HOUSTON, Oct. 22 /PRNewswire/ -- American General Corporation (NYSE: AGC),
one of the nation's largest diversified financial services organizations with
assets of $79 billion and market capitalization of $14 billion, today reported
a 10% increase in third quarter operating earnings to $220 million or $.88 per
share compared to $200 million or $.80 per share in the third quarter of 1996.
Year-to-date operating earnings increased 14% to $649 million or $2.61 per
share compared to $571 million or $2.29 per share for the nine-month period in
1996.
Following is a comparative table of third quarter and year-to-date
operating earnings for 1997 and 1996:
Quarter Ended Nine Months Ended
September 30, September 30,
Operating Earnings1997 1996 Change 1997 1996 Change
In Millions $ 220 $ 200 + 10% $ 649 $ 571 + 14%
Per Share $ .88 $ .80 + 10% $ 2.61 $ 2.29 + 14%
Net income, which includes net realized gains and other non-recurring
items, was $226 million in the 1997 third quarter compared to $199 million for
the 1996 period. Year-to-date net income, which included a previously
reported second quarter $353 million special charge, was $312 million compared
to $558 million for the nine-month period ended September 30, 1996.
As a result of the pooling of interests method used to account for the
company's $1.8 billion acquisition of USLIFE Corporation, past financial
results for American General have been restated to present the combined
operations of American General and USLIFE for all periods.
Commenting on the third quarter, Robert M. Devlin, chairman and chief
executive officer, said, "The third quarter results demonstrate our ability to
deliver solid near-term operating performance in each business segment while
positioning the company for consistent long-term, double-digit earnings
growth. Our retirement services segment continues to generate strong sales
and asset growth reflecting its excellent competitive positioning in the
variable annuity market while achieving a high return on equity. Our life
insurance operations have initiated consolidation and integration activities
which are resulting in reduced operating expenses, the development and
distribution of common products, and increased sales and market share. In our
consumer finance segment, favorable credit quality trends continued, and the
company was successful at growing its receivables portfolio in the quarter.
"As a result of our recently announced agreement to acquire the remaining
portion of Western National Corporation, American General will become the
nation's third largest writer of individual annuities. Importantly, this
acquisition establishes American General as a significant competitor in the
non-qualified annuity market, and complements our existing leadership position
in the taxqualified annuity market. We look forward to the many opportunities
created by this acquisition, and we are excited about expanding our operations
in annuities -- one of the fastest growth areas of the financial services
industry.
"As we move toward 1998, we are pleased with the decisive steps taken
during the year to improve our operations and expand American General's
presence in financial services. In addition to being the most active year in
terms of acquisition activity, we fully expect that 1997 will be a record year
in operating earnings."
Corporate Development Activities
Western National Acquisition. On September 12, 1997, American General and
Western National Corporation (NYSE: WNH) announced a definitive agreement for
American General to acquire for total consideration of approximately
$1.2 billion on the remaining 55% of Western National not currently owned by
the company. Western National shareholders may elect cash or American General
common stock, with cash and common stock elections each limited to 50% of the
aggregate consideration. Upon completion of the transaction, Western National
will become part of American General's retirement services segment, which on a
combined basis would have annualized 1997 annuity sales of more than
$5 billion.
Strategic Venture in Mexico. American General has entered the rapidly
growing Mexican retirement savings market through a strategic investment which
will enable the company to participate in the reforms to the country's social
security system. On October 2, 1997, American General announced the signing
of a definitive agreement for the purchase of a 40% interest in a new venture
formed by Grupo Nacional Provincial, S.A., one of Mexico's largest financial
services companies. This venture provides enrollment, administration,
investment services, and single premium immediate annuities for employees
covered under the Mexican social security system.
Sale of Canadian Life Insurance Subsidiary. In the third quarter,
American General announced a definitive agreement to sell its Canadian life
insurance company to a subsidiary of Aetna, Inc. The sale of this
non-strategic asset is expected to close by year-end 1997.
Additional Corporate Financial Highlights
* Revenues and deposits increased to $3.4 billion, up 5% from the 1996
third quarter;
* Assets were $78 billion, a 9% increase from a year ago;
* Annualized third quarter 1997 operating return on shareholders' equity
was 13.9%, up from 12.7%; and,
* Total return on market value for the 12 months ended September 30, 1997
was 41%.
Segment Reporting
American General reports its financial results in three business segments
and a category for corporate items. Following is a comparative table of third
quarter and nine-month earnings for 1997 and 1996 by business segment:
Quarter Ended Nine Months Ended
September 30, September 30,
In Millions: 1997 1996 Change 1997 1996 Change
Retirement Services$59 $57 + 6% $186 $175 + 7%
Life Insurance 146 139 + 5 424 399 + 6
Consumer Finance 41 43 - 6 120 102 + 17
Segment Earnings$246 $239 + 3% $730 $676 + 8%
Retirement Services. VALIC, with $34 billion in assets, is a leading
provider of retirement plans and employer-sponsored retirement programs to
employees of educational, health care, public sector, and other not-for-profit
organizations. VALIC has 1.7 million participant accounts serviced by a sales
force of 1,000 retirement planning specialists.
Life Insurance. American General is the third largest writer of new
individual life insurance premium in the United States. This segment consists
of two divisions, the independent producer division and the career agency
division. Combined, these divisions have assets of $35 billion, life
insurance in force of $332 billion, and serve over eight million customers
through more than 34,000 agents.
Consumer Finance. American General Finance is a leading provider of
consumer and home equity loans and other credit-related products. The company
ranks among the nation's largest consumer finance companies with a nationwide
network of 1,343 branch offices, 2.3 million customer accounts, and finance
receivables of $7.5 billion.
Retirement Services
Performance Highlights. The following performance highlights compare the
results for the quarter ended September 30, 1997 with the comparable 1996
period:
* Assets increased 18% to $34 billion;
* Total premium deposits increased ll% to $766 million;
* Segment earnings increased 6% to $59 million; and,
* Return on equity was unchanged at l5.6%.
Third Quarter Results. Contributing to the 18% growth in assets was an
11% increase in total premium deposits compared to the 1996 period. Demand
for equity-based variable products remained solid with a 32% increase in
variable premium deposits in the quarter compared to the 1996 period.
Variable premium deposits accounted for 56% of total premium deposits,
reflecting strong consumer demand and favorable market conditions for equity-
based products. The increase in variable premium deposits combined with
market appreciation led to a 60% increase in separate account assets to
$10.2 billion. VALIC continued to build upon the substantial sales gains
realized following the introduction of its Portfolio Director 2 product a year
ago, with an 8% increase in the 1997 third quarter and a 26% increase
year-to-date.
Variable account reserves represented 31% of total reserves at quarter end
compared to 23% a year ago. The continued shift in 1997 toward variable
products, which require less capital, resulted in an improvement in
year-to-date return on equity to 16.6% compared to 16.2% in the 1996 period.
The growth in assets combined with expense management led to an improvement in
VALIC's expense ratio to 0.48% in the quarter compared to 0.50% in the prior
year period.
Earnings increased 6% to $59 million primarily as a result of higher
income generated from the growth in assets and reflect the shift toward higher
return on equity, lower gross margin variable products. The year-to-date
surrender ratio remained low at 5.1% compared to 5.0% in the 1996 period, and
was better than pricing assumptions and the industry average.
Life Insurance
Performance Highlights. The following performance highlights compare the
results for the quarter ended September 30, 1997 with the comparable 1996
period:
* Annualized premium life sales increased 17% to $133 million;
* Segment earnings increased 5% to $146 million;
* Total deposits increased 13% to $415 million; and,
* Return on equity was 9.8% compared to lO.1%.
Third Quarter Results. The life insurance segment experienced another
quarter of strong sales with annualized premium life sales increasing 17%
compared to the prior year period. The increase resulted from higher sales at
the independent producer division and the recent acquisition in the career
agency division. The improvement in sales for the independent producer
division resulted from strong demand for corporate executive benefits products
and increased sales through its core general agency producers. Life insurance
in force was $332 billion at quarter end, an 8% increase from a year ago.
The independent producer division has made significant progress toward
developing the centralized support units that will provide the product
development, customer service, and administrative functions, and will reduce
expenses while enhancing products and services. During the third quarter,
consolidation of the division's data center operations began and the sharing
of common products was initiated. Additionally, the division has established
a national presence in the corporate executive benefits market and will be
introducing a comprehensive portfolio of variable products in early 1998.
In the career agency division, consolidation activities are continuing
according to plan and targeted expense savings are being realized. The
division continues to consolidate and integrate the field sales offices of
acquired companies.
Consumer Finance
Performance Highlights. The following performance highlights compare the
results for the quarter ended September 30, 1997 with the comparable 1996
period:
* Segment earnings were $41 million compared to $43 million;
* Delinquency ratio improved to 3.83% from 4.28%;
* Charge-off ratio improved to 3.27% from 5.37%; and
* Return on equity was 13.8% compared to 13.7%.
Third Quarter Results. Third quarter 1997 segment earnings benefited from
a $5 million pretax reduction in the allowance for loan losses compared to a
$17 million pretax reduction in the year ago period. During the quarter, the
receivables portfolio increased $119 million, or an annualized growth rate of
6%, to $7.5 billion at quarter end. The growth in receivables is the result
of the company's efforts to refocus on lending through its core branch office
network and the re-establishment of key retail merchant relationships.
Credit quality trends continued to be positive in the third quarter with
charge offs declining to 3.27% of receivables compared to 5.37% in the prior
year period and 3.68% in the second quarter of 1997. This improvement is due
to the sale of non-strategic receivables, lower charge offs throughout the
portfolio, and the higher percentage of real estate-secured loans. The
improvement in charge offs led to an increase in risk-adjusted spread to 6.66%
in the quarter from 5.56% in the prior year period.
Delinquency trends remain favorable, with the delinquency ratio improving
to 3.83% at the end of the quarter compared to 4.28% a year ago and increasing
from 3.73% at the end of the 1997 second quarter. The increase from the
second quarter reflects the expected trend of a purchased real estate
receivables portfolio in which charge offs are primarily the responsibility of
a third party.
At the end of the third quarter 1997, the allowance for loan losses was
$380 million or 5.05% of finance receivables, and remained conservative near
the high end of the company's historic range of charge-off coverage. The
receivable portfolio consisted of 51% real estate-secured loans at
September 30, 1997, up from 42% a year ago.
Corporate
Corporate includes operating items such as cost of capital, corporate
expenses and earnings on assets not allocated to segments, and non-operating
items such as realized investment gains and other non-recurring items.
Following is a comparative table of third quarter and nine-month corporate
operations (aftertax) for 1997 and 1996:
Quarter Ended Nine Months Ended
September 30, September 30,
in Millions: 1997 1996 1997 1996
Interest on Corporate Debt $(29) $(31) $(81) $(87)
Dividends on Preferred securities (23) (10) (62) (29)
Equity in Earnings of Western National14 6 31 18
Other Corporate 12 (4) 31 (7)
Total Corporate Operations $(26) $(39) $(81) $(105)
Realized Investment Gains $6 $17 $16 $37
Non-recurring Items -- $(18) $(353) $(50)
The increase in dividends on preferred securities reflects the higher
level of preferred securities outstanding during the 1997 periods compared to
1996. Equity in earnings of Western National increased primarily due to a
change in the accounting treatment of taxes on such earnings following
American General's announcement to acquire the remaining portion of Western
National. The higher level of retained capital at the company's operating
subsidiaries led to an increase in earnings on assets not allocated to
segments and contributed to the improvement in the other corporate category.
The non-recurring items in the 1997 year-to-date period primarily include
previously disclosed change of control costs for the USLIFE acquisition,
charges related to the disposition of non-strategic assets, costs associated
with the life segment divisional realignment, and settlement of litigation.
The 1996 non-recurring items primarily relate to charges taken by the USLIFE
group health operation and a charge associated with assets held for sale.
American General Corporation is one of the nation's largest diversified
financial services organizations with assets of $79 billion and shareholders'
equity of $7.3 billion. Headquartered in Houston, it is a leading provider of
retirement services, life insurance, and consumer loans to 12 million
customers. American General common stock is listed on the New York, Pacific,
London, and Swiss stock exchanges.
Certain information included in this press release is forward-looking and
involves risks and uncertainties, including general economic and competitive
conditions, that could significantly impact expected results. Investors are
also directed to other risks and uncertainties discussed in documents filed by
the company with the Securities and Exchange Commission.
American General Corporation
Comparative Results (a)
(in millions, except per share data) (Unaudited)
Quarter ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
1. Revenues and Deposits$3,416 $3,258 $10,306 $9,762
Business Segment
Earnings:
2. Retirement Services $59 $57 $186 $175
3. Life Insurance 146 139 424 399
4. Consumer Finance 41 43 120 102
5. Total Business Segment
Earnings 246 239 730 676
Corporate Operations:
6. Interest on Corporate
Debt (29) (31) (81) (87)
7. Dividends on Preferred
Securities of
Subsidiaries (23) (10) (62) (29)
8. Expenses Not Allocated
to Segments (13) (11) (36) (28)
9. Earnings on Corporate
Assets 25 7 67 21
10. Equity In Earnings of
Western National
Corporation 14 6 31 18
11. Total Corporate
Operations (26) (39) (81) (105)
12. Operating Earnings (b) 220 200 649 571
13. Realized Investment
Gains 6 17 16 37
14. Non-recurring Items -- (18) (353) (50)
15. Net Income $226 $199 $312 $558
16. Operating Earnings per
Share (b) .88 .80 2.61 2.29
17. Net Income Per Share .91 .80 1.27 2.24
18. Average Shares
Outstanding 252.8 251.9 251.4 252.4
At September 30,
1997 1996
19. Assets $ 79,416 $ 72,178
20. Shareholders' Equity 7,319 6,527
21. Book Value Per Share 29.84 26.70
22. Market Price Per Share 51.88 37.75
Excluding Fair Value Adjustment
Related To Securities (SFAS 115)(c):
23. Assets $ 77,956 $ 71,722
24. Shareholders' Equity 6,382 6,233
25. Book Value Per Share 26.09 25.51
(a) As a result of using the pooling of interests method to account for
the USLIFE acquisition, the consolidated financial results have been
restated to present the combined operations of American General and
USLIFE as if the acquisition had been in effect for all periods
presented.
(b) Operating earnings exclude aftertax realized investment gains
(losses), non-recurring items, and one-time accounting changes.
(c) Under Financial Accounting Standard 115, American General classifies
all 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 - Robert D. Mrlik, 713-831-1137, or
David W. Entrekin, 713-831-1346, both Vice Presidents of Investor
Relations, or Media - John E. Pluhowski, Director - Corporate
Communications, 713-831-1149, all of American General Corporation
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