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 1-6155 AMERICAN GENERAL FINANCE CORPORATION (Exact name of registrant as specified in its charter) Indiana 35-0416090 (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 10,160,012 shares of the registrant's common stock, $.50 par value, outstanding. 2 Part I - FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN GENERAL FINANCE CORPORATION 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 $403,791 $355,984 $1,172,629 $1,053,962 Insurance 49,678 48,157 146,597 136,684 Other 31,423 28,129 98,336 81,603 Total revenues 484,892 432,270 1,417,562 1,272,249 Expenses Interest expense 174,932 140,960 502,586 412,834 Operating expenses 132,768 124,611 397,620 382,282 Provision for finance receivable losses 48,989 49,437 144,486 147,578 Insurance losses and loss adjustment expenses 22,565 23,693 69,649 63,127 Total expenses 379,254 338,701 1,114,341 1,005,821 Income before provision for income taxes 105,638 93,569 303,221 266,428 Provision for Income Taxes 38,354 33,946 110,132 96,751 Net Income $ 67,284 $ 59,623 $ 193,089 $ 169,677 See Notes to Condensed Consolidated Financial Statements. 3 AMERICAN GENERAL FINANCE CORPORATION 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 $ 7,015,769 $ 6,918,753 Non-real estate loans 2,914,517 2,526,556 Retail sales finance 1,388,620 1,312,169 Net finance receivables 11,318,906 10,757,478 Allowance for finance receivable losses (372,825) (385,327) Net finance receivables, less allowance for finance receivable losses 10,946,081 10,372,151 Investment securities 1,075,759 985,483 Cash and cash equivalents 146,873 118,151 Notes receivable from parent 259,022 189,883 Other assets 701,703 798,434 Total assets $13,129,438 $12,464,102 Liabilities and Shareholder's Equity Long-term debt $ 5,756,580 $ 5,709,755 Short-term notes payable: Commercial paper 4,674,993 4,245,961 Other - 559 Insurance claims and policyholder liabilities 506,754 462,100 Other liabilities 392,834 322,362 Accrued taxes 24,688 21,406 Total liabilities 11,355,849 10,762,143 Shareholder's equity: Common stock 5,080 5,080 Additional paid-in capital 877,514 877,514 Accumulated other comprehensive loss (7,964) (6,694) Retained earnings 898,959 826,059 Total shareholder's equity 1,773,589 1,701,959 Total liabilities and shareholder's equity $13,129,438 $12,464,102 See Notes to Condensed Consolidated Financial Statements. 4 AMERICAN GENERAL FINANCE CORPORATION 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 $ 193,089 $ 169,677 Reconciling adjustments: Provision for finance receivable losses 144,486 147,578 Depreciation and amortization 103,984 93,557 Deferral of finance receivable origination costs (38,809) (37,583) Deferred income tax charge 3,992 6,208 Change in other assets 77,942 (12,666) Change in other liabilities 70,476 (12,060) Change in insurance claims and policyholder liabilities 44,654 11,954 Change in taxes receivable and payable 7,479 8,033 Other, net 2,050 17,832 Net cash provided by operating activities 609,343 392,530 Cash Flows from Investing Activities Finance receivables originated or purchased (4,625,888) (4,392,859) Principal collections on finance receivables 3,881,160 3,744,765 Investment securities purchased (372,060) (262,253) Investment securities called, matured and sold 277,370 199,832 Change in notes receivable from parent (69,139) (12,081) Transfer of liabilities to parent - (22,996) Change in premiums on finance receivables purchased and deferred charges (10,926) (26,396) Other, net (13,625) (27,400) Net cash used for investing activities (933,108) (799,388) Cash Flows from Financing Activities Proceeds from issuance of long-term debt 1,240,329 679,518 Repayment of long-term debt (1,196,122) (347,877) Change in short-term notes payable 428,473 242,602 Dividends paid (120,193) (166,520) Net cash provided by financing activities 352,487 407,723 Increase in cash and cash equivalents 28,722 865 Cash and cash equivalents at beginning of period 118,151 129,500 Cash and cash equivalents at end of period $ 146,873 $ 130,365 Supplemental Disclosure of Cash Flow Information Income taxes paid $ 98,598 $ 85,678 Interest paid $ 519,571 $ 429,745 See Notes to Condensed Consolidated Financial Statements. 5 AMERICAN GENERAL FINANCE CORPORATION 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 $ 67,284 $ 59,623 $193,089 $169,677 Other comprehensive income: Net unrealized gains (losses) on investment securities 9,467 (14,026) 1,340 (54,766) Income tax effect (3,315) 4,833 (468) 19,168 Net unrealized gains (losses) on investment securities, net of tax 6,152 (9,193) 872 (35,598) 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 5,498 (8,450) (1,270) (35,555) Comprehensive income $ 72,782 $ 51,173 $191,819 $134,122 See Notes to Condensed Consolidated Financial Statements. 6 AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements September 30, 2000 Note 1. Principles of Consolidation American General Finance Corporation will be referred to as "AGFC" 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 AGFC and its subsidiaries, all of which are wholly owned. We eliminated all intercompany items. We did not include per share information because AGFC is a wholly-owned subsidiary of American General Finance, Inc. (AGFI). 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 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 7 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. Because segment information is not calculated separately for the Company, the remaining information is for AGFI and its subsidiaries. The following tables display information about AGFI and its subsidiaries' segments as well as a reconciliation of their total segment pretax income to their 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 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. Legal Contingencies AGFC and certain of its subsidiaries are parties to various 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. 9 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, and borrowings from banks under credit facilities. AGFI has also contributed capital to AGFC 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 $ 609.3 $392.5 Net issuance of debt 472.7 574.2 Principal sources of cash $1,082.0 $966.7 Principal uses of cash: Net originations and purchases of finance receivables $ 744.7 $648.1 Dividends paid 120.2 166.5 Principal uses of cash $ 864.9 $814.6 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 $ 5,756.6 $ 5,496.3 Short-term debt 4,675.0 3,728.3 Total debt 10,431.6 9,224.6 Equity 1,773.6 1,590.9 Total capital $12,205.2 $10,815.5 Net finance receivables $11,318.9 $ 9,974.5 Debt to tangible equity ratio 6.46x 6.52x 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. We issue a combination of fixed-rate debt, principally long-term, and floating-rate debt, principally short-term. AGFC obtains our fixed-rate debt through issuances of medium-term notes and underwritten debt offerings with maturities generally ranging from two to ten years. AGFC obtains 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 10 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. AGFC has paid dividends to (or received capital contributions from) AGFI to manage our leverage of debt to tangible equity (equity less goodwill and net unrealized gains or losses on investment securities) to 6.50 to 1. 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. AGFC is an eligible borrower 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. AGFC and certain subsidiaries also have uncommitted credit facilities. In addition, AGFC 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: 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 $ 51.0 $ 91.0 Shared uncommitted facilities 50.0 50.0 Borrowings - - Remaining availability $ 101.0 $ 141.0 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 $ 67.3 $ 59.6 $193.1 $169.7 Return on average assets (annualized) 2.05% 2.08% 2.00% 2.00% Return on average equity (annualized) 15.06% 15.00% 14.77% 13.97% Ratio of earnings to fixed charges 1.59x 1.63x 11 Net income increased $7.7 million, or 13%, for the three months ended September 30, 2000 and $23.4 million, or 14%, for the nine months ended September 30, 2000 when compared to the same periods 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 $ 403.8 $ 356.0 $ 1,172.6 $ 1,054.0 Average net receivables $11,343.6 $ 9,828.6 $11,052.4 $ 9,681.8 Yield 14.18% 14.40% 14.17% 14.54% Finance charges increased $47.8 million, or 13%, for the three months ended September 30, 2000 and $118.6 million, or 11%, 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. 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 $ 7,031.8 $ 6,165.9 $ 7,017.9 $ 5,999.0 Non-real estate loans 2,929.4 2,451.8 2,689.1 2,452.8 Retail sales finance 1,382.4 1,210.9 1,345.4 1,230.0 Total average net receivables $11,343.6 $ 9,828.6 $11,052.4 $ 9,681.8 Average net receivables increased $1.5 billion, or 15%, for the three months ended September 30, 2000 and $1.4 billion, or 14%, 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 11.42% 11.36% 11.33% 11.56% Non-real estate loans 21.06% 21.93% 21.68% 21.97% Retail sales finance 13.63% 14.62% 13.96% 14.26% Total yield 14.18% 14.40% 14.17% 14.54% Yield decreased 22 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 37 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. 12 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 1.75% 1.96% 1.77% 1.88% 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. Other Revenues Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (dollars in millions) Other revenues $ 31.4 $ 28.1 $ 98.3 $ 81.6 Investment revenue $ 22.4 $ 18.7 $ 68.1 $ 58.9 Interest revenue - notes receivable from parent $ 7.1 $ 5.9 $ 23.7 $ 15.2 Other revenues increased $3.3 million, or 12%, for the three months ended September 30, 2000 and $16.7 million, or 21%, for the nine months ended September 30, 2000 when compared to the same periods in 1999 primarily due to higher investment revenue and higher interest revenue on notes receivable from AGFI. 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 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. The increase in interest revenue - notes receivable from parent for the three months and nine months ended September 30, 2000 reflected increased funding to AGFI. Interest Expense Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (dollars in millions) Interest expense $ 174.9 $ 141.0 $ 502.6 $ 412.8 Average borrowings $10,433.0 $ 9,076.7 $10,221.4 $ 8,865.5 Borrowing cost 6.69% 6.20% 6.55% 6.21% Interest expense increased $33.9 million, or 24%, for the three months ended September 30, 2000 and $89.8 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 $1.4 billion, or 15%, for the three months and nine months ended September 30, 2000 when compared to the same periods in 1999 primarily to support finance receivable growth. Borrowing cost 13 increased 49 basis points for the three months ended September 30, 2000 and 34 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 $132.8 $124.6 $397.6 $382.3 Operating expenses (annualized)as a percentage of average net receivables 4.68% 5.07% 4.80% 5.26% Operating expenses increased $8.2 million, or 7%, for the three months ended September 30, 2000 and $15.3 million, or 4%, 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 $ 49.0 $ 49.4 $144.5 $147.6 Net charge-offs $ 49.0 $ 49.4 $144.5 $147.6 60 day+ delinquency $399.8 $389.1 Allowance for finance receivable losses $372.8 $376.7 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 0.57% 0.70% 0.63% 0.58% Non-real estate loans 4.33% 5.08% 4.51% 5.25% Retail sales finance 2.08% 2.52% 2.03% 2.68% Total charge-off ratio 1.73% 2.02% 1.74% 2.04% 14 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 3.34% 3.33% Non-real estate loans 4.23 5.45 Retail sales finance 1.74 1.97 Total delinquency ratio 3.37 3.71 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 30 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% 3.78% Charge-off coverage 1.90x 1.90x 1.94x 1.91x 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 15 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. 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 $ 38.4 $ 33.9 $110.1 $ 96.8 Pretax income $105.6 $ 93.6 $303.2 $266.4 Effective income tax rate 36.31% 36.28% 36.32% 36.31% The provision for income taxes increased $4.5 million, or 13%, for the three months ended September 30, 2000 and $13.3 million, or 14%, for the nine months ended September 30, 2000 when compared to the same periods in 1999 primarily due to higher taxable income. 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 38% of our average borrowings for the three months ended September 30, 2000 and 36% for the nine months ended September 30, 2000, compared to 32% for the three months ended September 30, 1999 and 30% 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 products; (4) our ability to secure necessary regulatory approvals; (5) our ability to realize projected expense savings; (6) adverse litigation 16 results or resolution of litigation; 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 6. 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. Current Report on Form 8-K dated July 26, 2000, with respect to the issuance of an Earnings Release announcing certain unaudited financial results of the Company for the quarter ended June 30, 2000. Current Report on Form 8-K dated October 26, 2000, with respect to the issuance of an Earnings Release announcing certain unaudited financial results of the Company for the quarter ended September 30, 2000. 17 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 CORPORATION (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) 18 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.