HOUSTON, July 23 /PRNewswire/ -- American General Corporation (NYSE: AGC),
one of the nation's largest diversified financial services organizations,
today reported record second quarter operating earnings in two of three
business segments and continuation of the recovery in the consumer finance
segment. On a consolidated basis, second quarter operating earnings were
$164 million or $.77 per share. This compares to operating earnings of
$179 million or $.87 per share for the second quarter of 1995.
Net income, which includes realized investment gains, was $168 million or
$.79 per share compared to $180 million or $.88 per share in the second
quarter of 1995.
Year-to-date consolidated operating earnings were $316 million or
$1.50 per share compared to operating earnings of $353 million or $1.72 per
share for the first half of 1995.
Following is a comparative table of second quarter and year-to-date
results for 1996 and 1995:
Quarter ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
In Millions:
Pretax earnings $ 261 $ 281 $ 522 $ 553
Operating earnings 164 179 316 353
Net income 168 180 337 355
Per Share:
Operating Earnings $ .77 $ .87 $ 1.50 $ 1.72
Net Income .79 .88 1.60 1.73
Average Shares
(in millions) 215.6 /a 207.4 214.1 /a 206.3
/a Average shares outstanding increased due to the issuance of
convertible preferred securities and common stock in 1995 and
1996, partially offset by share purchases under the company's
share buyback program.
Commenting on the results, Harold S. Hook, chairman and CEO, said, "The
results for the second quarter were in line with plan, and the consumer
finance segment is on track for the planned recovery in the second half of the
year. Corporate development continues to be an important part of our
corporate strategy, and a detailed update on our progress in this activity is
included in this report."
Corporate Financial Highlights
The following financial highlights have been adjusted to exclude the
effect of Financial Accounting Standard 115 (as detailed in the attached
supplement).
June 30, 1996 Compared to June 30, 1995
-- Assets increased $5.2 billion to $63 billion, up 9 percent;
-- Shareholders' equity increased $387 million to $5.1 billion, up
8 percent;
-- Book value increased to $24.40 per share, up 6 percent;
-- Corporate debt-to-capital ratio was 24 percent compared to
30 percent a year ago; and
-- Market capitalization was $7.8 billion at June 30, 1996, up
10 percent.
Six Months 1996 Results
-- Revenues and deposits increased $277 million to $5.4 billion, up
5 percent from the first six months of 1995;
-- Operating return on shareholders' equity was 13 percent;
-- Annualized total return to shareholders was 12 percent; and
-- Total common dividends paid increased 5 percent to $133 million in
the first half of 1996, the 21st consecutive annual increase in
the common stock dividend rate.
Corporate Development Update
Corporate development is a major part of American General's overall
corporate strategy that includes acquisitions, divestitures, and systems for
improvement in internal operations. This strategy has produced a balanced
network of companies able to perform well over a long period of time and
through all phases of the business cycle. Corporate development activities
include a disciplined approach to mergers and acquisitions; the integration,
rationalization and consolidation of acquired companies; and an active share
buyback program.
Following is an update of corporate development activities during the
first half of 1996.
Independent Life
Since the $362 million acquisition of Independent in February 1996, a
number of initiatives have been undertaken to consolidate and integrate both
home and field office operations. To date, these initiatives are ahead of
plan with scheduled completion by the end of 1997. The consolidation of
Independent's operations into American General Life and Accident in Nashville
is expected to result in annualized expense savings of $75 million.
Franklin Life
Franklin was acquired in January 1995 for $1.17 billion. Operating
results continue to exceed pre-acquisition expectations due to the successful
integration of Franklin into American General's life insurance segment
operations. In the second quarter, Franklin sold a block of credit life and
health insurance business with reserves of $80 million. This sale is part of
American General's strategy of divesting non-core lines of business to enable
its operating companies to focus on targeted markets.
American General Finance
American General Finance purchased a $200 million portfolio of real estate
secured finance receivables in the second quarter. The receivables consist of
a geographically diversified portfolio of first mortgage and home equity
loans. This purchase supports the company's strategy to rebalance its loan
portfolio to include a higher concentration of real estate secured receivables
and to improve credit quality. Real estate secured receivables now account
for 38.6 percent of the entire portfolio compared to 34.5 percent a year ago.
Share Buyback
During the second quarter, two major milestones were achieved in American
General's share buyback program that was initiated in 1987. Purchases under
the program are now over 100 million shares at an aggregate cost of over
$2.0 billion. Purchases since the inception of the program represent over
33 percent of the shares then outstanding. In the second quarter, the company
purchased 1.9 million shares of the company's common stock for a cost of
$66 million, or $35.61 per share.
Segment Reporting
American General reports its financial results in three business segments
and a category for corporate operations. Following is a comparative table of
second quarter and six month earnings for 1996 and 1995 by business segment:
Quarter ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
In Millions:
Retirement Annuities $ 58 $ 54 $ 118 $ 108
Consumer Finance 31 62 59 122
Life Insurance 100 86 191 170
Business Segment
Earnings $ 189 $ 202 $ 368 $ 400
Retirement Annuities
The Variable Annuity Life Insurance Company (VALIC), with over $28 billion
in assets, is a leading provider of tax-deferred retirement annuities and
employer-sponsored retirement programs to employees of educational, health
care, public sector and other not-for-profit organizations. VALIC has 1.5
million customer accounts serviced by a sales force of 900 retirement planning
specialists.
Second Quarter Results
VALIC reported record second quarter earnings of $58 million compared to
$54 million for the 1995 period, a 9 percent increase. The increase was a
result of strong asset growth and improved investment margins. Assets
increased $958 million in the quarter to $28.2 billion (excluding the effect
of SFAS 115) at June 30, 1996. Year-over-year asset growth was $3.6 billion,
up 14 percent. Year-to-date return on equity was 16.6 percent.
Total fixed and variable premium deposits were $697 million, up 8 percent
in the quarter. The shift in demand to more equity-based products continued
with variable premium deposits accounting for 45 percent of total premium
deposits in the quarter compared to 30 percent in the prior year period.
Strong year-over-year growth in variable premium deposits contributed to a
66 percent increase in separate account assets to $5.8 billion at June 30,
1996.
Building on the exceptional sales growth during 1995, sales increased
11 percent in the first half of 1996, on plan for the period. The recent
launch of Portfolio Director 2, a new version of VALIC's popular variable
annuity product, should position the company to expand on the success of the
original Portfolio Director(R). Portfolio Director 2 offers expanded
investment options including widely recognized publicly available mutual
funds. Portfolio Director, supported by VALIC's Portfolio Optimizer(R) asset
allocation service, accounted for 56 percent of total premium for the first
half of 1996.
VALIC's surrender rate improved to 5.2 percent from 5.4 percent in the
first quarter of 1996. The surrender rate was 3.8 percent in the second
quarter of 1995. Factors that contributed to the increase in the surrender
rate over the prior year period include lower fixed account interest crediting
rates, the continuing trend toward equity-based products, and an increase in
systematic withdrawals.
Consumer Finance
American General Finance is a leading provider of consumer and home equity
loans, credit cards and credit-related products. With a nationwide network of
1,400 branch offices, 3.4 million customer accounts, and finance receivables
of over $8 billion, the company ranks among the nation's largest consumer
finance companies.
Second Quarter Results
Results for the quarter are consistent with plan and reflect the
corrective actions initiated during late 1995 to improve credit quality and
slow receivables growth. During the quarter, delinquencies stabilized and the
charge off rate continued to improve. The strategic review of operations
resulted in a number of initiatives that will lead to expense savings in
subsequent periods. These initiatives include the discontinuation of certain
non-traditional lines of business, the consolidation of credit card
operations, and a workforce reduction. Since late 1995, each of the
underperforming non-branch marketing initiatives has either been restructured
or discontinued.
Yield on finance receivables was 18.1 percent, unchanged from the first
quarter, and compared to 18.0 percent in the year ago period. At June 30,
1996, delinquencies were $350 million compared to $354 million at March 31,
1996, and $379 million at year end. As a percent of receivables,
delinquencies were 4.0 percent, unchanged from the first quarter, and down
from 4.1 percent at year-end 1995. The charge off rate was 5.3 percent of
receivables compared to 5.5 percent for the first quarter and 6.0 percent for
the 1995 fourth quarter. The allowance for loan losses was $482 million or
6.0 percent of receivables compared to 6.1 percent at the end of the first
quarter and 5.9 percent at year-end 1995.
During the second half of the year, charge offs and provisions for losses
are expected to moderate. However, changes in general economic conditions,
which include the recent increase in the level of personal bankruptcies, could
impact expected results. Given the current level of delinquencies and the
anticipated level of charge offs, the company remains confident that the
allowance for loan losses is adequate.
Life Insurance
American General's life insurance companies, with combined assets of
$24 billion and a distribution system of 16,000 agents, serve over five
million customers. American General is the largest writer of individual life
insurance premiums in the United States among shareholder owned companies.
The principal operating companies in this segment are American General Life,
Franklin Life and American General Life and Accident.
Second Quarter Results
The life insurance segment reported a 16 percent increase in second
quarter earnings to a record $100 million, the highest level of quarterly
segment earnings in the company's history. This compares to earnings of
$86 million in the year ago period. These results reflect the improved
operating earnings at Franklin Life and American General Life, and include the
operations of Independent Life acquired on Feb. 29, 1996.
Of the $100 million in operating earnings, 38 percent is attributable to
companies acquired over the last year and a half. This record level of
earnings reflects the company's corporate development activities in its life
insurance operations. American General expects to continue to enhance
shareholder value through its selective and opportunistic participation in the
ongoing life insurance industry consolidation.
Continuous pay life insurance sales were $67 million compared to
$73 million in the 1995 second quarter. While these results are in line with
industry trends, the life insurance companies have undertaken initiatives to
improve sales in the second half of 1996. For the quarter, mortality
experience was within pricing assumptions and operating expenses were on plan.
Corporate Operations
Corporate operations include income, interest and other expenses not
directly associated with business segment operations. Following is a
comparative table of second quarter and six month corporate operations
(aftertax) for 1996 and 1995:
Quarter Ended Six Months Ended
June 30, June 30,
In Millions: 1996 1995 1996 1995
Interest on Corporate Debt $(22) $(29) $(43) $(56)
Dividends on Preferred
Securities (9) (2) (19) (2)
Expenses Not Allocated
to Segments (9) (8) (15) (17)
Earnings on Corporate Assets 8 8 13 14
Equity in Earnings of
Western National 7 8 12 14
Subtotal (25) (23) (52) (47)
Realized Gains (Losses) 4 1 21 2
Total Corporate Operations $(21) $(22) $(31) $(45)
The decrease in interest on corporate debt reflects lower levels of lower
levels of short-term debt during 1996. Last year, subsidiaries of American
General issued $752 million of preferred securities, the proceeds of which
were used to reduce short-term debt. At June 30, 1996, the debt-to-total
capital ratio was 24 percent, compared to 30 percent a year ago. The target
ratio of 25 percent is designed to support the company's AA- (Very Strong)
senior debt ratings as well as AAA (Excellent) claims-paying ability ratings
for its principal life insurance subsidiaries.
Earnings on the company's 40 percent equity interest in Western National
Corporation during the second quarter were $1 million lower than the
comparable 1995 period due to a reduction in realized investment gains.
American General Corporation is one of the nation's largest diversified
financial services organizations. Headquartered in Houston, it is a leading
provider of retirement annuities, consumer loans, and life insurance.
American General common stock is traded 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.
SUPPLEMENT
American General Corporation
Comparative Results
(In millions, except per share data) (Unaudited)
Quarter ended Six months ended
June 30, June 30,
1996 1995 1996 1995
1. Revenues and Deposits $ 2,705 $ 2,628 $ 5,403 $ 5,126
Business Segment Earnings:
2. Retirement Annuities $ 58 $ 54 $ 118 $ 108
3. Consumer Finance 31 62 59 122
4. Life Insurance 100 86 191 170
5. Total Business
Segment Earnings 189 202 368 400
Corporate Operations:
6. Interest on
Corporate Debt (22) (29) (43) (56)
7. Dividends on
Preferred Securities
of Subsidiaries (9) (2) (19) (2)
8. Expenses Not Allocated
to Segments (9) (8) (15) (17)
9. Earnings on Corporate
Assets 8 8 13 14
10. Equity in Earnings
of Western National
Corporation 7 8 12 14
11. Realized
Investment Gains 4 1 21 2
12. Total Corporate Operations (21) (22) (31) (45)
13. Net Income $ 168 $ 180 $ 337 $ 355
14. Net Income Per Share $ .79 $ .88 $ 1.60 $ 1.73
15. Average Shares
Outstanding (a) 215.6 207.4 214.1 206.3
16. Operating Earnings (b) $ 164 $ 179 $ 316 $ 353
17. Operating Earnings
Per Share (b) .77 .87 1.50 1.72
At June 30,
1996 1995
18. Assets $ 63,017 $ 58,424
19. Shareholders' Equity 5,312 5,308
20. Book Value Per Share 25.58 26.01
21. Market Price Per Share 36.38 33.75
Excluding Fair Value Adjustment
Related to Securities (FAS 115) (c):
22. Assets $ 62,631 $ 57,444
23. Shareholders' Equity 5,064 4,677
24. Book Value Per Share 24.40 22.95
(a) The increase in average shares outstanding is due to the issuance
of common stock and assumed conversion of mandatorily convertible
preferred stock related to the February 1996 acquisition of
Independent Life Insurance Company and the assumed conversion of
preferred securities issued in June 1995.
(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:
Robert D. Mrlik, vice president-investor
relations, 713-831-1137; or John E. Pluhowski, director-corporate
communications, 713-831-1149, both of American General
Corporation.
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