HOUSTON, July 28 /PRNewswire/ -- American General (NYSE: AGC) today
reported a 19% increase in second quarter operating earnings per share to
$1.02 compared to $.86 in the second quarter of 1997. Operating earnings for
the quarter increased 24% to $266 million compared to $215 million in the
second quarter of 1997. Net income, which includes net realized gains and
other nonrecurring items, was $264 million or $1.01 per share in the second
quarter compared to a loss of $124 million or $.52 per share in the 1997
period. The 1997 period included one-time charges primarily associated with
an acquisition and the disposition of non-strategic assets.
Year-to-date operating earnings per share increased 16% to $2.00 compared
to $1.73 in the prior year period. Operating earnings increased 20% to
$516 million from $429 million in the six-month period in 1997. Net income
was $508 million or $1.97 per share compared to $86 million or $.34 per share
in the 1997 period.
Following is a comparative table of second quarter and year-to-date
operating earnings for 1998 and 1997:
Quarter Ended June 30, Six Months Ended June 30,
Operating Earnings 1998 1997 Change 1998 1997 Change
In Millions $ 266 $ 215 + 24% $ 516 $ 429 + 20%
Per Share $ 1.02 $ .86 + 19% $ 2.00 $ 1.73 + 16%
Commenting on the results, Robert M. Devlin, chairman and chief executive
officer, said, "Our strategy for growth continues to produce excellent results
-- operating earnings per share growth of 19%, double digit earnings increases
in each of our three business divisions, a return on equity of 15%, and strong
sales and asset growth. American General is a stronger, more profitable and
more successful organization today than at any time in its history. We passed
the significant milestone of $100 billion in assets during the quarter and are
on track to achieve $1 billion in operating earnings in 1998.
"Through our acquisition strategy, we have successfully achieved
efficiencies in our operations and are well on our way to building a marketing
platform that has both the scale and reach of distribution necessary to serve
the growth segments of the financial services market. In addition, we have
expanded our array of products and services to meet the changing needs of
these markets. These efforts will further solidify American General's
leadership position in each of our businesses.
"We are also making significant progress in our cross-marketing
initiatives that will enable us to provide all products and services to our
current 12 million customers as well as future customers. Our leading market
positions, expansive distribution capability, full array of competitive
products, and growing cross-marketing competency will continue to fuel growth
well into the future."
Additional Financial Highlights
-- Operating return on shareholders' equity was 15.2% for the six months,
up from 13.5% a year ago;
-- Revenues and deposits increased $1.0 billion to $4.5 billion in the
quarter, up 28% from a year ago;
-- Assets increased $24 billion to $101 billion at quarter end, up 31%
from a year ago; and,
-- Common stock price per share increased 32% for the six months to $71.19
at June 30.
Corporate Activities
Provident Annuity Business Acquired. During the quarter, the company
completed the purchase of the individual annuity business of Provident
Companies, Inc. This annuity portfolio, which increased American General's
reserves by more than $2 billion, has been included in the retirement services
division.
Share Buyback Activity. American General purchased 700,000 shares of its
common stock for a total cost of $47 million during the quarter at an average
cost of $67.15 per share. Year-to-date the company has purchased 1.2 million
shares for a total cost of $78 million.
Division Reporting
Quarter Ended June 30, Six Months Ended June 30,
In Millions: 1998 1997 Change 1998 1997 Change
Retirement Services$ 123 $ 64 + 95% $ 237 $ 127 + 88%
Life Insurance 169 143 + 18 330 284 + 16
Consumer Finance 47 43 + 12 94 84 + 13
Division Earnings$ 339 $ 250 + 36% $ 661 $ 495 + 34%
The Retirement Services division is a leading provider of retirement
products and services including tax-qualified annuities sold through a sales
force of more than 1,000 retirement planning specialists, and non-qualified
annuities marketed through 15,000 financial institution representatives. The
division has $54 billion in assets and 1.5 million customers.
The Life Insurance division is the second-largest writer of new individual
life insurance premium in the United States. With assets of $35 billion, this
division has life insurance in force of $335 billion, and serves over eight
million customers through 34,000 agents.
The Consumer Finance division is a leading provider of home equity loans,
consumer loans, and credit-related life insurance products. With finance
receivables of $8.6 billion and a nationwide network of 1,331 branches, this
division serves 2.3 million customer accounts.
Retirement Services
Performance Highlights
-- Earnings increased 95% to $123 million;
-- Assets increased 65% to $54 billion; and,
-- Premium deposits increased 67% to $1.4 billion.
Second Quarter Results. The retirement services division achieved strong
earnings growth in the quarter reflecting the contribution from American
General Annuity (formerly Western National) acquired in the first quarter, the
continued growth in assets, and improvement in investment spreads.
Premium deposits were $1.4 billion for the quarter, an increase of 67%,
and reflected the addition of deposits from financial institution distribution
through American General Annuity as well as an increase in each of the
division's existing markets. Sales of tax-qualified annuities increased 22%
from the prior year as strong consumer demand for equity-based products led to
a significant increase in variable annuity sales. Increased variable premium,
combined with market appreciation, led to a 48% increase in separate account
assets to $13.2 billion. The expense ratio improved to 42 basis points from
49 basis points in the prior year period as a result of efficiency initiatives
combined with the strong growth in assets and the addition of American General
Annuity.
During the quarter, marketing relationships were established with three
new financial institutions which added over 4,000 representatives to this
distribution channel. There are now 15,000 financial institution
representatives selling the division's fixed annuity products. To penetrate
the non-qualified variable annuity market, American General Annuity's variable
annuity, the Elite Plus, has been modified to better serve the needs of the
financial institution market, and a number of new variable annuity products
will be introduced in the first quarter of 1999.
Life Insurance
Performance Highlights
-- Earnings increased 18% to $169 million;
-- Sales increased 18% to $279 million; and,
-- Total deposits increased 13% to $453 million.
Second Quarter Results. The life insurance division produced an 18%
increase in earnings as a result of improvement in the investment margin,
continued gains in operating efficiency, and growth in premium and deposits.
The division continues to invest resources in new product development and
technology to support its new operational structure. Operating efficiency was
enhanced during the quarter as a result of the consolidation of three data
centers into one center in Houston and the elimination of several standalone
administrative operations.
Sales increased 18% as a result of the addition of several new variable
products, including Select Reserve, a low-load variable annuity, and the
Platinum series of variable universal life products, and strong life sales in
the division's career distribution channel. The life division introduced 12
new products in the first six months of 1998 and has several additional
products scheduled for introduction in the second half of the year.
The division continues to expand product sharing and cross-marketing
initiatives. Centrally manufactured life insurance and annuity products are
now being shared across the six life insurance companies. Currently, term and
universal life insurance products are being sold throughout the various
distribution channels, with newly introduced products also made available on a
shared basis. In addition, several pilot programs are underway to test the
most effective methods of cross-marketing the division's products to American
General's other divisions.
Consumer Finance
Performance Highlights
-- Earnings increased 12% to $47 million;
-- Receivables portfolio increased 16% to $8.6 billion; and,
-- Charge-off ratio improved to 2.62% from 3.68%.
Second Quarter Results. The consumer finance division achieved a 12%
increase in earnings for the quarter as a result of an increase in average
receivables and improved credit quality. The growth in the receivables
portfolio resulted from a 9% increase in internally generated loan volume
supplemented by bulk purchases of primarily real estate secured loans
generated by third parties. In addition, the division expanded its use of
direct marketing and telemarketing programs to further increase the customer
base. The receivables portfolio consisted of 55% real estate secured loans at
quarter end, up from 50% a year ago.
The lower level of charge-offs led to an improvement in risk-adjusted
spread to 6.91% from 6.45% in the prior year and reflects the shift toward a
higher percentage of real estate secured receivables. The delinquency ratio
continued to improve as a result of the division's strict underwriting
standards and effective use of risk management systems. At the end of the
quarter, the allowance for loan losses was $365 million or 4.24% of finance
receivables providing a coverage ratio of annualized charge-offs of 170%. The
coverage ratio remained conservative, near the high end of the company's
historic range.
The expense ratio improved to 5.73% from 5.99% in the prior year period
and reflects expense management efforts combined with the growth in finance
receivables. The number of employees declined by 582 from the second quarter
of 1997. Ongoing efforts to optimize the branch office network led to a net
reduction of 12 locations to 1,331 at quarter end.
Corporate Items
Quarter Ended Six Months Ended
June 30, June 30,
In Millions: 1998 1997 1998 1997
Interest on Corporate Debt $(31) $ (27) $ (63) $ (52)
Dividends on Preferred Securities (23) (22) (45) (39)
Net Equity (Minority Interest) in
Earnings of Western National --- 8 (11) 17
Other Corporate (19) 6 (26) 8
Total Corporate Operations $(73) $ (35) $(145) $ (66)
Realized Investment Gains $ 3 $ 14 $ 3 $ 10
Non-recurring Items $ (5) $(353) $ (11) $(353)
The increase in interest on corporate debt during the second quarter
resulted from the higher level of debt outstanding following the Western
National acquisition. The 1998 minority interest represents the portion of
Western National's earnings prior to February 25, 1998 which were not
attributable to American General. The change in the other corporate category
resulted from a lower level of assets not allocated to the business divisions
and an increase in goodwill amortization. The non-recurring item in the 1998
periods consists of a portion of the costs associated with the company's Year
2000 compliance effort which is expected to be substantially completed by year
end. The 1997 non-recurring item is primarily costs associated with the
company's acquisition of USLIFE Corporation and the sale of non-strategic
assets.
American General Corporation is one of the nation's largest diversified
financial services organizations, with assets of $101 billion and market
capitalization of $19 billion. Headquartered in Houston, it is a leading
provider of retirement services, life insurance, and consumer loans to over
12 million customers. American General common stock is listed on the
New York, Pacific, London, and Swiss stock exchanges.
All statements, trend analysis, and other information contained in this
report and elsewhere (such as other filings by the company with the Securities
and Exchange Commission, press releases, presentations by the company or its
management, or oral statements) relative to markets for the company's products
and 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 the 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 and interest rates;
(2) customer responsiveness to both new products and distribution channels;
(3) competitive, regulatory, or tax changes that affect the cost of or demand
for the company's products; (4) the company's ability to render its computer
systems Year 2000 compliant; (5) adverse litigation results or resolution of
litigation, including market conduct litigation; and (6) the company's failure
to achieve anticipated levels of earnings or operational efficiencies related
to recently acquired companies, as well as other cost-saving initiatives.
Investors are also directed to other risks and uncertainties discussed in
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.
American General Corporation
Comparative Results
(In millions, except per share data) (unaudited)
Quarter ended Six months ended
June 30, June 30,
1998 1997 1998 1997
Revenues and Deposits $4,450 $3,487 $8,876 $6,890
Business Division Earnings:
Retirement Services $123 $64 $237 $127
Life Insurance 169 143 330 284
Consumer Finance 47 43 94 84
Total Business Division Earnings 339 250 661 495
Corporate Operations:
Interest on Corporate Debt (31) (27) (63) (52)
Dividends on Preferred Securities
of Subsidiaries (23) (22) (45) (39)
Expenses Not Allocated to Divisions (13) (12) (23) (22)
Earnings on Corporate Assets 5 23 17 41
Goodwill Amortization (11) (5) (20) (11)
Net Equity (Minority Interest) in Earnings
of Western National Corporation --- 8 (11) 17
Total Corporate Operations (73) (35) (145) (66)
Operating Earnings(A) 266 215 516 429
Realized Investment Gains 3 14 3 l0
Non-recurring items (5) (353) (11) (353)
Net Income (Loss) $264 $(124) $508 $ 86
Operating Earnings per Share (diluted) 1.02 .86 2.00 1.73
Net Income (Loss) Per Share (diluted) 1.01 (.52) 1.97 .34
Average Diluted Shares - Operating Earnings 263.6 251.4 260.1 250.4
Average Diluted Shares - Net Income 263.6 241.9 260.1 241.9
At June 30,
1998 1997
Assets $101,025 $ 77,387
Shareholders' Equity 8,797 6,746
Book Value Per Share 34.26 27.50
Market Price Per Share 71.19 47.75
Excluding Fair Value Adjustment
Related to Securities (SFAS 115)(B):
Assets $ 98,723 $ 76,574
Shareholders' Equity 7,308 6,226
Book Value Per Share 28.62 25.41
(A) Operating earnings exclude aftertax realized investment gains
(losses), non-recurring items, and one-time accounting changes.
(B) Under Financial Accounting Standard 115, American General classifies
most fixed maturity and equity securities as available-for-sale and
records them at fair value. The company adjusts related balance sheet
accounts and shareholders' equity as if the associated unrealized
gains (losses) had been realized at the balance sheet date.
SOURCE American General Corporation
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CONTACT:
Investors: David W. Entrekin, Vice President
- Investor Relations, 212-446-3109; or Media: John E. Pluhowski,
Director - Corporate Communications, 713-831-1149, both of
American General Corporation
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