) 14.63% 14.06% 14.63% 13.46%
Ratio of earnings to
fixed charges 1.59x 1.62x
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Net income increased $5.6 million, or 10%, for the three months ended June
30, 2000 and $15.7 million, or 14%, for the six months ended June 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Finance charges $ 388.2 $ 348.3 $ 768.8 $ 698.0
Average net receivables $11,028.6 $ 9,679.5 $10,906.7 $ 9,608.4
Yield 14.14% 14.42% 14.16% 14.61%
Finance charges increased $39.9 million, or 11%, for the three months ended
June 30, 2000 and $70.8 million, or 10%, for the six months ended June 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Real estate loans $ 7,053.1 $ 6,031.5 $ 7,011.0 $ 5,915.5
Non-real estate loans 2,640.6 2,435.6 2,568.8 2,453.4
Retail sales finance 1,334.9 1,212.4 1,326.9 1,239.5
Total average net
receivables $11,028.6 $ 9,679.5 $10,906.7 $ 9,608.4
Average net receivables increased $1.3 billion, or 14%, for the three
months ended June 30, 2000 and $1.3 billion, or 14%, for the six months
ended June 30, 2000 when compared to the same periods in 1999.
The following table shows yield by type of finance receivable:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Real estate loans 11.32% 11.46% 11.28% 11.66%
Non-real estate loans 21.84% 21.91% 22.02% 22.00%
Retail sales finance 13.79% 14.10% 14.14% 14.08%
Total yield 14.14% 14.42% 14.16% 14.61%
Yield decreased 28 basis points for the three months ended June 30, 2000
and 45 basis points for the six months ended June 30, 2000 when compared
to the same periods in 1999 reflecting the larger proportion of average net
receivables in real estate loans, which generally have lower yields, and
a decline in real estate loan yield.
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Insurance Revenues
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Insurance revenues $ 48.8 $ 45.6 $ 96.9 $ 88.5
Premiums earned $ 47.9 $ 44.7 $ 95.4 $ 86.9
Insurance revenues
(annualized)as a
percentage of
average net
receivables 1.77% 1.88% 1.78% 1.84%
Insurance revenues increased $3.2 million, or 7%, for the three months
ended June 30, 2000 and $8.4 million, or 9%, for the six months ended June
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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Other revenues $ 31.0 $ 27.3 $ 66.9 $ 53.5
Investment revenue $ 20.4 $ 20.3 $ 45.7 $ 40.2
Interest revenue -
notes receivable
from parent $ 8.6 $ 4.5 $ 16.6 $ 9.3
Other revenues increased $3.7 million, or 14%, for the three months ended
June 30, 2000 and $13.4 million, or 25%, for the six months ended June 30,
2000 when compared to the same periods in 1999 primarily due to higher
interest revenue on notes receivable from AGFI. The increase in other
revenues for the six months ended June 30, 2000 also reflected higher
investment revenue due to growth in average invested assets, higher
realized gains, and higher adjusted portfolio yield.
Interest Expense
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Interest expense $ 167.1 $ 136.6 $ 327.7 $ 271.9
Average borrowings $10,248.6 $ 8,822.2 $10,119.0 $ 8,759.0
Borrowing cost 6.53% 6.19% 6.48% 6.22%
Interest expense increased $30.5 million, or 22%, for the three months
ended June 30, 2000 and $55.8 million, or 21%, for the six months ended
June 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 16%, for the three months and six months ended
June 30, 2000 when compared to the same periods in 1999 primarily to
support finance receivable growth. Borrowing cost increased 34 basis
points for the three months ended June 30, 2000 and 26 basis points for the
six months ended June 30, 2000 when compared to the same periods in 1999
due to higher rates on short-term debt, partially offset by lower rates on
long-term debt.
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<PAGE> 13
Operating Expenses
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Operating expenses $131.9 $127.6 $264.9 $257.7
Operating expenses
(annualized)as a
percentage of
average net
receivables 4.78% 5.27% 4.86% 5.36%
Operating expenses increased $4.3 million, or 3%, for the three months
ended June 30, 2000 and $7.2 million, or 3%, for the six months ended June
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 six months ended June 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Provision for finance
receivable losses $ 47.7 $ 47.3 $ 95.5 $ 98.1
Net charge-offs $ 47.7 $ 47.3 $ 95.5 $ 98.1
60 day+ delinquency $361.4 $366.3
Allowance for finance
receivable losses $372.8 $376.2
Provision for finance receivable losses increased $.4 million, or 1%, for
the three months ended June 30, 2000 and decreased $2.6 million, or 3%, for
the six months ended June 30, 2000 when compared to the same periods in
1999. The decrease in provision for finance receivable losses for the six
months ended June 30, 2000 reflected lower net charge-offs.
The following table shows charge-off ratios by type of finance receivable:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Real estate loans 0.64% 0.57% 0.65% 0.52%
Non-real estate loans 4.54% 5.09% 4.62% 5.34%
Retail sales finance 1.94% 2.56% 2.01% 2.76%
Total charge-off ratio 1.73% 1.96% 1.75% 2.05%
The decrease in the charge-off ratio for the three months and six months
ended June 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 and an increased
proportion of average net receivables in real estate loans.
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<PAGE> 14
The following table shows delinquency ratios by type of finance receivable:
June 30,
2000 1999
Real estate loans 3.05% 3.25%
Non-real estate loans 3.74 5.08
Retail sales finance 1.54 1.87
Total delinquency ratio 3.04 3.56
The decrease in the delinquency ratio at June 30, 2000 when compared to
June 30, 1999 reflected the continued improvement in credit quality and
the higher level of purchased receivables. The decrease in the delinquency
ratio also reflected the sale of fully-reserved delinquent net finance
receivables totaling $27.1 million (gross balances totaling $34.8 million)
in first quarter 2000, consisting 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Allowance ratio 3.28% 3.85%
Charge-off coverage 1.95x 1.99x 1.95x 1.92x
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. During second quarter 2000, we increased the allowance for
finance receivable losses $14.6 million by applying the purchase accounting
method for our portfolio acquisitions. The allowance as a percentage of
net finance receivables has continued to decline, reflecting the sale of
fully-reserved net finance receivables totaling $27.1 million in first
quarter 2000 and continued 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 six months ended June 30, 2000 when compared to the same periods in
1999.
Insurance Losses and Loss Adjustment Expenses
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Claims incurred $ 19.8 $ 18.8 $ 42.5 $ 39.4
Change in benefit
reserves $ 2.3 $ .8 $ 4.6 $ -
Insurance losses and loss
adjustment expenses $ 22.1 $ 19.6 $ 47.1 $ 39.4
Insurance losses and loss adjustment expenses increased $2.5 million, or
13%, for the three months ended June 30, 2000 and $7.7 million, or 19%, for
the six months ended June 30, 2000 when compared to the same periods in
1999 due to increases in provision for future benefits and claims.
Provision for future benefits increased $1.5 million for the three months
ended June 30, 2000 and $4.6 million for the six months ended June 30,
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2000, due to increased sales of non-credit insurance products. Claims
increased $1.0 million for the three months ended June 30, 2000 and $3.1
million for the six months ended June 30, 2000 primarily due to unusually
low loss experience in 1999.
Provision for Income Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(dollars in millions)
Provision for income
taxes $ 36.2 $ 32.7 $ 71.8 $ 62.8
Pretax income $ 99.2 $ 90.1 $197.6 $172.9
Effective income
tax rate 36.45% 36.34% 36.33% 36.33%
The provision for income taxes increased $3.5 million, or 10%, for the
three months ended June 30, 2000 and $9.0 million, or 14%, for the six
months ended June 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 37% of our average borrowings for the three
months ended June 30, 2000 and 35% for the six months ended June 30, 2000
compared to 29% for the three months and six months ended June 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, or tax changes that affect the cost of, or demand
for, our products; (4) our ability to secure necessary regulatory
approvals; (5) adverse litigation results or resolution of litigation; and
(6) the formation of strategic alliances or business combinations among
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<PAGE> 16
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 six months
ended June 30, 2000. See Note 4. of the Notes to Condensed Consolidated
Financial Statements for information about significant derivative financial
instrument activity during the year.
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.
(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 April 26, 2000, with respect to the
issuance of an Earnings Release announcing certain unaudited
financial results of the Company for the quarter ended March 31, 2000.
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.
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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: August 8, 2000 By /s/ Robert A. Cole
Robert A. Cole
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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<PAGE> 18
Exhibit Index
Exhibit
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
