<PAGE>
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, 1997
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 1-7422
AMERICAN GENERAL FINANCE, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1313922
(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 13, 1997, there were 2,000,000 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, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues
Finance charges $315,248 $362,261 $635,047 $733,661
Insurance 46,740 52,086 94,269 103,273
Other 17,482 15,557 34,902 31,928
Total revenues 379,470 429,904 764,218 868,862
Expenses
Interest expense 112,816 121,271 225,647 247,251
Operating expenses 117,582 132,934 236,251 264,328
Provision for finance
receivable losses 63,458 101,783 131,005 210,584
Loss on sale of non-
strategic assets 42,225 - 42,225 -
Insurance losses and loss
adjustment expenses 21,748 26,506 45,752 55,054
Total expenses 357,829 382,494 680,880 777,217
Income before provision for
income taxes 21,641 47,410 83,338 91,645
Provision for Income Taxes 8,019 17,822 30,922 33,869
Net Income $ 13,622 $ 29,588 $ 52,416 $ 57,776
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, December 31,
1997 1996
(dollars in thousands)
<S> <C> <C>
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $3,877,126 $3,734,195
Non-real estate loans 2,316,731 2,516,009
Retail sales contracts 947,368 998,441
Private label 265,822 376,580
Net finance receivables 7,407,047 7,625,225
Allowance for finance receivable
losses (385,153) (395,153)
Net finance receivables, less allowance
for finance receivable losses 7,021,894 7,230,072
Investment securities 879,754 880,033
Cash and cash equivalents 105,375 105,493
Goodwill 266,487 270,989
Assets held for sale - 667,007
Other assets 426,305 410,102
Total assets $8,699,815 $9,563,696
Liabilities and Shareholder's Equity
Long-term debt $3,950,837 $4,498,530
Short-term notes payable:
Commercial paper 2,700,142 3,015,920
Banks and other 80,000 111,000
Investment certificates 3,240 3,778
Insurance claims and policyholder
liabilities 433,143 456,430
Other liabilities 329,705 260,284
Accrued taxes 17,563 17,273
Total liabilities 7,514,630 8,363,215
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 736,230 696,230
Net unrealized gains on investment
securities 19,741 21,454
Retained earnings 428,214 481,797
Total shareholder's equity 1,185,185 1,200,481
Total liabilities and shareholder's equity $8,699,815 $9,563,696
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1997 1996
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 52,416 $ 57,776
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 131,005 210,584
Depreciation and amortization 42,562 48,594
Deferral of finance receivable
origination costs (19,522) (26,482)
Deferred federal income tax charge 60,466 1,780
Change in other assets and other liabilities (55,183) 10,754
Change in insurance claims and
policyholder liabilities (23,287) (19,317)
Loss on sale of non-strategic assets 42,225 -
Operations related to assets held for sale 39,905 -
Other, net 12,317 51,312
Net cash provided by operating activities 282,904 335,001
Cash Flows from Investing Activities
Finance receivables originated or purchased (2,155,436) (2,403,223)
Principal collections on finance receivables 2,145,602 2,529,637
Net collections on assets held for sale 61,266 -
Securitized finance receivables purchased (100,000) -
Sale of non-strategic assets 732,504 -
Investment securities purchased (70,981) (102,233)
Investment securities called, matured and sold 70,269 109,171
Other, net (3,424) (25,751)
Net cash provided by investing activities 679,800 107,601
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 161,776 31,109
Repayment of long-term debt (711,282) (358,354)
Change in investment certificates (538) (616)
Change in short-term notes payable (346,778) (47,474)
Capital contribution from parent 40,000 -
Dividends paid (106,000) (57,088)
Net cash used for financing activities (962,822) (432,423)
(Decrease) increase in cash and cash equivalents (118) 10,179
Cash and cash equivalents at beginning of period 105,493 103,238
Cash and cash equivalents at end of period $105,375 $113,417
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 38,791 $ 1,663
Interest paid $254,071 $249,524
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE> 5
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1997
Note 1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim periods and include the accounts of American General Finance,
Inc. and its subsidiaries. American General Finance, Inc. will be referred
to as "AGFI" or collectively, with its subsidiaries, whether directly or
indirectly owned, as the "Company". The subsidiaries are wholly-owned, and
all intercompany items have been eliminated. Per share information is not
included because AGFI is a wholly-owned subsidiary of American General
Corporation (American General).
Note 2. Adjustments and Reclassifications
These condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered necessary by
management for a fair presentation of the Company's consolidated financial
position at June 30, 1997 and December 31, 1996, its consolidated results
of operations for the three months and six months ended June 30, 1997 and
1996, and its consolidated cash flows for the six months ended June 30,
1997 and 1996. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
Note 3. Accounting Changes
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 130, "Reporting
Comprehensive Income" and SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. This statement is effective
for fiscal years beginning after December 15, 1997. SFAS 131 establishes
standards for public business enterprises reporting on information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures
on products and services, geographical areas, and major customers. This
statement is effective for financial statements for periods beginning after
December 15, 1997. Adoption of these statements will result in additional
disclosures but will not impact the Company's consolidated results of
operations and financial position.
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<PAGE> 6
Note 4. Derivative Financial Instruments
The Company's principal borrowing subsidiary is American General Finance
Corporation (AGFC), a wholly-owned subsidiary of AGFI. AGFC makes limited
use of derivative financial instruments to manage the cost of its debt.
AGFC uses interest conversion agreements to reduce its exposure to future
fluctuations in interest expense rates by effectively converting short-term
and certain long-term floating-rate debt to a fixed-rate basis. At June
30, 1997, outstanding interest conversion agreements in which AGFC
contracted to pay interest at fixed rates and receive floating rates
totaled $715.0 million of notional amount, with an average fixed pay rate
of 7.76% and an average floating receive rate of 5.67%. AGFC's use of
interest conversion 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 1997 or 1996.
Note 5. Sale of Non-strategic Assets
During fourth quarter 1996, the Company decided to offer for sale $874.8
million of non-strategic, underperforming credit card and private label
finance receivable portfolios. These assets held for sale were carried at
net realizable value, after considering related expenses.
In April 1997, the Company repurchased $100.0 million of private label and
credit card receivables that previously had been sold through
securitization. No gain or loss resulted from this transaction. These
repurchased credit card receivables were offered for sale along with the
Company's other credit card receivables, which increased the carrying
amount of assets held for sale by approximately $70.0 million in April
1997.
In June 1997, the Company sold all of the assets held for sale (with a
remaining balance of $658.1 million) and $81.4 million of other private
label finance receivables. In connection with these sales, the Company
took an aftertax charge of $27.0 million in second quarter 1997. This loss
primarily resulted from establishing a liability for estimated future
payments to the purchaser of the credit card portfolio under a five-year
loss sharing arrangement.
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<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company's sources of funds include operations, issuances of fixed-rate
and floating-rate debt, and borrowings under credit facilities. Management
believes that the overall sources of liquidity available to the Company
will continue to be sufficient to satisfy its foreseeable financial
obligations and operational requirements.
Liquidity
Operating cash flow, which includes net income adjusted for non-cash
revenues and expenses, totaled $282.9 million for the six months ended June
30, 1997 compared to $335.0 million for the same period in 1996. Operating
cash flow combined with the net collections of finance receivables and
assets held for sale, the proceeds from the sale of non-strategic assets,
and a capital contribution from American General generated cash flow of
$1.1 billion for the six months ended June 30, 1997 compared to $461.4
million for the same period in 1996. These cash flows were used
principally to fund the net repayments of debt for the six months ended
June 30, 1997 and 1996 of $896.8 million and $375.3 million, respectively,
to pay dividends to American General of $106.0 million and $57.1 million,
respectively, and to repurchase $100.0 million of securitized finance
receivables during second quarter 1997.
Dividends paid are typically managed to maintain the Company's targeted
leverage of 7.5 to 1 of debt to tangible equity (equity less goodwill and
net unrealized gains or losses on fixed-maturity investment securities).
The debt to tangible equity ratio at June 30, 1997 was 7.49 to 1. AGFI's
ability to pay dividends is substantially dependent on the receipt of
dividends or other funds from its subsidiaries, primarily AGFC. Certain
AGFI and AGFC financing agreements effectively limit the amount of
dividends the entity may pay; however, management does not expect those
limits to affect the Company's ability to maintain targeted leverage.
Capital Resources
The Company's capital requirements vary directly with the level of net
finance receivables. The targeted mix of capital between debt and equity
is based primarily upon maintaining leverage that supports cost-effective
funding. At June 30, 1997, the Company's capital totaled $7.9 billion,
consisting of $6.7 billion of debt and $1.2 billion of equity, compared to
$8.4 billion at June 30, 1996, consisting of $7.1 billion of debt and $1.3
billion of equity.
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The Company issues a combination of fixed-rate debt, principally long-term,
and floating-rate debt, principally short-term. The Company's principal
borrowing subsidiary, AGFC, and one of its subsidiaries sell commercial
paper notes with maturities ranging from 1 to 270 days directly to banks,
insurance companies, corporations, and other institutional investors. AGFC
may also offer medium-term notes with original maturities of nine months or
longer to certain institutional investors. AGFC obtains the remainder of
its funds primarily through underwritten public debt offerings with
maturities generally ranging from three to ten years.
The Company manages anticipated cash flows of its assets and liabilities in
an effort to reduce the risk associated with unfavorable changes in
interest rates. The Company's mix of fixed-rate and floating-rate debt is
determined by management based, in part, on the nature of the assets being
supported. The Company limits its exposure to market interest rate
increases by fixing interest rates that it pays for term periods. The
primary means by which the Company accomplishes this is through the
issuance of fixed-rate debt. To supplement fixed-rate debt issuances, AGFC
also uses interest conversion agreements to synthetically create fixed-rate
debt by altering the nature of floating-rate funding, thereby limiting its
exposure to interest rate movements.
Credit Facilities
The Company maintains credit facilities to support the issuance of
commercial paper and to provide an additional source of funds for operating
requirements. At June 30, 1997, the Company had a $500.0 million committed
credit facility and was an eligible borrower under $3.3 billion of
committed credit facilities extended to American General and certain of its
subsidiaries (the "shared committed facilities"). The annual commitment
fees for all committed facilities ranged from .05% to .09%. The Company
pays only an allocated portion of the commitment fees for the shared
committed facilities. At June 30, 1997, the Company also had $466.0
million of uncommitted credit facilities and was an eligible borrower under
$165.0 million of uncommitted credit facilities extended to American
General and certain of its subsidiaries. Available borrowings under all
facilities are reduced by any outstanding borrowings. At June 30, 1997,
Company borrowings outstanding under uncommitted credit facilities totaled
$80.0 million, and there were no borrowings under any committed credit
facilities.
Securitization
On April 1, 1997, the Company repurchased all $100.0 million of the private
label and credit card receivables that had previously been sold through
securitization. No gain or loss resulted from the repurchase transaction.
Of the $100.0 million repurchased, approximately $70.0 million was
classified as assets held for sale in April 1997. The repurchase
facilitated the sale of the credit card portfolio included in assets held
for sale and sold in June 1997.
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SELECTED FINANCIAL INFORMATION
The following table shows certain selected financial information of the
Company for the periods indicated:
At or for the At or for the
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(dollars in thousands)
Average finance receivables,
net of unearned finance
charges (average net
receivables) $7,452,793 $8,021,088 $7,501,152 $8,119,868
Average borrowings $7,259,950 $7,049,447 $7,383,576 $7,159,378
Yield - finance charges
(annualized) as a
percentage of average
net receivables 16.95% 18.13% 17.02% 18.13%
Borrowing cost - interest
expense (annualized) as
a percentage of average
borrowings 6.82% 6.89% 6.76% 6.91%
Interest spread - yield
less borrowing cost 10.13% 11.24% 10.26% 11.22%
Insurance revenues
(annualized) as a
percentage of average
net receivables 2.51% 2.60% 2.51% 2.54%
Operating expenses
(annualized) as a
percentage of average
net receivables 6.31% 6.63% 6.30% 6.51%
Return on average assets
(annualized) .59% 1.30% 1.12% 1.25%
Return on average equity
(annualized) 4.29% 9.07% 8.42% 8.79%
Charge-off ratio -
net charge-offs
(annualized) as a
percentage of average
net receivables 3.68% 5.33% 3.76% 5.41%
Allowance ratio -
allowance for finance
receivable losses as a
percentage of net
finance receivables - - 5.20% 5.99%
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<PAGE> 10
Selected Financial Information (Continued)
At or for the
Six Months Ended
June 30,
1997 1996
Ratio of earnings to fixed charges (refer to
Exhibit 12 for calculations) 1.33 1.36
Delinquency ratio - finance receivables any
portion of which was 60 days or more past
due as a percentage of related receivables
(including unearned finance charges and
excluding deferred origination costs, a
fair value adjustment on finance receivables,
and accrued interest) 3.73% 3.99%
Debt to tangible equity ratio - debt to
equity less goodwill and net unrealized
gains or losses on fixed-maturity
investment securities 7.49 7.03
Debt to equity ratio 5.68 5.48
ANALYSIS OF OPERATING RESULTS
Net Income
Net income decreased $16.0 million, or 54%, for the three months ended June
30, 1997 and $5.4 million, or 9%, for the six months ended June 30, 1997
when compared to the same periods in 1996. The decreases primarily relate
to the loss on the sale of non-strategic assets during second quarter 1997.
Net income has fluctuated over the past two years due to the decline in
credit quality of the Company's finance receivables beginning in 1995 and
management's related actions to address credit quality. The Company's
strategy in prior years of emphasizing higher-yielding finance receivables,
which are characterized by higher credit risk, resulted in delinquencies
and net charge-offs increasing to higher than anticipated levels beginning
in the third quarter of 1995. Due to these increases in delinquencies and
net charge-offs, management initiated a comprehensive review of the Company
in the fourth quarter of 1995. This review consisted of extensive internal
analysis, together with finance receivable loss development projections
supplied by outside credit consultants. The results of the analysis
indicated a need for an increase in the allowance for finance receivable
losses. Accordingly, the Company recorded a $216.0 million increase in the
allowance for finance receivable losses in fourth quarter 1995.
In addition, the Company adopted an action program for improving credit
quality that included raising underwriting standards, expanding the use of
credit scoring, slowing branch expansion, stressing collections, improving
branch office training, and rebalancing the finance receivable portfolio
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<PAGE> 11
credit risk. Strategies for rebalancing the portfolio credit risk included
slowing growth, de-emphasizing some higher risk portfolios, and increasing
the proportion of real estate secured receivables.
To increase its focus on core operations, the Company decided in the fourth
quarter of 1996 to offer for sale $874.8 million of non-strategic,
underperforming finance receivable portfolios, consisting of $520.3 million
of credit card and $354.5 million of private label finance receivables.
The Company reclassified these finance receivables and an associated
allowance for finance receivable losses of $70.0 million to assets held for
sale on December 31, 1996. The Company hired an outside advisor to market
the portfolios. Based on negotiations with prospective purchasers
subsequent to year end, the Company determined that an aftertax charge to
operations of $93.5 million was necessary to reduce the carrying amount of
the assets held for sale to net realizable value. This charge was taken in
fourth quarter 1996.
In June 1997, the Company sold all of the assets held for sale (with a
remaining balance of $658.1 million) and $81.4 million of other private
label finance receivables. In connection with these sales, the Company
took an aftertax charge of $27.0 million in second quarter 1997. This
additional loss primarily resulted from establishing a liability for
estimated future payments to the purchaser of the credit card portfolio
under a five-year loss sharing arrangement.
Net finance receivables totaled $7.4 billion at June 30, 1997, a decrease
of $645.9 million from June 30, 1996 primarily due to the aforementioned
reclassification and sale of credit card and certain private label
receivables and the substantial liquidation of underperforming receivables,
partially offset by purchases of real estate loan portfolios during the
last half of 1996. At June 30, 1997, real estate secured finance
receivables accounted for 52% of total net finance receivables compared to
39% at June 30, 1996.
Results of the action program to improve credit quality became evident in
the first half of 1997. Although yield decreased 111 basis points for the
six months ended June 30, 1997 when compared to the same period in 1996,
this was more than offset by a 165 basis point improvement in the charge-
off ratio. The delinquency ratio also improved to 3.73% at June 30, 1997
from 3.99% a year earlier. The Company is also realizing operating
efficiencies as evidenced by a 21 basis point improvement in the operating
expense ratio for the six months ended June 30, 1997 from the comparable
period of the prior year, reflecting fewer branches and employees.
Factors which specifically affected the Company's operating results are as
follows:
Finance Charges
Finance charge revenues decreased $47.0 million, or 13%, for the three
months ended June 30, 1997 and $98.6 million, or 13%, for the six months
ended June 30, 1997 when compared to the same periods in 1996 primarily due
to decreases in average net receivables and yield. Average net receivables
decreased $568.3 million, or 7%, for the three months ended June 30, 1997
and $618.7 million, or 8%, for the six months ended June 30, 1997 when
compared to the same periods in 1996 primarily due to the action program
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<PAGE> 12
for improving credit quality, which included the aforementioned
reclassification and sales of certain finance receivables and the
substantial liquidation of underperforming receivables. The exclusion of
finance charges related to the assets held for sale for the three months
and six months ended June 30, 1997 totaled $35.2 million and $75.0 million,
respectively. Yield decreased 118 basis points for the three months ended
June 30, 1997 and 111 basis points for the six months ended June 30, 1997
when compared to the same periods in 1996 primarily due to the action
program for improving credit quality, including increasing the proportion
of finance receivables that are real estate loans (which generally have
lower yields), partially offset by the decreased proportion of non-accrual
delinquent finance receivables during 1997.
Insurance Revenues
Insurance revenues decreased $5.3 million, or 10%, for the three months
ended June 30, 1997 and $9.0 million, or 9%, for the six months ended June
30, 1997 when compared to the same periods in 1996 primarily due to
decreases in earned premiums. Earned premiums decreased primarily due to
the decline in related loan volume resulting from the action program for
improving credit quality.
Other Revenues
Other revenues increased $1.9 million, or 12%, for the three months ended
June 30, 1997 and $3.0 million, or 9%, for the six months ended June 30,
1997 when compared to the same periods in 1996 primarily due to increases
in investment revenue, partially offset by increases in net losses on
foreclosed real estate. The increases in investment revenue for the three
months and six months ended June 30, 1997 when compared to the same periods
in 1996 were primarily due to growth in average invested assets for the
insurance operations of $41.8 million and $41.2 million, respectively,
partially offset by decreases in adjusted portfolio yield of 9 basis points
and 21 basis points, respectively.
Interest Expense
Interest expense decreased $8.5 million, or 7%, for the three months ended
June 30, 1997 and $21.6 million, or 9%, for the six months ended June 30,
1997 when compared to the same periods in 1996 due to the exclusion of
interest expense related to the assets held for sale totaling $10.8 million
and $23.2 million, respectively, and to the decline in borrowing cost,
partially offset by increases in average borrowings. Borrowing cost
decreased 7 basis points for the three months ended June 30, 1997 and 15
basis points for the six months ended June 30, 1997 when compared to the
same periods in 1996 due to lower short-term borrowing cost, partially
offset by higher long-term borrowing cost. Average borrowings increased
$210.5 million, or 3%, for the three months ended June 30, 1997 and $224.2
million, or 3%, for the six months ended June 30, 1997 when compared to the
same periods in 1996 primarily to fund the purchases of real estate loan
portfolios that occurred in the last half of 1996, partially offset by the
sales of the non-strategic assets during second quarter 1997.
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<PAGE> 13
Operating Expenses
Operating expenses decreased $15.4 million, or 12%, for the three months
ended June 30, 1997 and $28.1 million, or 11%, for the six months ended
June 30, 1997 when compared to the same periods in 1996 due to (1) the
exclusion of expenses to service the portfolios held for sale totaling $6.1
million and $14.4 million, respectively; (2) certain non-recurring
operating expenses associated with discontinued initiatives that negatively
impacted the financial results for the second quarter of 1996 by $7.3
million; and (3) the action program to improve credit quality and reduce
expenses. The action program implemented in fourth quarter 1995 (which
included emphasizing real estate loan growth) contributed to a workforce
reduction of approximately 1,000 positions and a net decrease of 67 branch
offices since June 30, 1996.
Provision for Finance Receivable Losses
Provision for finance receivable losses decreased $38.3 million, or 38%,
for the three months ended June 30, 1997 and $79.6 million, or 38%, for the
six months ended June 30, 1997 when compared to the same periods in 1996
primarily due to the decreases in net charge-offs totaling $38.3 million
and $79.7 million, respectively. These decreases were due to the exclusion
of net charge-offs related to the assets held for sale totaling $28.5
million for the three months ended June 30, 1997 and $58.6 million for the
six months ended June 30, 1997 and reductions in charge-off levels for the
core branch network.
Net charge-offs from finance receivables for the three months ended June
30, 1997 decreased to $68.5 million from $106.8 million for the same period
in 1996. Net charge-offs for the three months ended March 31, 1997 were
$72.5 million. The charge-off ratio for second quarter 1997 was 3.68%
compared to 3.83% for first quarter 1997 and 5.33% for second quarter 1996.
Excluding the portfolios held for sale, the charge-off ratio was 4.60% for
second quarter 1996.
At June 30, 1997, delinquencies were $299.6 million compared to $304.2
million at March 31, 1997 (excluding $68.8 million related to assets held
for sale) and $350.3 million at June 30, 1996. The delinquency ratio at
June 30, 1997 decreased to 3.73% from 3.76% at March 31, 1997 (compared to
3.99% at June 30, 1996). Excluding the portfolios held for sale, the
delinquency ratio at June 30, 1996 was 3.77%.
During second quarter 1997, management reduced the allowance for finance
receivable losses by $5.0 million from the balance at March 31, 1997 based
on the improved credit quality of the finance receivable portfolio. The
allowance for finance receivable losses decreased $97.0 million from $482.2
million at June 30, 1996 due to the reclassification of $70.0 million of
allowance for finance receivable losses to assets held for sale and
reductions in the allowance for finance receivable losses based on the
results of the action program for improving credit quality, including the
increased proportion of real estate loans. The allowance ratio at June 30,
1997 was 5.20% compared to 5.23% at March 31, 1997 and 5.99% at June 30,
1996. Based upon an analysis of the finance receivable portfolio,
management believes that the allowance for finance receivable losses is
adequate given the current level of delinquencies and net charge-offs.
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<PAGE> 14
Loss on Sale of Non-strategic Assets
Loss on sale of non-strategic assets totaled $42.2 million ($27.0 million
aftertax) for the three months and six months ended June 30, 1997 due to
the sale of non-strategic, underperforming receivables during second
quarter 1997. See Analysis of Operating Results - Net Income for further
information on loss on sale of non-strategic assets.
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses decreased $4.8 million, or
18%, for the three months ended June 30, 1997 and $9.3 million, or 17%, for
the six months ended June 30, 1997 when compared to the same periods in
1996 due to decreases in provision for future benefits and in claims paid.
Provision for future benefits decreased $1.3 million and $4.0 million,
respectively, due to reduced sales of non-credit insurance products.
Claims decreased $3.5 million and $5.3 million, respectively, primarily due
to favorable loss experience on credit insurance.
Provision for Income Taxes
The provision for income taxes decreased $9.8 million, or 55%, for the
three months ended June 30, 1997 and $2.9 million, or 9%, for the six
months ended June 30, 1997 when compared to the same periods in 1996
primarily due to lower taxable income.
Forward-looking Statements
The statements contained in this filing on Form 10-Q that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. 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: changes in general economic conditions,
including the performance of financial markets, interest rates, and the
level of personal bankruptcies; competitive, regulatory, or tax changes
that affect the cost of or demand for the Company's products; adverse
litigation results; and failure to achieve the Company's anticipated levels
of expense savings from cost-saving initiatives. The Company's future
results also could be adversely affected if finance receivable
delinquencies and net charge-offs increase or fail to achieve levels
anticipated by management, despite the Company's initiatives to improve
credit quality. Readers are also directed to other risks and uncertainties
discussed in documents filed by the Company with the Securities and
Exchange Commission.
<PAGE>
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In addition to those lawsuits or proceedings disclosed in the Company's
1996 Form 10-K, AGFI and certain of its subsidiaries are parties to various
other lawsuits and proceedings arising in the ordinary course of business.
Many of these lawsuits and proceedings arise in jurisdictions, such as
Alabama, that permit damage awards disproportionate to the actual economic
damages incurred. Based upon information presently available, the Company
believes that the total amounts that will ultimately be paid, if any,
arising from these lawsuits and proceedings will have no material adverse
effect on the Company's consolidated results of operations and financial
position. However, it should be noted that 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 jurisdictions
like Alabama continues to increase and creates the potential for an
unpredictable judgment in any given suit.
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.
No Current Reports on Form 8-K were filed during the second quarter of
1997.
<PAGE>
<PAGE> 16
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, INC.
(Registrant)
Date: August 13, 1997 By /s/ John S. Poelker
John S. Poelker
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 17
Exhibit Index
Exhibits Page
(12) Computation of Ratio of Earnings to Fixed Charges. 18
(27) Financial Data Schedule. 19
<PAGE>
<PAGE>
<PAGE> 18
Exhibit 12
<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1997 1996
(dollars in thousands)
<S> <C> <C>
Earnings:
Income before provision for income
taxes $ 83,338 $ 91,645
Interest expense (including $23,221
for 1997 to fund assets held for
sale) 248,868 247,251
Implicit interest in rents 5,408 6,249
Total earnings $337,614 $345,145
Fixed charges:
Interest expense (including $23,221
for 1997 to fund assets held for
sale $248,868 $247,251
Implicit interest in rents 5,408 6,249
Total fixed charges $254,276 $253,500
Ratio of earnings to fixed charges 1.33 1.36
</TABLE>
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 105,375
<SECURITIES> 879,754
<RECEIVABLES> 7,407,047<F1>
<ALLOWANCES> 385,153<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 8,699,815
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 3,950,837<F5>
0<F3>
0<F3>
<COMMON> 1,000
<OTHER-SE> 1,184,185<F6>
<TOTAL-LIABILITY-AND-EQUITY> 8,699,815
<SALES> 0<F3>
<TOTAL-REVENUES> 764,218<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 324,228<F8>
<LOSS-PROVISION> 131,005<F9>
<INTEREST-EXPENSE> 225,647<F10>
<INCOME-PRETAX> 83,338
<INCOME-TAX> 30,922
<INCOME-CONTINUING> 52,416
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 52,416
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<PAGE>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<F3>NOT APPLICABLE.
<F4>NOT REPORTED SEPARATELY (OR NOT REPORTED SEPARATELY AS DEFINED BY
ARTICLE 5 OF REGULATION S-X) IN DOCUMENT FILED.
<F5>BONDS IN THIS EXHIBIT REPRESENTS LONG-TERM DEBT REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH INCLUDES OTHER LONG-TERM
DEBT.
<F6>OTHER STOCKHOLDER'S EQUITY IN THIS EXHIBIT REPRESENTS ADDITIONAL PAID-IN-
CAPITAL, NET UNREALIZED GAINS (LOSSES) ON INVESTMENT SECURITIES, AND
RETAINED EARNINGS REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES, LOSS ON SALE
OF NON-STRATEGIC ASSETS, AND INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES
REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</FN>
</TABLE>
