<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 March 31, 1999
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 May 14, 1999, 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
March 31,
1999 1998
(dollars in thousands)
<S> <C> <C>
Revenues
Finance charges $357,394 $326,752
Insurance 42,934 42,961
Other 22,308 18,952
Total revenues 422,636 388,665
Expenses
Interest expense 137,545 121,702
Operating expenses 133,669 124,792
Provision for finance receivable losses 51,810 49,005
Insurance losses and loss adjustment
expenses 19,873 22,037
Total expenses 342,897 317,536
Income before provision for income taxes 79,739 71,129
Provision for Income Taxes 29,032 26,907
Net Income $ 50,707 $ 44,222
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE> 3
<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
(dollars in thousands)
<S> <C> <C>
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $ 6,068,937 $ 5,757,185
Non-real estate loans 2,476,026 2,560,565
Retail sales finance 1,260,589 1,339,367
Net finance receivables 9,805,552 9,657,117
Allowance for finance receivable
losses (384,152) (382,450)
Net finance receivables, less allowance
for finance receivable losses 9,421,400 9,274,667
Investment securities 995,460 996,599
Cash and cash equivalents 120,845 148,002
Other assets 773,406 753,655
Total assets $11,311,111 $11,172,923
Liabilities and Shareholder's Equity
Long-term debt $ 5,466,626 $ 5,176,965
Short-term notes payable:
Commercial paper 3,333,961 3,485,648
Banks and other 171,000 198,000
Investment certificates 1,726 1,874
Insurance claims and policyholder
liabilities 431,805 437,079
Other liabilities 357,798 348,866
Accrued taxes 45,460 21,086
Total liabilities 9,808,376 9,669,518
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 822,497 822,497
Accumulated other comprehensive
income 29,043 39,419
Retained earnings 650,195 640,489
Total shareholder's equity 1,502,735 1,503,405
Total liabilities and shareholder's equity $11,311,111 $11,172,923
<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>
Three Months Ended
March 31,
1999 1998
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 50,707 $ 44,222
Reconciling adjustments:
Provision for finance receivable losses 51,810 49,005
Depreciation and amortization 30,727 22,963
Deferral of finance receivable origination costs (12,693) (10,500)
Deferred income tax benefit (58) (1,093)
Change in other assets and other liabilities (12,849) (6,068)
Change in insurance claims and
policyholder liabilities (5,274) (7,715)
Change in taxes receivable and payable 29,098 25,547
Other, net 26,661 1,369
Net cash provided by operating activities 158,129 117,730
Cash Flows from Investing Activities
Finance receivables originated or purchased (1,452,457) (1,273,511)
Principal collections on finance receivables 1,248,448 1,146,970
Investment securities purchased (110,991) (65,710)
Investment securities called, matured and sold 78,714 41,406
Change in premiums on finance receivables
purchased and deferred charges (7,161) (24,449)
Other, net (10,703) (1,590)
Net cash used for investing activities (254,150) (176,884)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 314,559 536,270
Repayment of long-term debt (25,859) (479,026)
Change in investment certificates (148) (333)
Change in short-term notes payable (178,687) 41,511
Dividends paid (41,001) (31,599)
Net cash provided by financing activities 68,864 66,823
(Decrease) increase in cash and cash equivalents (27,157) 7,669
Cash and cash equivalents at beginning of period 148,002 105,695
Cash and cash equivalents at end of period $ 120,845 $ 113,364
Supplemental Disclosure of Cash Flow Information
Income taxes paid (received) $ 648 $ (20,397)
Interest paid $ 155,021 $ 138,686
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE> 5
<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
(dollars in thousands)
<S> <C> <C>
Net income $50,707 $44,222
Other comprehensive income:
Net unrealized losses on investment
securities (15,658) (1,327)
Income tax effect 5,494 464
Net unrealized losses on investment
securities, net of tax (10,164) (863)
Reclassification adjustment for realized
gains included in net income (305) (2)
Income tax effect 93 1
Realized gains included in net income,
net of tax (212) (1)
Other comprehensive loss, net of tax (10,376) (864)
Comprehensive income $40,331 $43,358
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 6
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1999
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 all 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 March 31, 1999 and December 31, 1998, its consolidated results
of operations for the three months ended March 31, 1999 and 1998, its
consolidated cash flows for the three months ended March 31, 1999 and 1998,
and its consolidated comprehensive income for the three months ended March
31, 1999 and 1998. 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, 1998.
To conform with the 1999 presentation, certain items in the prior period
have been reclassified.
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 as either assets or liabilities
in the balance sheet. Changes in the fair value of a derivative instrument
are to be reported as earnings or other comprehensive income, depending
upon the intended use of the derivative instrument. This statement is
effective for years beginning after June 15, 1999. Adoption of SFAS 133 is
not expected to have a material impact on the Company's consolidated
results of operations or financial position.
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<PAGE> 7
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 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 and treasury rate lock agreements.
AGFC uses interest rate swap agreements to reduce its exposure to adverse
future fluctuations in interest expense rates by effectively converting
certain amounts of floating-rate debt to a fixed-rate basis. At March 31,
1999, interest rate swap agreements in which AGFC contracted to pay
interest at fixed rates and receive interest at floating rates totaled
$935.0 million in notional amount, with a weighted average pay rate of
6.74% and a weighted average receive rate of 4.59%.
Treasury rate lock agreements have been used to hedge against the risk of
rising interest rates on anticipated long-term debt issuances. These
agreements provide for future cash settlements that are a function of
specified U.S. Treasury rates. At March 31, 1999, there were no treasury
rate lock agreements in effect.
AGFC's use of interest rate swap and treasury rate lock agreements did not
have a material effect on the Company's weighted average interest rate or
reported interest expense in the first three months of 1999 or 1998.
Note 5. Tax Return Examinations
The Company is part of the consolidated Federal income tax return that
American General and the majority of its subsidiaries file. The Internal
Revenue Service (IRS) has completed examinations of American General's tax
returns through 1988. During 1999, American General and the IRS reached
a settlement of all contested issues through 1998, within the amounts
previously recorded in the Company's consolidated financial statements.
To reflect this settlement, in second quarter 1999 the Company will reduce
goodwill by approximately $70.0 million, with a corresponding reduction of
tax liabilities. The IRS is currently examining American General's tax
returns for 1989 through 1996.
Note 6. Segment Information
The Company has three segments: consumer branches, centralized real
estate, and insurance. The Company's segments are managed separately
because they offer different financial service products. The consumer
branch operation originates and acquires home equity and consumer loans,
extends lines of credit, offers retail sales financing to merchants, and
sells credit and non-credit insurance products. The centralized real
estate operation acquires individual first and second mortgage loans
originated by real estate brokers and purchases portfolios of mortgage
loans originated by various real estate lenders. The insurance operation
writes and assumes credit and non-credit insurance through products that
are sold principally by the consumer branches.
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<PAGE> 8
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.
For the three months ended March 31, 1999:
Consumer Centralized Total
Branches Real Estate Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $329,156 $ 42,037 $ - $371,193
Insurance 443 - 42,491 42,934
Other 710 1,846 19,889 22,445
Intercompany 17,550 (39) (16,900) 611
Pretax income 71,729 9,456 18,147 99,332
For the three months ended March 31, 1998:
Consumer Centralized Total
Branches Real Estate Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $308,097 $ 26,559 $ - $334,656
Insurance 492 - 42,469 42,961
Other (56) (298) 19,253 18,899
Intercompany 17,262 50 (16,677) 635
Pretax income 56,281 6,539 16,719 79,539
Reconciliation of total segment pretax income to the condensed consolidated
financial statement amounts is summarized below:
Three Months Ended
March 31,
1999 1998
(dollars in thousands)
Pretax Income:
Segments $ 99,332 $ 79,539
Corporate (19,593) (8,410)
Total consolidated pretax income $ 79,739 $ 71,129
<PAGE>
<PAGE> 9
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 long-term
debt, short-term borrowings in the commercial paper market, and borrowings
from banks under credit facilities. American General has also contributed
capital to the Company when needed for finance receivable growth or other
circumstances. 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
The following table shows principal sources and uses of cash flow:
Three Months Ended
March 31,
1999 1998
(dollars in millions)
Principal sources of cash flow:
Operations $158.1 $117.7
Net issuance of debt 109.9 98.4
Principal sources of cash flow $268.0 $216.1
Principal uses of cash flow:
Net originations and purchases
of finance receivables $204.0 $126.5
Dividends paid 41.0 31.6
Increase in premiums on finance
receivables purchased and
deferred charges 7.2 24.4
Principal uses of cash flow $252.2 $182.5
Capital Resources
The Company's capital requirements vary directly with the level of net
finance receivables. The mix of capital between debt and equity is based
primarily upon maintaining leverage that supports cost-effective funding.
At March 31, 1999, the Company's capital totaled $10.5 billion, consisting
of $9.0 billion of debt and $1.5 billion of equity, compared to $8.6
billion at March 31, 1998, consisting of $7.3 billion of debt and $1.3
billion of equity.
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<PAGE> 10
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
also sells extendible commercial notes with initial maturities of up to 90
days which may be extended by AGFC to 390 days and offers medium-term notes
with original maturities of nine months or longer to 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. Management determines the Company's mix of fixed-rate and
floating-rate debt 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 rate swap agreements to synthetically create fixed-rate
debt by altering the nature of floating-rate funding, thereby limiting its
exposure to adverse interest rate movements. In addition, AGFC has used
treasury rate lock agreements to hedge against the risk of rising interest
rates on anticipated long-term debt issuances.
Dividends have been paid (or capital contributions have been received) to
manage the Company's leverage of debt to tangible equity (equity less
goodwill and net unrealized gains or losses on investment securities) to
7.50 to 1. The debt to tangible equity ratio at March 31, 1999 was 7.48 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 AGFC financing agreements limit the amount of dividends AGFC may
pay.
Liquidity Facilities
The Company participates in credit facilities to support the issuance of
commercial paper and to provide an additional source of funds for operating
requirements. The Company is an eligible borrower under committed credit
facilities extended to American General and certain of its subsidiaries
(the "shared committed facilities"). At March 31, 1999, the annual
commitment fees for the shared committed facilities ranged from .05% to
.07%. The Company pays only an allocated portion of the commitment fees
for the shared committed facilities. The Company also has uncommitted
credit facilities and 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:
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<PAGE> 11
March 31,
1999 1998
(dollars in millions)
Committed credit facilities:
Shared committed facilities $5,000.0 $4,800.0
Borrowings - -
Remaining availability $5,000.0 $4,800.0
Uncommitted credit facilities:
Company uncommitted facilities $ 363.5 $ 318.5
Shared uncommitted facilities 150.0 200.0
Borrowings (171.0) (90.0)
Remaining availability $ 342.5 $ 428.5
A subsidiary of AGFI arranges interim financing for third-party mortgage
originators through a bank purchase facility. At March 31, 1999, this
facility totaled $563.0 million with remaining availability of $373.0
million.
Year 2000 Contingency
Internal Systems. The Company is modifying its internal systems to achieve
Year 2000 readiness. The Company has developed and is implementing a plan
to minimize the risk of a significant negative impact on its operations.
The Company's plan includes the following activities: (1) perform an
inventory of the Company's information technology and non-information
technology systems; (2) assess which items in the inventory may expose the
Company to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove
that they will function into the next century as they do currently; and (5)
return the systems to operations. As of December 31, 1998, these
activities had been completed for substantially all of the Company's
critical systems, making them Year 2000 ready. Vendor upgrades for a small
number of systems were either completed in first quarter 1999 or are
expected to be completed by June 30, 1999; therefore, activities (3)
through (5) are ongoing for some systems.
The Company will continue to test its systems throughout 1999 to maintain
Year 2000 readiness. In addition, the Company currently is developing
plans for the century transition, which will restrict systems modifications
from November 1999 through January 2000, create rapid response teams to
address problems, and limit vacations for key technical personnel.
Third Party Relationships. The Company has relationships with various
third parties who must also be Year 2000 ready. These third parties
provide (or receive) resources and services to (or from) the Company and
include organizations with which the Company exchanges information. Third
parties include vendors of hardware, software, and information services;
providers of infrastructure services such as voice and data communications
and utilities for office facilities; and customers. Third parties differ
from internal systems in that the Company exercises less, or no, control
over Year 2000 readiness. The Company has developed a plan to assess and
attempt to mitigate the risks associated with the potential failure of
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<PAGE> 12
third parties to achieve Year 2000 readiness. The plan includes the
following activities: (1) identify and classify third party dependencies;
(2) research, analyze, and document Year 2000 readiness for critical third
parties; and (3) test critical hardware and software products and
electronic interfaces. As of April 30, 1999, the Company has identified
and assessed its critical third party dependencies. Of these critical
dependencies, approximately 68 have been identified as being of a nature
that required them to be covered in the Company's contingency planning
efforts. Due to the various stages of Year 2000 readiness for these
critical third-party dependencies, the Company's testing activities related
to critical third parties will extend throughout 1999.
Contingency Plan. The Company has commenced contingency planning to reduce
the risk of Year 2000-related business failures. The contingency plan,
which addresses both internal systems and third party relationships,
includes the following activities: (1) evaluate the consequences of failure
of critical business processes with significant exposure to Year 2000 risk;
(2) determine the probability of a Year 2000-related failure for those
critical processes that have a high consequence of failure; (3) develop an
action plan to complete contingency plan for critical processes that rank
high in consequence and probability of failure; and (4) complete the
applicable contingency plan. As of April 30, 1999, the contingency plan
has been completed and will be tested during the second and third quarters
of 1999.
Risks and Uncertainties. Based on its plan to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, the Company believes that it will experience at most
isolated and minor disruptions of business processes following the turn of
the century. Such disruptions are not expected to have a material effect
on the Company's future results of operations, liquidity, or financial
condition. However, due to the magnitude and complexity of this project,
risks and uncertainties exist and the Company is not able to predict a most
reasonably likely worst case scenario. If Year 2000 readiness is not
achieved due to the Company's failure to maintain critical systems as Year
2000 ready, failure of critical third parties to achieve Year 2000
readiness on a timely basis, failure of contingency plans to reduce Year
2000-related business failures, or other unforeseen circumstances in
completing the Company's plans, the Year 2000 issues could have a material
adverse impact on the Company's operations following the turn of the
century.
Costs. Through March 31, 1999, the Company has incurred and expensed $6.9
million (pretax) related to Year 2000 readiness, including $.6 million
incurred during first quarter 1999 and $.1 million incurred in first
quarter 1998. The Company currently anticipates that it will incur future
costs of approximately $2.3 million (pretax) to maintain Year 2000
readiness, complete Year 2000 work on non-critical systems and testing of
critical third party relationships, and continue contingency planning
activities. The Company has accelerated the replacement of certain systems
as part of its Year 2000 activities. Costs of the replacement systems were
capitalized and are being amortized over their useful lives, recorded as
operating leases, or expensed as incurred in accordance with the Company's
normal accounting policies. Anticipated replacement costs incurred in 1998
totaled $2.1 million. Replacement costs for 1999 are anticipated to be
immaterial.
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SELECTED FINANCIAL INFORMATION
The following table shows selected financial information of the Company:
At or for the
Three Months Ended
March 31,
1999 1998
(dollars in thousands)
Average finance receivables net
of unearned finance charges
(average net receivables) $9,720,860 $8,002,228
Average borrowings $8,872,271 $7,277,756
Yield - finance charges (annualized)
as a percentage of average net
receivables 14.85% 16.48%
Borrowing cost - interest expense
(annualized) as a percentage of
average borrowings 6.22% 6.71%
Interest spread - yield less
borrowing cost 8.63% 9.77%
Insurance revenues (annualized) as
a percentage of average net
receivables 1.77% 2.15%
Operating expenses (annualized) as
a percentage of average net
receivables 5.50% 6.24%
Return on average assets
(annualized) 1.81% 1.89%
Return on average equity
(annualized) 13.38% 13.81%
Charge-off ratio - net charge-offs
(annualized) as a percentage of
the average of net finance
receivables at the beginning
of each month during the period 2.14% 2.70%
Allowance ratio - allowance for
finance receivable losses as a
percentage of net finance
receivables 3.92% 4.56%
Ratio of earnings to fixed charges
(refer to Exhibit 12 for
calculations) 1.56 1.57
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<PAGE> 14
Selected Financial Information (Continued)
March 31,
1999 1998
Delinquency ratio - finance receivables
60 days or more past due as a
percentage of related receivables 3.65% 3.49%
Debt to tangible equity ratio - debt to
equity less goodwill and net unrealized
gains or losses on investment securities 7.48 7.50
Debt to equity ratio 5.97 5.78
ANALYSIS OF OPERATING RESULTS
Net Income
Net income increased $6.5 million, or 15%, for the three months ended March
31, 1999 when compared to the same period in 1998. See Note 5. of the
Notes to Condensed Consolidated Financial Statements in Item 1. for
information on the results of the Company's business segments.
During 1999 and 1998, the Company continued to improve credit quality by
raising underwriting standards and increasing the proportion of real estate
loans. At March 31, 1999, real estate loans accounted for 62% of total net
finance receivables outstanding compared to 53% at March 31, 1998.
Factors which specifically affected the Company's operating results are as
follows:
Finance Charges
Finance charges increased $30.6 million, or 9%, for the three months ended
March 31, 1999 when compared to the same period in 1998 due to an increase
in average net receivables, partially offset by a decline in yield.
Average net receivables increased $1.7 billion, or 21%, for the three
months ended March 31, 1999 when compared to the same period in 1998
primarily due to growth in real estate loans. Yield decreased 163 basis
points for the three months ended March 31, 1999 when compared to the same
period in 1998 primarily due to the larger proportion of finance
receivables that are real estate loans, which generally have lower yields.
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<PAGE> 15
Insurance Revenues
Insurance revenues remained at near the same level for the three months
ended March 31, 1999 when compared to the same period in 1998.
Other Revenues
Other revenues increased $3.4 million, or 18%, for the three months ended
March 31, 1999 when compared to the same period in 1998 primarily due to
increases in warehouse fees, investment revenue, and revenue on foreclosed
real estate. The increase in warehouse fees was due to revenue earned by a
subsidiary of AGFI which arranges interim financing for third-party
mortgage originators through a bank purchase facility. The increase in
investment revenue reflected growth in average invested assets and higher
realized gains, partially offset by a decline in adjusted portfolio yield.
Interest Expense
Interest expense increased $15.8 million, or 13%, for the three months
ended March 31, 1999 when compared to the same period in 1998 due to an
increase in average borrowings, partially offset by a decline in borrowing
cost. Average borrowings increased $1.6 billion, or 22%, for the three
months ended March 31, 1999 when compared to the same period in 1998
primarily to support finance receivable growth. Borrowing cost decreased
49 basis points for the three months ended March 31, 1999 when compared to
the same period in 1998 due to lower rates on both long-term and short-term
debt.
Operating Expenses
Operating expenses increased $8.9 million, or 7%, for the three months
ended March 31, 1999 when compared to the same period in 1998 primarily due
to increases in litigation expenses, amortization of intangibles, and
salaries and benefits expenses, partially offset by an increase in deferred
loan origination costs. See Legal Proceedings in Part II for further
information on litigation.
Provision for Finance Receivable Losses
Provision for finance receivable losses increased $2.8 million, or 6%, for
the three months ended March 31, 1999 when compared to the same period in
1998 primarily due to a $5.0 million reduction in the amounts provided for
the allowance for finance receivable losses in first quarter 1998,
partially offset by a decrease in net charge-offs in first quarter 1999.
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<PAGE> 16
Net charge-offs for the three months ended March 31, 1999 decreased to
$51.8 million from $54.0 million for the same period in 1998. The charge-
off ratio was 2.14% for the three months ended March 31, 1999 compared to
2.70% for the same period in 1998. The decrease in the charge-off ratio
reflected the results of the continuing efforts to improve credit quality,
including raising underwriting standards and increasing the proportion of
real estate loans which generally have lower net charge-offs.
At March 31, 1999, delinquencies were $377.9 million compared to $303.3
million at March 31, 1998. The following table shows delinquency ratios by
type of finance receivable:
March 31,
1999 1998
Real estate loans 3.34% 2.73%
Non-real estate loans 5.22 5.28
Total loans 3.93 3.72
Retail sales finance 1.96 2.40
Total delinquency ratio 3.65 3.49
The increase in the delinquency ratio from March 31, 1998 reflected the
maturing of purchased real-estate portfolios which were primarily new
originations when purchased and the effects of general economic conditions.
At March 31, 1999, the allowance for finance receivable losses was $384.2
million compared to $367.7 million at March 31, 1998. The allowance ratio
at March 31, 1999 was 3.92% compared to 4.56% at March 31, 1998. The
Company maintains the allowance for finance receivable losses at a level
based on periodic evaluation of the finance receivable portfolio which
reflects an amount that, in management's opinion, is adequate to absorb
anticipated losses in the existing portfolio.
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses decreased $2.2 million, or
10%, for the three months ended March 31, 1999 when compared to the same
period in 1998 due to a decrease in claims paid, partially offset by an
increase in provision for future benefits. Claims decreased $3.0 million
primarily due to favorable loss experience on credit insurance. Provision
for future benefits increased $.8 million due to increased sales of non-
credit insurance products.
Provision for Income Taxes
The provision for income taxes increased $2.1 million, or 8%, for the three
months ended March 31, 1999 when compared to the same period in 1998
primarily due to higher taxable income, partially offset by a lower
effective tax rate. The effective tax rate was 36.41% for the three months
ended March 31, 1999 compared to 37.83% for the same period in 1998.
<PAGE>
<PAGE> 17
Forward-looking Statements
All statements, trend analyses, and other information contained in this
report relative to trends in the Company's 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. Forward-looking statements are
made based upon management's current expectations and beliefs concerning
future developments and their potential effects upon the Company. There
can be no assurance that future developments affecting the Company will be
those anticipated by management. 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) competitive, regulatory, or tax
changes that affect the cost of, or demand for, the Company's products; (3)
the Company's ability or the ability of third parties to achieve and
maintain Year 2000 readiness for critical systems and operations; and (4)
adverse litigation results or resolution of litigation. Readers are also
directed to other risks and uncertainties discussed in other documents
filed by the Company with the Securities and Exchange Commission. The
Company undertakes no obligation to update or revise any forward-looking
information, whether as a result of new information, future developments,
or otherwise.
<PAGE>
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In addition to those lawsuits or proceedings disclosed in the Company's
1998 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 and Mississippi, 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 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 jurisdictions
like Alabama and Mississippi continues to create 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 first quarter of
1999.
<PAGE>
<PAGE> 19
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: May 14, 1999 By /s/ Robert A. Cole
Robert A. Cole
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 20
Exhibit Index
Exhibits Page
(12) Computation of Ratio of Earnings to Fixed Charges. 21
(27) Financial Data Schedule. 22
<PAGE>
<PAGE>
<PAGE> 21
Exhibit 12
<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
(dollars in thousands)
<S> <C> <C>
Earnings:
Income before provision for income
taxes $ 79,739 $ 71,129
Interest expense 137,545 121,702
Implicit interest in rents 3,692 2,819
Total earnings $220,976 $195,650
Fixed charges:
Interest expense $137,545 $121,702
Implicit interest in rents 3,692 2,819
Total fixed charges $141,237 $124,521
Ratio of earnings to fixed charges 1.56 1.57
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 120,845
<SECURITIES> 995,460
<RECEIVABLES> 9,805,552<F1>
<ALLOWANCES> 384,152<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 11,311,111
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 5,466,626<F5>
0<F3>
0<F3>
<COMMON> 1,000
<OTHER-SE> 1,501,735<F6>
<TOTAL-LIABILITY-AND-EQUITY> 11,311,111
<SALES> 0<F3>
<TOTAL-REVENUES> 422,636<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 153,542<F8>
<LOSS-PROVISION> 51,810<F9>
<INTEREST-EXPENSE> 137,545<F10>
<INCOME-PRETAX> 79,739
<INCOME-TAX> 29,032
<INCOME-CONTINUING> 50,707
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 50,707
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<PAGE>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S UNAUDITED 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
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH INCLUDES
OTHER LONG-TERM DEBT.
<F6>OTHER STOCKHOLDER'S EQUITY IN THIS EXHIBIT REPRESENTS ADDITIONAL PAID-IN-
CAPITAL, ACCUMULATED OTHER COMPREHENSIVE INCOME, AND RETAINED EARNINGS
REPORTED IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES AND
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES REPORTED IN THE COMPANY'S
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</FN>
</TABLE>
