SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-7422
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 November 13, 2000, there were 2,000,000 shares of the registrant's
common stock, $.50 par value, outstanding.
<PAGE>
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in thousands)
Revenues
Finance charges $414,054 $363,924 $1,202,909 $1,077,349
Insurance 49,678 48,157 146,597 136,684
Other 22,484 23,855 73,224 68,730
Total revenues 486,216 435,936 1,422,730 1,282,763
Expenses
Interest expense 180,801 143,699 513,917 420,079
Operating expenses 136,559 133,115 409,117 397,820
Provision for finance
receivable losses 50,078 50,327 147,090 150,225
Insurance losses and loss
adjustment expenses 22,565 23,693 69,649 63,127
Other charge - - 50,000 -
Total expenses 390,003 350,834 1,189,773 1,031,251
Income before provision for
income taxes 96,213 85,102 232,957 251,512
Provision for Income Taxes 35,080 30,989 85,625 91,578
Net Income $ 61,133 $ 54,113 $ 147,332 $ 159,934
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2000 1999
(dollars in thousands)
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $ 7,244,080 $ 7,104,227
Non-real estate loans 2,970,680 2,576,081
Retail sales finance 1,425,846 1,349,689
Net finance receivables 11,640,606 11,029,997
Allowance for finance receivable losses (383,415) (395,626)
Net finance receivables, less allowance
for finance receivable losses 11,257,191 10,634,371
Investment securities 1,077,864 988,563
Cash and cash equivalents 166,125 146,710
Other assets 855,704 865,663
Total assets $13,356,884 $12,635,307
Liabilities and Shareholder's Equity
Long-term debt $ 5,760,362 $ 5,716,991
Short-term notes payable:
Commercial paper 4,903,066 4,245,961
Banks and other 60,000 211,559
Deposits 55,055 32,118
Insurance claims and policyholder
liabilities 506,754 462,100
Other liabilities 414,744 416,572
Accrued taxes 26,301 22,771
Total liabilities 11,726,282 11,108,072
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 876,708 876,708
Accumulated other comprehensive loss (7,964) (6,696)
Retained earnings 760,858 656,223
Total shareholder's equity 1,630,602 1,527,235
Total liabilities and shareholder's equity $13,356,884 $12,635,307
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2000 1999
(dollars in thousands)
Cash Flows from Operating Activities
Net income $ 147,332 $ 159,934
Reconciling adjustments:
Provision for finance receivable losses 147,090 150,225
Depreciation and amortization 108,002 96,598
Deferral of finance receivable origination
costs (39,811) (38,529)
Deferred income tax charge 15,149 6,312
Change in other assets (7,022) (14,688)
Change in other liabilities (1,825) (21,649)
Change in insurance claims and policyholder
liabilities 44,654 11,954
Change in taxes receivable and payable (7,016) 8,664
Other, net 1,952 18,109
Net cash provided by operating activities 408,505 376,930
Cash Flows from Investing Activities
Finance receivables originated or purchased (4,762,260) (4,484,339)
Principal collections on finance receivables 3,966,343 3,817,276
Acquisition of Standard Pacific Savings, F.A. - 44,528
Investment securities purchased (372,169) (264,724)
Investment securities called, matured and sold 278,457 200,052
Change in premiums on finance receivables
purchased and deferred charges (11,386) (26,351)
Other, net (14,528) (28,276)
Net cash used for investing activities (915,543) (741,834)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,240,329 679,518
Repayment of long-term debt (1,199,659) (354,286)
Change in deposits 22,937 (9,473)
Change in short-term notes payable 505,546 244,602
Dividends paid (42,700) (163,998)
Net cash provided by financing activities 526,453 396,363
Increase in cash and cash equivalents 19,415 31,459
Cash and cash equivalents at beginning of period 146,710 148,002
Cash and cash equivalents at end of period $ 166,125 $ 179,461
Supplemental Disclosure of Cash Flow
Information
Income taxes paid $ 76,554 $ 79,319
Interest paid $ 531,356 $ 437,839
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in thousands)
Net income $ 61,133 $ 54,113 $147,332 $159,934
Other comprehensive income:
Net unrealized gains (losses)
on investment securities 9,505 (14,004) 1,390 (54,748)
Income tax effect (3,358) 4,831 (516) 19,167
Net unrealized gains (losses)
on investment securities,
net of tax 6,147 (9,173) 874 (35,581)
Reclassification adjustment
for realized (gains) losses
included in net income (1,005) 1,025 (3,295) 66
Income tax effect 351 (282) 1,153 (23)
Realized (gains) losses
included in net income,
net of tax (654) 743 (2,142) 43
Other comprehensive income
(loss), net of tax 5,493 (8,430) (1,268) (35,538)
Comprehensive income $ 66,626 $ 45,683 $146,064 $124,396
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<PAGE> 6
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000
Note 1. Principles of Consolidation
American General Finance, Inc. will be referred to as "AGFI" 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 AGFI and its
subsidiaries, all of which are wholly owned. We eliminated all
intercompany items. We did not include per share information because AGFI
is a wholly-owned subsidiary of American General Corporation (American
General).
Note 2. Adjustments and Reclassifications
Our condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, that we considered
necessary for a fair presentation of the Company's consolidated financial
position at September 30, 2000 and December 31, 1999, our consolidated
results of operations for the three months and nine months ended September
30, 2000 and 1999, our consolidated cash flows for the nine months ended
September 30, 2000 and 1999, and our consolidated comprehensive income for
the three months and nine months ended September 30, 2000 and 1999. Our
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes included in
our Annual Report on Form 10-K for the year ended December 31, 1999.
To conform with the 2000 presentation, we reclassified certain items in the
prior period.
Note 3. Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires all derivative
instruments to be recognized at fair value in the balance sheet. Changes
in the fair value of a derivative instrument will be reported as earnings
or other comprehensive income, depending upon the intended use of the
derivative instrument. We have identified our derivative instruments and
are currently documenting hedging activities as required by SFAS 133. We
will be prepared to adopt SFAS 133 on January 1, 2001. We do not expect
adoption to have a material impact on the Company's consolidated results
of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements," which provides criteria for revenue recognition. SAB 101 must
be adopted no later than fourth quarter 2000. There will be no changes to
the Company's revenue recognition policies as a result of SAB 101.
Note 4. Derivative Financial Instruments
Our 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
<PAGE> 7
has generally limited its use of derivative financial instruments to
interest rate swap agreements.
AGFC uses interest rate swap agreements to reduce its exposure to market
interest rate increases by synthetically converting certain floating-rate
debt to a fixed-rate basis. At September 30, 2000, interest rate swap
agreements in which AGFC contracted to pay interest at fixed rates and
receive interest at floating rates totaled $1.9 billion in notional amount,
with a weighted average pay rate of 6.83% and a weighted average receive
rate of 6.77%.
As an alternative to fixed-rate term debt, AGFC's interest rate swap
agreements did not have a material effect on the Company's weighted-average
interest rate or reported interest expense in the first nine months of 2000
or 1999.
Note 5. Segment Information
We have two business segments: consumer finance and insurance. Our
segments are defined by financial service product. During first quarter
2000, the centralized real estate operation was decentralized and merged
into the then-existing consumer branches operation. The resulting new
segment has been named the consumer finance operation. The consumer
finance operation originates home equity and consumer loans, purchases
loans and portfolios of loans originated by various lenders, extends lines
of credit, offers retail sales financing to merchants, and sells credit and
non-credit insurance products. The insurance operation writes and assumes
credit and non-credit insurance through products that are sold principally
by the consumer finance operation.
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 September 30, 2000:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $432,557 $ - $432,557
Insurance 224 49,454 49,678
Other (703) 21,799 21,096
Intercompany 20,220 (19,447) 773
Pretax income 101,027 21,216 122,243
For the three months ended September 30, 1999:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $378,700 $ - $378,700
Insurance 401 47,756 48,157
Other 3,699 20,018 23,717
Intercompany 20,359 (19,756) 603
Pretax income 92,565 16,153 108,718
<PAGE> 8
For the nine months ended September 30, 2000:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $1,256,621 $ - $1,256,621
Insurance 834 145,763 146,597
Other (797) 65,952 65,155
Intercompany 56,507 (54,159) 2,348
Pretax income 240,795 64,601 305,396
For the nine months ended September 30, 1999:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $1,118,622 $ - $1,118,622
Insurance 1,255 135,429 136,684
Other 7,029 59,927 66,956
Intercompany 55,479 (53,650) 1,829
Pretax income 253,006 55,610 308,616
Reconciliation of total segment pretax income to the condensed consolidated
financial statement amounts is summarized below:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in thousands)
Pretax income:
Segments $122,243 $108,718 $305,396 $308,616
Corporate (24,811) (20,317) (69,093) (49,589)
Adjustments (1,219) (3,299) (3,346) (7,515)
Total consolidated
pretax income $ 96,213 $ 85,102 $232,957 $251,512
Note 6. Other Charge
In late June 2000, we discovered a potential fraud committed against a
subsidiary that conducts mortgage warehouse lending activities in our
consumer finance operation. Recent mortgages processed by one originator
allegedly had been funded based on fraudulent information. In July, the
originator's license was suspended and the originator and its parent
company filed for bankruptcy. Based on the available information, we
recorded a charge of $50.0 million ($32.5 million aftertax) in second
quarter 2000 for our estimated loss related to this alleged fraud. We are
pursuing all appropriate remedies to recover this loss, including insurance
recovery and legal action.
<PAGE> 9
Note 7. Legal Contingencies
Satellite Dish Litigation
In the mid-1990s, one of our subsidiaries, A.G. Financial Service Center,
Inc. (Financial Service Center), formerly named American General Financial
Center, provided financing for satellite dishes sold by independent
unaffiliated dealers. On May 18, 1999, the Chancery Court of the First
Judicial District of Jones County, Mississippi in a case captioned Clayton
D. Smith, et al. v. Delta TV Corporation, Don Acy, US Electronics, American
General Financial Center, Civil Action No. 96-0254 (the Clayton Smith
matter), rendered a judgment awarding approximately $500,000 in
compensatory damages and $167 million in punitive damages against Financial
Service Center. The lawsuit was filed on November 15, 1996, by 29
individuals who had each purchased a satellite dish. Financial Service
Center, together with certain other American General companies, currently
are named as defendants in other pending cases involving the financing of
satellite dishes.
In August 1999, Financial Service Center filed a voluntary petition to
reorganize under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court for the Southern District of Indiana. The
decision to reorganize was necessitated by the judgment rendered against
Financial Service Center by the Mississippi state court. The filing for
reorganization under Chapter 11 is limited to Financial Service Center and
was intended to provide a fair and orderly process for managing the claims
against Financial Service Center.
In January 2000, settlement agreements were entered into in connection with
the Clayton Smith matter and other pending cases relating to satellite dish
financing. Accordingly, we recorded a charge of $57.0 million ($36.2
million aftertax) in fourth quarter 1999 to cover the proposed settlements
and other litigation. On September 1, 2000, payment was made in connection
with the final settlement of the Clayton Smith matter. Resolution of the
satellite dish litigation, the timing of which is uncertain, within the
recorded charge is dependent upon a number of factors, including obtaining
the bankruptcy court's approval of Financial Service Center's plan of
reorganization.
Other
AGFI and certain of its subsidiaries are parties to various other lawsuits
and proceedings, including certain class action claims, arising in the
ordinary course of business. In addition, many of these proceedings are
pending in jurisdictions that permit damage awards disproportionate to the
actual economic damages alleged to have been incurred. Based upon
information presently available, we believe that the total amounts that
will ultimately be paid, if any, arising from these lawsuits and
proceedings will not have a material adverse effect on the Company's
consolidated results of operations and financial position. However, the
frequency of large damage awards, including large punitive damage awards
that bear little or no relation to actual economic damages incurred by
plaintiffs in some jurisdictions, continues to create the potential for an
unpredictable judgment in any given suit.
<PAGE> 10
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, borrowings from banks
under credit facilities, and acceptance of bank demand and time deposits.
American General has also contributed capital to AGFI when needed for
finance receivable growth or other circumstances.
The following table shows principal sources and uses of cash:
Nine Months Ended
September 30,
2000 1999
(dollars in millions)
Principal sources of cash:
Operations $408.5 $376.9
Net issuance of debt 569.2 560.4
Principal sources of cash $977.7 $937.3
Principal uses of cash:
Net originations and purchases
of finance receivables $795.9 $667.1
Dividends paid 42.7 164.0
Principal uses of cash $838.6 $831.1
We believe that our overall sources of liquidity will continue to be
sufficient to satisfy our foreseeable financial obligations and operational
requirements.
Capital Resources
September 30,
2000 1999
(dollars in millions)
Long-term debt $ 5,760.4 $ 5,505.0
Short-term debt 4,963.1 3,928.3
Deposits 55.0 38.3
Total debt 10,778.5 9,471.6
Equity 1,630.6 1,463.8
Total capital $12,409.1 $10,935.4
Net finance receivables $11,640.6 $10,175.7
Debt to tangible equity ratio 7.46x 7.52x
Our capital varies directly with the level of net finance receivables. The
capital mix of debt and equity is based primarily upon maintaining leverage
that supports cost-effective funding.
<PAGE> 11
We issue a combination of fixed-rate debt, principally long-term, and
floating-rate debt, principally short-term. AGFC obtains most of our
fixed-rate debt through issuances of medium-term notes and underwritten
debt offerings with maturities generally ranging from two to ten years.
AGFI and AGFC obtain most of our floating-rate debt through sales of
commercial paper. Commercial paper, with maturities ranging from 1 to 270
days, is sold directly to 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.
AGFI has paid dividends to (or received capital contributions from)
American General to manage our leverage of debt to tangible equity (equity
less goodwill and net unrealized gains or losses on investment securities)
to 7.50 to 1. AGFI's ability to pay dividends is substantially dependent
on the receipt of dividends or other funds from its subsidiaries, primarily
AGFC. 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. AGFI and AGFC are eligible borrowers under committed credit
facilities extended to American General and certain of its subsidiaries
(the "shared committed facilities"). At September 30, 2000, the annual
commitment fees for the shared committed facilities ranged from .05% to
.07%. We pay only an allocated portion of the commitment fees for the
shared committed facilities. AGFI and certain subsidiaries also have
uncommitted credit facilities. In addition, AGFI and AGFC are eligible
borrowers under uncommitted credit facilities extended to American General
and certain of its subsidiaries (the "shared uncommitted facilities").
Available borrowings under all facilities are reduced by any outstanding
borrowings.
Information concerning the credit facilities follows:
September 30,
2000 1999
(dollars in millions)
Committed credit facilities:
Shared committed facilities $6,200.0 $5,000.0
Borrowings - -
Remaining availability $6,200.0 $5,000.0
Uncommitted credit facilities:
Company uncommitted facilities $ 221.0 $ 361.0
Shared uncommitted facilities 50.0 50.0
Borrowings (60.0) (200.0)
Remaining availability $ 211.0 $ 211.0
In addition, our mortgage warehouse lending subsidiary arranges interim
financing for third-party mortgage originators through a purchase facility.
At September 30, 2000, this facility totaled $250.0 million with remaining
availability of $115.0 million.
<PAGE> 12
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
Net Income
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Net income $ 61.1 $ 54.1 $147.3 $159.9
Return on average
assets (annualized) 1.83% 1.87% 1.51% 1.87%
Return on average
equity (annualized) 15.17% 14.77% 12.46% 14.26%
Ratio of earnings to
fixed charges 1.44x 1.58x
Net income increased $7.0 million, or 13%, for the three months ended
September 30, 2000 when compared to the same period in 1999. See Note 6.
of the Notes to Condensed Consolidated Financial Statements for information
on a $50.0 million ($32.5 million aftertax) charge recorded in second
quarter 2000 for the estimated loss from an alleged fraud against our
mortgage warehouse lending subsidiary. Without this non-recurring charge,
net income for the nine months ended September 30, 2000 would have been
$179.8 million, an increase of $19.9 million, or 12%, over the same period
in 1999. Including this non-recurring charge, net income decreased $12.6
million, or 8%, for the nine months ended September 30, 2000 when compared
to the same period in 1999. See Note 5. of the Notes to Condensed
Consolidated Financial Statements for information on the results of the
Company's business segments.
Factors that specifically affected the Company's operating results are as
follows:
Finance Charges
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Finance charges $ 414.1 $ 363.9 $ 1,202.9 $ 1,077.3
Average net receivables $11,630.8 $10,018.3 $11,331.2 $ 9,867.2
Yield 14.18% 14.45% 14.17% 14.59%
Finance charges increased $50.2 million, or 14%, for the three months ended
September 30, 2000 and $125.6 million, or 12%, for the nine months ended
September 30, 2000 when compared to the same periods in 1999 primarily due
to higher average net receivables, partially offset by lower yield.
<PAGE> 13
The following table shows average net receivables by type of finance
receivable:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Real estate loans $ 7,224.4 $ 6,271.8 $ 7,206.6 $ 6,100.1
Non-real estate loans 2,986.0 2,499.4 2,741.0 2,500.7
Retail sales finance 1,420.4 1,247.1 1,383.6 1,266.4
Total average net
receivables $11,630.8 $10,018.3 $11,331.2 $ 9,867.2
Average net receivables increased $1.6 billion, or 16%, for the three
months ended September 30, 2000 and $1.5 billion, or 15%, for the nine
months ended September 30, 2000 when compared to the same periods in 1999.
The following table shows yield by type of finance receivable:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Real estate loans 11.43% 11.40% 11.34% 11.60%
Non-real estate loans 21.08% 21.96% 21.70% 22.00%
Retail sales finance 13.67% 14.69% 14.01% 14.32%
Total yield 14.18% 14.45% 14.17% 14.59%
Yield decreased 27 basis points for the three months ended September 30,
2000 when compared to the same period in 1999 primarily due to a decline
in non-real estate loan yield. Yield decreased 42 basis points for the
nine months ended September 30, 2000 when compared to the same period in
1999 primarily due to a slightly larger proportion of average net
receivables in real estate loans, which generally have lower yields, and
a decline in real estate loan yield.
Insurance Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Insurance revenues $ 49.7 $ 48.2 $146.6 $136.7
Premiums earned $ 49.0 $ 47.2 $144.4 $134.1
Insurance revenues
(annualized)as a
percentage of
average net
receivables 1.71% 1.92% 1.72% 1.85%
Insurance revenues increased $1.5 million, or 3%, for the three months
ended September 30, 2000 and $9.9 million, or 7%, for the nine months ended
September 30, 2000 when compared to the same periods in 1999 primarily due
to higher earned premiums. Earned premiums increased primarily due to
higher written premium volume in 1999 and 2000.
<PAGE> 14
Other Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Other revenues $ 22.5 $ 23.9 $ 73.2 $ 68.7
Investment revenue $ 23.1 $ 19.5 $ 69.7 $ 60.2
Other revenues decreased $1.4 million, or 6%, for the three months ended
September 30, 2000 and increased $4.5 million, or 7%, for the nine months
ended September 30, 2000 when compared to the same periods in 1999. The
decrease in other revenues for the three months ended September 30, 2000
was primarily due to mark-to-market and portfolio servicing adjustments
recorded in 2000, partially offset by higher investment revenue. The
increase in investment revenue for the three months ended September 30,
2000 was primarily due to growth in average invested assets and higher
realized gains, partially offset by lower adjusted portfolio yield. The
increase in other revenues for the nine months ended September 30, 2000 was
primarily due to higher investment revenue, partially offset by mark-to-
market and portfolio servicing adjustments recorded in 2000. The increase
in investment revenue for the nine months ended September 30, 2000 was
primarily due to growth in average invested assets, higher realized gains,
and higher adjusted portfolio yield.
Interest Expense
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Interest expense $ 180.8 $ 143.7 $ 513.9 $ 420.1
Average borrowings $10,776.2 $ 9,280.8 $10,456.8 $ 9,052.7
Borrowing cost 6.69% 6.18% 6.55% 6.19%
Interest expense increased $37.1 million, or 26%, for the three months
ended September 30, 2000 and $93.8 million, or 22%, for the nine months
ended September 30, 2000 when compared to the same periods in 1999
primarily due to higher average borrowings and higher borrowing cost.
Average borrowings increased $1.5 billion, or 16%, for the three months
ended September 30, 2000 and $1.4 billion, or 16%, for the nine months
ended September 30, 2000 when compared to the same periods in 1999
primarily to support finance receivable growth. Borrowing cost increased
51 basis points for the three months ended September 30, 2000 and 36 basis
points for the nine months ended September 30, 2000 when compared to the
same periods in 1999 due to higher rates on short-term debt.
Operating Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Operating expenses $136.6 $133.1 $409.1 $397.8
Operating expenses
(annualized)as a
percentage of
average net
receivables 4.70% 5.31% 4.81% 5.38%
<PAGE> 15
Operating expenses increased $3.5 million, or 3%, for the three months
ended September 30, 2000 and $11.3 million, or 3%, for the nine months
ended September 30, 2000 when compared to the same periods in 1999
primarily due to increases in salaries and data processing expenses,
partially offset by lower litigation expenses.
The improvement in operating expenses as a percentage of average net
receivables for the three months and nine months ended September 30, 2000
when compared to the same periods in 1999 reflects continued improvement
in operating efficiencies.
Provision for Finance Receivable Losses
At or for the
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Provision for finance
receivable losses $ 50.1 $ 50.3 $147.1 $150.2
Net charge-offs $ 50.1 $ 50.3 $147.1 $150.2
60 day+ delinquency $406.2 $393.1
Allowance for finance
receivable losses $383.4 $386.2
Provision for finance receivable losses remained near the same for the
three months ended September 30, 2000 and decreased $3.1 million, or 2%,
for the nine months ended September 30, 2000 when compared to the same
periods in 1999. The decrease in the provision for finance receivable
losses for the nine months ended September 30, 2000 was due to lower net
charge-offs.
The following table shows charge-off ratios by type of finance receivable:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Real estate loans 0.56% 0.69% 0.62% 0.58%
Non-real estate loans 4.34% 5.07% 4.51% 5.23%
Retail sales finance 2.10% 2.54% 2.04% 2.70%
Total charge-off ratio 1.72% 2.02% 1.73% 2.04%
The decrease in the charge-off ratio for the three months and nine months
ended September 30, 2000 when compared to the same periods in 1999
reflected the results of past and ongoing credit quality improvement
efforts, including consistent adherence to strict underwriting guidelines.
The following table shows delinquency ratios by type of finance receivable:
September 30,
2000 1999
Real estate loans 3.27% 3.28%
Non-real estate loans 4.25 5.43
Retail sales finance 1.76 1.97
Total delinquency ratio 3.33 3.67
<PAGE> 16
The decrease in the delinquency ratio at September 30, 2000 when compared
to September 30, 1999 reflected the improvement in credit quality and the
sale of fully-reserved delinquent net finance receivables totaling $27.1
million (gross balances totaling $34.8 million) in first quarter 2000.
These receivables consisted of non-real estate loans ($25.0 million) and
retail sales finance ($2.1 million). This sale reduced the delinquency
ratio by approximately 26 basis points at the time of sale.
The following table shows selected statistics relating to the allowance for
finance receivable losses:
At or for the
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Allowance ratio 3.29% 3.80%
Charge-off coverage 1.91x 1.92x 1.96x 1.93x
We periodically evaluate our finance receivable portfolio to determine the
level of the allowance for finance receivable losses. In our opinion, the
allowance is adequate to absorb anticipated losses in our existing
portfolio. The allowance as a percentage of net finance receivables has
declined, reflecting the sale of fully-reserved net finance receivables
totaling $27.1 million in first quarter 2000 and the improvement in credit
quality. The charge-off coverage, which compares the allowance for finance
receivable losses to net charge-offs (annualized), has been essentially
flat for the three months and nine months ended September 30, 2000 when
compared to the same periods in 1999.
Insurance Losses and Loss Adjustment Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Claims incurred $ 20.9 $ 21.2 $ 63.3 $ 60.6
Change in benefit
reserves $ 1.7 $ 2.5 $ 6.3 $ 2.5
Insurance losses and loss
adjustment expenses $ 22.6 $ 23.7 $ 69.6 $ 63.1
Insurance losses and loss adjustment expenses decreased $1.1 million, or
5%, for the three months ended September 30, 2000 and increased $6.5
million, or 10%, for the nine months ended September 30, 2000 when compared
to the same periods in 1999. Provision for future benefits increased $3.8
million for the nine months ended September 30, 2000 primarily due to
increased sales of non-credit insurance products. Claims increased $2.7
million for the nine months ended September 30, 2000 primarily due to
increased loss experience.
Other Charge
In second quarter 2000, we recorded a $50.0 million ($32.5 million
aftertax) charge for the estimated loss on the alleged fraud against our
mortgage warehouse lending subsidiary that was discovered in late June
2000. See Note 6. of the Notes to Condensed Consolidated Financial
Statements for information on the loss.
<PAGE> 17
Provision for Income Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in millions)
Provision for income
taxes $ 35.1 $ 31.0 $ 85.6 $ 91.6
Pretax income $ 96.2 $ 85.1 $233.0 $251.5
Effective income
tax rate 36.46% 36.41% 36.76% 36.41%
The provision for income taxes increased $4.1 million, or 13%, for the
three months ended September 30, 2000 and decreased $6.0 million, or 7%,
for the nine months ended September 30, 2000 when compared to the same
periods in 1999. The increase in the provision for income taxes for the
three months ended September 30, 2000 was primarily due to higher taxable
income. The decrease in the provision for income taxes for the nine months
ended September 30, 2000 was primarily due to lower taxable income
resulting from the $50.0 million charge recorded in second quarter 2000 for
the estimated loss on the alleged fraud against our mortgage warehouse
lending subsidiary. The higher effective income tax rate for the nine
months ended September 30, 2000 was primarily due to lower state income tax
benefits.
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 39% of our average borrowings for the three
months ended September 30, 2000 and 37% for the nine months ended September
30, 2000, compared to 33% for the three months ended September 30, 1999 and
31% for the nine months ended September 30, 1999. These percentages
include the effect of interest rate swap agreements that converted
floating-rate debt to a fixed rate.
FORWARD-LOOKING STATEMENTS
All statements, trend analyses, and other information contained in this
report relative to trends in our operations or financial results, as well
as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," and other similar expressions,
constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. We have made these forward-looking
statements based upon our current expectations and beliefs concerning
future developments and their potential effects on the Company. There can
be no assurance that future developments affecting the Company will be
those we anticipated. Actual results may differ materially from those
included in the forward-looking statements.
These forward-looking statements involve risks and uncertainties including,
but not limited to, the following: (1) changes in general economic
conditions, including the performance of financial markets, interest rates,
and the level of personal bankruptcies; (2) customer responsiveness to both
products and distribution channels; (3) competitive, regulatory,
accounting, or tax changes that affect the cost of, or demand for, our
<PAGE> 18
products; (4) our ability to secure necessary court and regulatory
approvals; (5) our ability to realize projected expense savings; (6)
adverse litigation results or resolution of litigation, including
proceedings related to satellite dish financing; and (7) the formation of
strategic alliances or business combinations among our competitors or
business partners. Readers are also directed to other risks and
uncertainties discussed in other documents we filed with the Securities and
Exchange Commission. We undertake no obligation to update or revise any
forward-looking information, whether as a result of new information, future
developments, or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk is primarily related to changes in interest
rates. Quantitative and qualitative disclosures about our market risk
resulting from changes in interest rates are included in Item 7A. in our
1999 Annual Report on Form 10-K. There have been no material changes in
such risks or our asset/liability management program during the nine months
ended September 30, 2000. See Note 4. of the Notes to Condensed
Consolidated Financial Statements for information about our derivative
financial instruments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 7. of the Notes to Condensed Consolidated Financial Statements in
Part I of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(4) a. The following instrument is filed pursuant to Item
601(b)(4)(ii) of Regulation S-K as a result of certain debt
issuances in the third quarter of 2000. In the aggregate,
the outstanding issuances of debt under the Indenture
referred to under item (1) below exceed 10% of the total
assets of the Company on a consolidated basis.
(1) Indenture dated as of May 1, 1999 between American
General Finance Corporation and Citibank, N.A.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the third quarter
of 2000.
<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: November 13, 2000 By /s/ Robert A. Cole
Robert A. Cole
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 20
Exhibit Index
Exhibit
(4) a. The following instrument is filed pursuant to Item 601(b)(4)(ii)
of Regulation S-K as a result of certain debt issuances in the
third quarter of 2000. In the aggregate, the outstanding
issuances of debt under the Indenture referred to under item (1)
below exceed 10% of the total assets of the Company on a
consolidated basis.
(1) Indenture dated as of May 1, 1999 between American General
Finance Corporation and Citibank, N.A.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
