AMERICAN EXPRESS CO - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2004

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 1-7657

AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)

New York 13-4922250
---------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

World Financial Center, 200 Vesey Street, New York, NY 10285
-------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (212) 640-2000
---------------------

None
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.

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 / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes /X/ No / /

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class Outstanding at October 31, 2004
- ----------------------------------------- -------------------------------
Common Shares (par value $.20 per share) 1,255,187,918 shares

AMERICAN EXPRESS COMPANY

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share amounts)
(Unaudited)

See Notes to Consolidated Financial Statements

1

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share amounts)
(Unaudited)

See Notes to Consolidated Financial Statements.

2

AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(millions, except share data)

See Notes to Consolidated Financial Statements.

3

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)

See Notes to Consolidated Financial Statements.

4

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements should be read in
conjunction with the financial statements in the Annual Report on Form
10-K of American Express Company (the Company or American Express) for
the year ended December 31, 2003. Certain reclassifications of prior
period amounts have been made to conform to the current presentation.

The interim financial information in this report has not been audited. In
the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position and the consolidated
results of operations for the interim periods have been made. All
adjustments made were of a normal, recurring nature. Results of
operations reported for interim periods are not necessarily indicative of
results for the entire year.

Cardmember lending net finance charge revenue is presented net of
interest expense of $152 million and $116 million for the three months
ended September 30, 2004 and 2003, respectively, and $415 million and
$360 million for the nine months ended September 30, 2004 and 2003,
respectively. Net investment income is presented net of interest expense
of $57 million and $53 million for the three months ended September 30,
2004 and 2003, respectively, and $162 million and $172 million for the
nine months ended September 30, 2004 and 2003, respectively, related
primarily to the Company's international banking operations.

At September 30, 2004 and December 31, 2003, cash and cash equivalents
included $0.9 billion and $1.1 billion, respectively, in special bank
accounts for the benefit of customers.

The Company has securitized charge card receivables totaling $2.7 billion
and $3.0 billion at September 30, 2004 and December 31, 2003,
respectively, which are included in cardmember receivables on the
Consolidated Balance Sheets as they do not qualify for off-balance sheet
treatment under Statement of Financial Accounting Standards (SFAS)
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities;" likewise, an equal amount of debt is
included in long-term debt.

Recently Issued Accounting Standards
------------------------------------

Effective January 1, 2004, the Company adopted the American Institute of
Certified Public Accountants Statement of Position 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts" (SOP 03-1). SOP 03-1
provides guidance on: (i) the classification and valuation of
long-duration contract liabilities; (ii) the accounting for sales
inducements; and (iii) separate account presentation and valuation.

The adoption of SOP 03-1 as of January 1, 2004 resulted in a cumulative
effect of accounting change that reduced 2004 results by $71 million
($109 million pretax). The cumulative effect of accounting change
consisted of: (i) $43 million pretax from establishing additional
liabilities for certain variable annuity guaranteed benefits and from
considering these liabilities in valuing deferred acquisition costs (DAC)
and deferred sales inducement costs associated with those contracts and
(ii) $66 million pretax from establishing additional liabilities for
certain variable universal life and single pay universal life insurance
contracts under which contractual cost of insurance charges are expected
to be less than future death benefits and from considering these
liabilities in valuing DAC associated with those contracts. Prior to the
adoption of SOP 03-1, amounts paid in excess of contract value were
expensed when payable. The Company's accounting for separate accounts was
already consistent with the provisions of SOP 03-1 and, therefore, there
was no impact related to this requirement.

In November 2003, the Financial Accounting Standards Board (FASB)
ratified a consensus on the disclosure provisions of Emerging Issues Task
Force (EITF) Issue 03-1, "The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments." The Company complied with
the disclosure provisions of this rule in Note 2 to the Consolidated
Financial Statements included in its Annual Report on

5

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Form 10-K for the year ended December 31, 2003. In March 2004, the FASB
reached a consensus regarding the application of a three-step impairment
model to determine whether investments accounted for in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and other cost method investments are other-than-temporarily
impaired. However, with the issuance of FASB Staff Position (FSP)
EITF 03-1-1, the provisions of the consensus relating to the measurement
and recognition of other-than-temporary impairments will be deferred
pending further clarification from the FASB. The remaining provisions of
this rule, which primarily relate to disclosure requirements, are
required to be applied prospectively to all current and future
investments accounted for in accordance with SFAS No. 115 and other cost
method investments. The Company will evaluate the potential impact of
EITF 03-1 after the FASB completes its reassessment.

In December 2003, the FASB issued SFAS No. 132 (Revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement
Benefits." This Statement amends the disclosure requirements of SFAS No.
87, "Employers' Accounting for Pensions," No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Statement requires
interim disclosure that is addressed in Note 7 but did not change the
recognition and measurement requirements of the amended Statements.

In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" (FSP FAS 106-2). The Company elected to
early adopt the provisions of FSP FAS 106-2 on a prospective basis as
of April 1, 2004. As the annual measurement date for the postretirement
benefit plans is September 30, the Company's postretirement benefit
obligation was remeasured as of January 1, 2004 giving effect to the
actuarially equivalent subsidy benefits. The expected subsidy had the
effect of reducing the Company's accumulated postretirement benefit
obligation (APBO) by $29 million, which was recognized as a reduction
in the unrecognized net actuarial loss. The unrecognized net gain or
loss outside a corridor equal to 10% of the APBO is amortized over
the average remaining service life of the Company's employees eligible
for postretirement benefits. The expected subsidy also affects the
service and interest cost of the plan, and reduced net periodic
postretirement benefit expense for the second quarter 2004 by
approximately $1 million. The expense amounts shown in Note 7 reflect
the effects of the early adoption of FSP FAS 106-2.

In October 2004, the FASB ratified EITF 04-08, "The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share."
Certain debt instruments, commonly referred to as "Co-Cos", are
contingently convertible into the common shares of the issuer after the
common share price has exceeded a predetermined threshold for a specified
period of time. Under the EITF guidance, Co-Cos must be included in
diluted earnings per share calculations regardless of whether or not the
contingency threshold has been met. The impact of this EITF should be
retroactively applied to instruments outstanding as of December 31, 2004.

As of September 30, 2004, the Company has $2 billion principal
outstanding of 1.85% Convertible Senior Debentures due 2033 (the
Debentures) with a current base conversion price of $69.41 and a
contingent conversion threshold of $86.76 per share. Prior to the third
quarter of 2004, these Debentures were contingently convertible into cash
or common shares of the Company, at the Company's option. During the
third quarter of 2004, the Company notified the trustee and holders of
the Debentures that the Company was electing that, upon conversion of the
Debentures at any time after the date of such notice, the Company will be
required to deliver cash in an amount at least equal to the accreted
principal amount of the Debentures converted. The Company may not revoke
this election without the consent of holders of at least a majority of
the original principal amount of the Debentures.

As a result of this election, in accordance with EITF 04-08, there will
be no impact on the future dilutive earnings per share calculation
related to these Debentures unless the Company's common share price
exceeds the current base conversion price. In that scenario, the Company
would reflect the additional common shares in the calculation of diluted
earnings per share using the treasury share method.

6

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. STOCK-BASED COMPENSATION

At September 30, 2004, the Company has two stock-based employee
compensation plans, which are described more fully in Note 14 of the
Company's 2003 Annual Report on Form 10-K. Effective January 1, 2003, the
Company adopted the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," prospectively for all stock
options granted after December 31, 2002. The Company expensed $13 million
and $7 million after-tax for the three months ended September 30, 2004
and 2003, respectively, and expensed $40 million and $17 million
after-tax for the nine months ended September 30, 2004 and 2003,
respectively, related to stock options granted January 1, 2003 or later.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which amended
Accounting Principles Board (APB) Opinion No. 28, "Interim Financial
Reporting," to require disclosure about the pro forma effects of SFAS No.
123 on reported net income of stock-based compensation accounted for
under APB Opinion No. 25, "Accounting for Stock Issued to Employees." The
following table illustrates the effect on net income and earnings per
common share (EPS) assuming the Company had followed the fair value
recognition provisions of SFAS No. 123 for all outstanding and unvested
stock options and other stock-based compensation for the three and nine
months ended September 30, 2004 and 2003:

3. INVESTMENT SECURITIES

The following is a summary of investments at September 30, 2004 and
December 31, 2003:

7

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Gross realized gains and losses on sales and losses recognized for
other-than-temporary impairments of securities classified as
Available-for-Sale, using the specific identification method, were as
follows for the three and nine months ended September 30, 2004 and 2003:

4. GUARANTEES

The Company, through its Travel Related Services (TRS) operating segment,
provides cardmember protection plans that cover losses associated with
purchased products, as well as certain other guarantees in the ordinary
course of business that are within the scope of FASB Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" (FIN 45). In the
hypothetical scenario that all claims occur within one year, the
aggregate maximum amount of potential future losses associated with such
guarantees would not exceed $88 billion. The total amount of the
estimated liability recorded at September 30, 2004 for such programs was
$283 million. The reduction in the estimated liability
from the second quarter 2004 amount of $333 million resulted as the
Company reduced its merchant-related reserves by approximately $60
million during the third quarter of 2004, reflecting modifications in
certain merchant agreements to mitigate loss exposure and ongoing
favorable credit experience with merchants. The Company has no
collateral or other recourse provisions related to these guarantees.
Expenses relating to claims under these guarantees were approximately
$4 million and $15 million for the three and nine months ended
September 30, 2004, respectively.

The Company, through its American Express Bank (AEB) operating segment,
provides various guarantees to its customers in the ordinary course of
business that are also within the scope of FIN 45, including financial
letters of credit, performance guarantees and financial guarantees, among
others. Generally, guarantees range in term from three months to one
year. AEB receives a fee related to most of these guarantees, many of
which help to facilitate customer cross-border transactions. At September
30, 2004, the Company held $772 million of collateral supporting these
guarantees. The following table provides information related to such
guarantees as of September 30, 2004:

5. VARIABLE ANNUITIES AND SALES INDUCEMENT COSTS

The majority of the variable annuity contracts offered by the Company
contain guaranteed minimum death benefit (GMDB) provisions. When market
values of the customer's accounts decline, the death benefit payable

8

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

on a contract with a GMDB may exceed the contract accumulation value. The
Company also offers variable annuities with death benefit provisions that
gross up the amount payable by a certain percentage of contract earnings;
these are referred to as gain gross-up benefits (GGU). In addition, the
Company offers contracts containing guaranteed minimum income benefit
(GMIB) provisions.

* Represents current death benefit less total contract value for GMDB,
amount of gross up for GGU and accumulated guaranteed minimum
benefit base less total contract value for GMIB and assumes the
actuarially remote scenario that all claims become payable on the
same day.

The Company had variable annuity guarantee liabilities (which include
amounts related to GMDB, GGU and GMIB liabilities) of approximately $31.8
million as of September 30, 2004 pertaining to the net amount at risk as
of such date.

The majority of the GMDB contracts provide for six year reset contract
values. In determining the additional liabilities for variable annuity
death benefit and GMIB, the Company projects these benefits and contract
assessments using actuarial models to simulate various equity market
scenarios. Significant assumptions made in projecting future benefits and
assessments relate to customer asset value growth rates, mortality,
persistency and investment margins and are consistent with those used for
DAC asset valuation for the same contracts.

Sales inducement costs consist of bonus interest credits and premium
credits added to certain life insurance and annuity contract values.
These benefits are capitalized to the extent they are incremental to
amounts that would be credited on similar contracts without the
applicable feature. Deferred sales inducement costs were $298 million
and $279 million as of September 30, 2004 and December 31, 2003,
respectively, and are included in other assets. These costs were
previously included in DAC and were reclassified to other assets as
part of the adoption of SOP 03-1. The amounts capitalized are amortized
using the same methodology and assumptions used to amortize deferred
acquisition costs. The Company capitalized $16 million and $11 million
during the three months ended September 30, 2004 and 2003, respectively,
and $53 million and $54 million during the nine months ended September
30, 2004 and 2003, respectively. The Company amortized $7 million and
$5 million during the three months ended September 30, 2004 and 2003,
respectively, and $24 million and $18 million during the nine months
ended September 30, 2004 and 2003, respectively.

6. COMPREHENSIVE INCOME

Comprehensive income is defined as the aggregate change in shareholders'
equity, excluding changes in ownership interests. It is the sum of net
income and changes in (i) unrealized gains or losses on
Available-for-Sale securities, (ii) unrealized gains or losses on
derivatives, (iii) foreign currency translation adjustments and (iv)
minimum pension liability adjustment. The components of comprehensive
income, net of related tax, for the three and nine months ended September
30, 2004 and 2003 were as follows:

9

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. RETIREMENT PLANS

The components of the net pension cost for all defined benefit plans
accounted for under SFAS No. 87 are as follows:

The net periodic postretirement benefit expense recognized for the three
months ended September 30, 2004 and 2003 was $9 million and $10 million,
respectively, and $29 million and $30 million for the nine months ended
September 30, 2004 and 2003, respectively.

8. TAXES AND INTEREST

Income taxes paid (net of refunds) during the nine months ended September
30, 2004 and 2003 were approximately $836 million and $811 million,
respectively. Interest paid during both the nine months ended September
30, 2004 and 2003 was approximately $1.2 billion.

9. EARNINGS PER COMMON SHARE

Basic EPS is computed using the average actual shares outstanding during
the period. Diluted EPS is basic EPS adjusted for the dilutive effect of
stock options, restricted stock awards and other financial instruments
that may be converted into common shares. The computations of basic and
diluted EPS for the three and nine months ended September 30, 2004 and
2003 are as follows:

10

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For the three months ended September 30, 2004 and 2003, the dilutive
effect of stock options excludes 14 million and 37 million options,
respectively, from the computation of diluted EPS because to do so would
have been antidilutive for the periods presented. Similarly, the number
of these excluded stock options for the nine months ended September 30,
2004 and 2003 was 12 million and 83 million, respectively. The
convertible debentures issued in November 2003 have been excluded from
the computation of EPS because none of the criteria by which this
instrument becomes convertible has been attained. As discussed in Note 1,
EITF 04-08 will have no impact on the future dilutive earnings per share
calculations unless the Company's common share price exceeds the
conversion price, currently $69.41, of the Company's $2 billion
outstanding of 1.85% Convertible Senior Debentures due 2033.

10. SEGMENT INFORMATION

The Company is principally engaged in providing travel-related, financial
advisory and international banking services throughout the world. TRS'
products and services include, among others, charge cards, cardmember
lending products, Travelers Cheques, and corporate and consumer travel
services. American Express Financial Advisors' (AEFA) services and
products include financial planning and advice, investment advisory
services and a variety of products, including insurance and annuities,
investment certificates and mutual funds. AEB's products and services
primarily include providing banking services to high net worth customers
and financial institutions, personal financial services and global
trading. The Company operates on a global basis, although the principal
market for financial advisory services is the United States.

The following tables present the results for these operating segments,
based on management's evaluation and internal reporting structure, for
the three and nine months ended September 30, 2004 and 2003. For certain
income statement items that are affected by asset securitizations at TRS,
data is provided on both a managed basis, which excludes the effect of
securitizations, as well as on a basis prepared in accordance with U.S.
generally accepted accounting principles (GAAP). Pretax income and net
income are the same under both a GAAP and managed basis. See TRS Results
of Operations section of Management's Discussion and Analysis (MD&A) for
further information regarding the effect of securitizations on the
financial statements. TRS' third

11

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

quarter and year-to-date results reflect a reconciliation of
securitization-related lending receivable accounts, which resulted in a
charge to other provision of $115 million (net of $32 million of reserves
previously provided) for balances accumulated over the prior five year
period as a result of a computational error. The amount of the error was
immaterial to any of the quarters in which it occurred and, since the
identification of this error, the Company has performed a comprehensive
review and revised its procedures accordingly. In addition, net revenues
(managed basis) are presented net of provisions for losses and benefits
for annuities, insurance and investment certificate products of AEFA,
which are essentially spread businesses as further discussed in the AEFA
Results of Operations section of MD&A.

* Results for the nine months ended September 30, 2004 reflect a $109
million non-cash pretax charge ($71 million after-tax) related to
the January 1, 2004 adoption of SOP 03-1.

12

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. SUBSEQUENT EVENTS

In October 2004, the Company announced an agreement to sell the leasing
product line in its small business financing unit, American Express
Business Financial Corporation (AEBF), with a loan portfolio of
approximately $1.5 billion. The Company does not expect the gain on the
sale of AEBF to have a material impact on fourth quarter net income as the
Company also expects to incur unrelated, newly anticipated costs
associated with global reengineering initiatives.

Additionally, the Company announced that it has signed agreements with
Delta Air Lines to extend its co-brand, Membership Rewards and merchant
partnerships. The agreements will extend these partnerships into the next
decade. As part of the agreements, American Express has committed to
prepay $500 million for the future purchase of Delta SkyMiles rewards
points. The Company has also committed to loan Delta up to $100 million
in connection with senior secured financing being arranged with Delta by
GE Commercial Finance. Both the prepayment and the loan will have a
three-year term, and both will be fully collateralized by a pool of
assets and are subject to certain conditions.

13

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors
American Express Company

We have reviewed the consolidated balance sheet of American Express Company
(the "Company") as of September 30, 2004 and the related consolidated
statements of income for the three and nine-month periods ended September 30,
2004 and 2003, and consolidated statements of cash flows for the nine-month
periods ended September 30, 2004 and 2003. These financial statements are the
responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with the standards of the Public Company Accounting Oversight
Board, the objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the consolidated interim financial statements referred to
above for them to be in conformity with U.S. generally accepted accounting
principles.

We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of the Company as of December 31, 2003, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated January 26, 2004, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 2003 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.

/s/Ernst & Young LLP

New York, New York
November 4, 2004

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

American Express Company (the Company or American Express) is a global travel,
financial and network services provider. The Company has three operating
segments: Travel Related Services (TRS), American Express Financial Advisors
(AEFA) and American Express Bank (AEB).

TRS includes the Company's card, travel, merchant and network businesses, as
well as the Travelers Cheque and other prepaid products and services. Through
its TRS businesses, the Company offers consumers and small businesses a
variety of charge and credit cards, Travelers Cheques and other stored value
products. The Company's Corporate Card services help companies and
institutions manage their travel, entertainment and purchasing expenses. TRS'
global network services business focuses on partnering with third-party
financial institutions that issue American Express-branded cards accepted on
the Company's merchant network. As the world's largest travel agency, the
Company offers travel and related consulting services to individuals and
corporations around the world.

AEFA is one of the leading financial planning companies in the United States.
AEFA has approximately 12,000 financial advisors nationwide and offers a wide
array of products and services, including financial planning, brokerage
services, mutual funds, insurance and other investment products.

AEB provides banking and other financial products and services to wealthy
individuals, financial institutions and retail customers outside the United
States.

The Company follows United States generally accepted accounting principles
(GAAP). In addition to information provided on a GAAP basis, the Company
discloses certain data on a "managed basis." This information, which should be
read only as a supplement to GAAP information, assumes there have been no
securitization transactions at TRS, i.e., as if all securitized cardmember
loans and related income effects are reflected in the Company's balance sheet
and income statements. In addition, revenues are reported net of AEFA's
provision for losses and benefits for annuities, insurance and investment
certificate products, which are essentially spread businesses. See the TRS and
AEFA Results of Operations sections for further discussion of this approach.
Certain reclassifications of prior period amounts have been made to conform to
the current presentation.

Certain of the statements below are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. See the
"Forward-Looking Statements" section below.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2004 AND 2003

The Company's consolidated net income for the three-month period ended
September 30, 2004 of $879 million rose 14 percent from $770 million in the
same period a year ago. Diluted earnings per share (EPS) of $0.69 increased 17
percent from $0.59. On a trailing 12-month basis, return on average
shareholders' equity was 21.5 percent.

Both the Company's revenues and expenses are affected by changes in the
relative values of non-U.S. currencies to the U.S. dollar. The currency rate
changes increased both revenue and expense growth by approximately 1
percentage point for the three months ended September 30, 2004.

The following discussion is presented on a basis prepared in accordance with
GAAP unless otherwise noted.

Revenues
- --------
Consolidated revenues for the three months ended September 30, 2004 were $7.2
billion, up 12 percent from $6.4 billion in the same period a year ago
reflecting 13 percent growth at TRS, 12 percent growth at AEFA and 3 percent
growth at AEB. As discussed in further detail below, the increase in the third
quarter was due primarily to

15

increases in discount revenue, management and distribution fees, cardmember
lending net finance charge revenue, travel and other commissions and fees, and
insurance and annuity revenues.

Discount revenue at TRS rose 14 percent as compared to a year ago as a result
of a 16 percent increase in worldwide billed business, reflecting higher
average cardmember spending and growth in cards-in-force, partially offset by
a lower discount rate. Net investment income increased 5 percent as lower
interest income on investment and liquidity pools held within card funding
vehicles at TRS and lower net interest income at AEB were more than offset by
a 5 percent increase at AEFA. The increase at AEFA is primarily due to net
investment gains in the current period versus net investment losses a year ago
and the benefits of slightly higher levels of invested assets. The net
investment gains include a $7 million benefit primarily reflecting lower than
expected losses resulting from management's first quarter decision to
liquidate a secured loan trust managed by AEFA.

Management and distribution fees increased 21 percent representing a 34
percent increase in management fees and a 7 percent increase in distribution
fees. The management fees increase resulted from higher average assets under
management, reflecting the impact from the September 30, 2003 acquisition of
Threadneedle Asset Management Holdings LTD (Threadneedle), improvement in
equity market valuations versus last year and net asset inflows. Distribution
fees increased as a result of greater mutual fund fees partially offset by
lower limited partnership and brokerage-related revenues.

Cardmember lending net finance charge revenue at TRS increased 18 percent,
reflecting the effects of 17 percent growth in the average balance of the
owned lending portfolio and a higher average yield. Net card fees increased 2
percent primarily reflecting 7 percent growth in cards-in-force. Travel
commissions and fees rose 22 percent as a result of a 23 percent increase in
travel sales, which includes the benefit from the acquisition of Rosenbluth
International (Rosenbluth) in the fourth quarter of 2003 and improvement in
the travel environment. Other commissions and fees increased 18 percent
primarily due to greater volume-related foreign exchange conversion fees, card
fees and assessments at TRS. Insurance and annuity revenues increased 13
percent primarily due to strong property-casualty and higher life
insurance-related revenues at AEFA.

Net securitization income, which includes non-credit provision components of
the net gains and charges from securitization activities, excess spread
related to securitized loans, net finance charge revenue on retained interests
in securitized loans and servicing income, net of related discounts or fees,
decreased 2 percent primarily due to lower excess servicing income resulting
from lower finance charge yields on securitized loans.

Expenses
- --------
Consolidated expenses for the three months ended September 30, 2004 were $5.9
billion, up 11 percent from $5.4 billion for the same period in 2003
reflecting increases of 12 percent at both TRS and AEFA, while AEB expenses
decreased slightly. As discussed in further detail below, the increase in the
third quarter of 2004 was primarily driven by higher marketing, promotion,
rewards and cardmember services, human resources, professional services, and
occupancy and equipment expenses partially offset by lower provisions for
losses and benefits and interest expense.

Human resources expenses increased 15 percent versus last year due to the
impact of the acquisitions of Rosenbluth and Threadneedle in late 2003,
increased costs related to management incentives, including the impact of an
additional incremental year of higher stock-based compensation expenses, merit
increases and employee benefit expenses. The higher stock-based compensation
expense reflects the Company's decision to expense stock options beginning in
2003 and to modify compensation practices and use restricted stock awards in
place of stock options for middle management. The increase in human resources
expenses also reflects a $9 million decrease in favorable deferred acquisition
costs (DAC) adjustments this year versus last year at AEFA.

Marketing, promotion, rewards and cardmember services expenses increased 29
percent versus a year ago primarily due to a 29 percent increase at TRS
related to increased rewards costs, reflecting a higher redemption rate,
strong volume growth and the continued increase in cardmember loyalty program
participation, as well as the Company's continued focus on business building
activities. Management believes, based on historical experience, that
cardmembers enrolled in rewards and co-brand programs yield higher spend,
better retention, stronger credit performance and greater profit for the
Company.

16

Total provisions for losses and benefits decreased 2 percent from last year,
primarily resulting from a combined 8 percent reduction in annuity and
investment certificate provisions at AEFA, a 3 percent reduction in charge
card provision at TRS and a 16 percent decrease in TRS cardmember lending
provision, partially offset by a 20 percent increase in life insurance,
international banking and other provisions. Annuity provisions at AEFA
decreased 9 percent primarily due to lower interest crediting rates and the
effect of depreciation in the S&P 500 on equity indexed annuities during the
current quarter versus appreciation in the same period a year ago, partially
offset by a higher average inforce level. Investment certificate provisions at
AEFA decreased 1 percent primarily due to the effect on the stock market
certificate product of depreciation in the S&P 500 during the current quarter
versus appreciation in the same period a year ago, partially offset by higher
average reserves and interest crediting rates.

The increase in life insurance, international banking and other provisions was
primarily driven by an increase in other provisions at TRS reflecting a
reconciliation of securitization-related lending receivable accounts, which
resulted in a charge of $115 million (net of $32 million of reserves
previously provided) for balances accumulated over the prior five-year period
as a result of a computational error. The amount of the error was immaterial
to any of the quarters in which it occurred and, since the identification of
this error, the Company has performed a comprehensive review and revised its
procedures accordingly.

Separately, other provisions at TRS were favorably impacted by a reduction in
merchant-related reserves of approximately $60 million that reflects
modifications in certain merchant agreements to mitigate loss exposure and
ongoing favorable credit experience with merchants.

The charge card provision at TRS decreased, despite higher volume, due to
strong credit quality as reflected in past due percentages and net loss
ratios. The lending provision at TRS decreased despite growth in average loans
outstanding primarily due to the benefits of well-controlled credit. Reserve
coverage ratios, which were in excess of 100 percent of past due balances,
remained strong.

Professional services expense rose 13 percent versus the same period a year
ago primarily due to increased technology costs related to higher business and
service-related volumes at TRS and increased legal fees at AEFA. Occupancy and
equipment expense increased 10 percent primarily due to increased
equipment-related technology costs at TRS. Interest expense declined 9 percent
primarily due to a 6 percent decrease in charge card interest expense at TRS,
reflecting the benefit of a lower effective cost of funds, partially offset by
higher average receivable balances. Other expenses were essentially flat as a
result of an 8 percent decrease at TRS, primarily resulting from the impact of
foreign currency translation gains, offset by a 27 percent increase at AEFA,
primarily due to increased costs related to securities industry regulatory and
legal matters, partially offset by a $31 million favorable benefit from DAC
adjustments this year versus last year.

The effective tax rate was 30 percent and 28 percent for the three-month
periods ended September 30, 2004 and 2003, respectively, reflecting the effect
of the $29 million reduction to tax expense in the third quarter 2003 related
to the finalization of the 2002 tax return filed during the third quarter and
the publication of favorable technical guidance related to the taxation of
dividend income.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2004 AND 2003

The Company's consolidated income before accounting change rose 18 percent to
$2.6 billion and diluted EPS before accounting change rose 19 percent to $2.03
in the nine-month period ended September 30, 2004 as compared to a year ago.
The Company's consolidated net income of $2.5 billion rose 15 percent from
$2.2 billion and diluted EPS of $1.98 increased 16 percent from $1.71. On a
trailing 12-month basis, return on average shareholders' equity was 21.5
percent.

Net income and EPS for the nine months ended September 30, 2004 reflect the
$71 million ($109 million pretax) or $0.05 per diluted share impact of the
Company's adoption of Statement of Position 03-1, "Accounting and Reporting
by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts
and for Separate Accounts" (SOP 03-1). SOP 03-1 requires insurance
enterprises to establish liabilities for benefits that may become payable

17

under variable annuity death benefit guarantees or other insurance or annuity
contract provisions. Prior to the adoption of SOP 03-1, these costs were
expensed when payable.

Both the Company's revenues and expenses are affected by changes in the
relative values of non-U.S. currencies to the U.S. dollar. The currency rate
changes increased both revenue and expense growth by approximately 2
percentage points for the nine months ended September 30, 2004.

The following discussion is presented on a basis prepared in accordance with
GAAP unless otherwise noted.

Revenues
- --------
Consolidated revenues for the nine months ended September 30, 2004 were $21.4
billion, up 14 percent from $18.8 billion in the same period a year ago
reflecting 13 percent growth at TRS, 17 percent growth at AEFA and 4 percent
growth at AEB. As discussed in further detail below, the increase in the first
nine months of 2004 was due primarily to increases in discount revenue,
management and distribution fees, travel and other commissions and fees,
cardmember lending net finance charge revenue, insurance and annuity revenues,
net card fees and other revenues.

Discount revenue at TRS rose 17 percent as compared to a year ago as a result
of an 18 percent increase in worldwide billed business, reflecting both growth
in cards-in-force and higher average cardmember spending, partially offset by
a lower discount rate. Net investment income was essentially flat as a 4
percent increase at AEFA was offset by lower interest income on investment and
liquidity pools held within card funding vehicles at TRS and lower net
interest income at AEB. The increase at AEFA is primarily due to the benefits
of slightly higher levels of invested assets and a slightly higher yield.
AEFA's net investment income for the nine months ended September 30, 2004 also
includes a net $24 million charge resulting from management's decision to
further improve the investment portfolio's risk profile through the early
liquidation of a secured loan trust managed by AEFA.

Management and distribution fees increased 34 percent representing a 41
percent increase in management fees and a 25 percent increase in distribution
fees. The management fees increase is primarily due to higher average assets
under management, reflecting the impact from the September 30, 2003
acquisition of Threadneedle, improvement in equity market valuations versus
last year and net asset inflows. Distribution fees increased as a result of
greater mutual fund fees and increased brokerage-related activities partially
offset by lower limited partnership product sales.

Cardmember lending net finance charge revenue at TRS increased 10 percent as
the effects of 16 percent growth in the average balance of the owned lending
portfolio were partially offset by a lower average yield. Net card fees
increased 4 percent primarily reflecting 7 percent growth in cards-in-force.
Travel commissions and fees rose 24 percent as a result of a 29 percent
increase in travel sales, which includes the benefit from the acquisition of
Rosenbluth in the fourth quarter of 2003 and improvement in the travel
environment. Other commissions and fees increased 17 percent primarily due to
greater volume-related foreign exchange conversion fees, card fees and
assessments at TRS. Insurance and annuity revenues increased 13 percent due to
strong property-casualty and higher life insurance-related revenues at AEFA.

Net securitization income for the nine months ended September 30, 2004 was
essentially flat as compared to the same period in the prior year. The impact
of higher average securitized loan balances was offset by lower excess
servicing income resulting from lower finance charge yields on securitized
loans as well as lower net gains from securitization activities.

Expenses
- --------
Consolidated expenses for the nine months ended September 30, 2004 were $17.6
billion, up 13 percent from $15.6 billion for the same period in 2003
reflecting increases of 12 percent at TRS and 14 percent at AEFA, while AEB's
expenses decreased slightly. As discussed in further detail below, the
increase in the first nine months of 2004 was primarily driven by higher
marketing, promotion, rewards and cardmember services, human resources,
professional fees, occupancy and equipment related costs and other expenses
partially offset by lower provisions for losses and interest expense.

18

Human resources expenses increased 17 percent versus last year due to the
impact of the acquisitions of Rosenbluth and Threadneedle in late 2003,
increased costs related to management incentives, including the impact of an
additional incremental year of higher stock-based compensation expenses, merit
increases and employee benefit expenses. The increase in human resources
expenses also reflects a $9 million third quarter decrease in favorable DAC
adjustments this year versus last year at AEFA. These increases were partially
offset by a first quarter $44 million DAC valuation benefit at AEFA reflecting
a portion of the benefit of the lengthening of amortization periods for
certain insurance and annuity products in conjunction with the adoption of SOP
03-1. The total first quarter DAC valuation benefit of $66 million (including
the $22 million benefit in other expenses noted below) and the impact of the
adoption of SOP 03-1 are discussed in the AEFA Results of Operations section.

Marketing, promotion, rewards and cardmember services expenses increased 32
percent versus a year ago primarily due to a 32 percent increase at TRS
related to increased rewards costs, reflecting a higher redemption rate,
strong volume growth and the continued increase in cardmember loyalty program
participation, as well as the Company's continued focus on business building
activities.

Total provisions for losses and benefits declined 3 percent from last year,
primarily resulting from a combined 7 percent reduction in annuity and
investment certificate provisions at AEFA, a 5 percent reduction in charge
card provision at TRS and a 6 percent decrease in TRS cardmember lending
provision partially offset by a 5 percent increase in life insurance,
international banking and other reserves. Annuity provisions at AEFA decreased
7 percent primarily due to lower interest crediting rates and the effect on
equity indexed annuities of lower appreciation in the S&P 500 during the first
nine months of the year versus the same period a year ago, partially offset by
a higher average inforce level. Investment certificates provisions at AEFA
decreased 5 percent primarily due to lower interest crediting rates and the
effect on the stock market certificate product of lower appreciation in the
S&P 500 during the first nine months of the year versus the same period a year
ago, partially offset by higher average reserves.

The increase in life insurance, international banking and other provisions was
primarily driven by an increase in other provisions at TRS as previously
discussed in the three-month results of operations section. This increase was
partially offset by a significant decrease in international banking provisions
at AEB due to an improvement in bankruptcy-related write-offs in the consumer
lending portfolio in Hong Kong and lower Personal Financial Services loan
volumes.

The charge card provision at TRS decreased, despite higher volume, due to
strong credit quality as reflected in past due percentages and net loss
ratios. The lending provision at TRS decreased despite growth in average loans
outstanding primarily due to the benefits of well-controlled credit. Reserve
coverage ratios, which were in excess of 100 percent of past due balances,
remained strong.

Professional services expense rose 10 percent versus the same period a year
ago primarily due to increased technology costs related to higher business and
service-related volumes at TRS and increased legal fees at AEFA. Occupancy and
equipment expense increased 10 percent primarily due to increased
equipment-related technology costs at TRS. Interest expense declined 10
percent primarily due to a 14 percent decrease in charge card interest expense
at TRS, reflecting the benefit of a lower effective cost of funds, partially
offset by increased interest expense at the corporate level on long-term debt
issued in late 2003. Other expenses rose 16 percent, including a 6 percent
increase at TRS, primarily resulting from the impact of the Threadneedle and
Rosenbluth acquisitions, the impact of foreign currency translation losses at
TRS, costs related to various industry regulatory and legal matters at AEFA
and costs incurred at AEB reflecting the decision to further rationalize
certain New York and Asia activities. These increases were partially offset by
a $31 million third quarter favorable benefit from DAC adjustments this year
versus last year at AEFA; the first quarter $22 million DAC valuation benefit
at AEFA and the benefit of reengineering initiatives and cost containment
efforts. See the AEFA Results of Operations section for further discussion of
DAC and related adjustments.

The effective tax rate was 30 percent for both the nine-month periods ended
September 30, 2004 and 2003.

19

Other Events
- ------------
In October 2004, the Company announced an agreement to sell the leasing
product line in its small business financing unit, American Express Business
Financial Corporation (AEBF), with a loan portfolio of approximately $1.5
billion. The Company does not expect the gain on the sale of AEBF to have a
material impact on fourth quarter net income as the Company also expects to
incur unrelated, newly anticipated costs associated with global reengineering
initiatives.

Additionally, the Company announced that it has signed agreements with Delta
Air Lines to extend its co-brand, Membership Rewards and merchant
partnerships. The agreements will extend these partnerships into the next
decade. As part of the agreements, American Express has committed to prepay
$500 million for the future purchase of Delta SkyMiles rewards points. The
Company has also committed to loan Delta up to $100 million in connection
with senior secured financing being arranged with Delta by GE Commercial
Finance. Both the prepayment and the loan will have a three-year term,
and both will be fully collateralized by a pool of assets and are subject
to certain conditions.

The Company's decision to participate in Delta's restructuring program
reflects its long-term partnership with the airline through its travel
business, co-branded cards and the Membership Rewards program. While American
Express' Delta SkyMiles Credit Card co-brand portfolio accounts for less than
10 percent of the Company's total worldwide billed business and less than 15
percent of managed worldwide lending receivables, it represents a very
attractive, high-spending, loyal cardmember base with excellent credit
quality. The Company continues to believe this portfolio represents an
attractive growth opportunity.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

Capital Strategy
- ----------------
The Company believes allocating capital to its growing businesses with a
return on risk-adjusted equity in excess of their cost of capital will
continue to build shareholder value. The Company's philosophy is to retain
earnings sufficient to enable it to meet its growth objectives, and, to the
extent capital exceeds investment opportunities, return excess capital to
shareholders. Assuming the Company achieves its financial objectives of 12 to
15 percent EPS growth, 18 to 20 percent return on equity and 8 percent revenue
growth, on average and over time, it will seek to return to shareholders an
average of 65 percent of capital generated, subject to business mix,
acquisitions and rating agency requirements. The Company paid dividends of
$383 million during the nine months ended September 30, 2004. In addition, in
keeping with the Company's objectives regarding the return of excess capital
to shareholders, the Board of Directors of the Company approved a 20 percent
increase in the quarterly dividend on the Company's common stock from $0.10 to
$0.12 per share for the dividend payable to shareholders on November 10, 2004.

Cash Flows
- ----------
Cash Flows from Operating Activities
The Company generated net cash provided by operating activities in amounts
greater than net income for the nine months ended September 30, 2004 primarily
due to provisions for losses and benefits, which represent expenses in the
Consolidated Statements of Income but do not require cash at the time of
provision. Similarly, depreciation and amortization represent non-cash
expenses. In addition, net cash was provided by fluctuations in other
operating assets and liabilities. These accounts vary significantly in the
normal course of business due to the amount and timing of various payments.

Net cash was provided by operating activities in amounts less than net income
for the nine months ended September 30, 2003 as net income and non-cash
expense items such as provisions for losses and depreciation were more than
offset by fluctuations in the Company's operating assets and liabilities,
primarily reflecting the purchase of securities in 2002, settled in 2003.

Management believes cash flows from operations, available cash balances and
short-term borrowings will be sufficient to fund the Company's operating
liquidity needs.

20

Cash Flows from Investing Activities
The Company's investing activities primarily include funding TRS' cardmember
loans and receivables and AEFA's Available-for-Sale investment portfolio.

For the nine months ended September 30, 2004, net cash used in investing
activities decreased from last year primarily due to decreases in cash used
for loan operations at AEB and an acquisition at AEFA in 2003 partially
offset by net increases in cash used in funding cardmember loans and
receivables at TRS.

Cash Flows from Financing Activities
The Company's financing activities primarily include the issuance of debt and
AEFA's sale of annuities and investment certificates, in addition to taking
customer deposits. The Company also regularly repurchases its common shares.

Net cash used in financing activities for the nine months ended September 30,
2004 was relatively flat compared to the same period in 2003 due to a decrease
in net sales and redemptions of annuities and investment certificates and
higher share repurchase activity offset by a net increase in total debt
compared to a net decrease last year.

Share Repurchases
- -----------------
The Company has in place a share repurchase program to return equity capital
in excess of its business needs to shareholders. Repurchases are made to both
offset the issuance of new shares as part of employee compensation plans and
to reduce shares outstanding. The Company repurchases its common shares
primarily by open market purchases using several brokers at competitive
commission and fee rates. In addition, common shares may also be purchased
from the Company-sponsored Incentive Savings Program (ISP) to facilitate the
ISP's required disposal of shares when employee-directed activity results in
an excess common share position. Such purchases are made at market price
without commissions or other fees. During the nine months ended September 30,
2004, the Company repurchased 54.4 million common shares at an average price
of $50.60. Since the inception of the share repurchase program in September
1994, 480.5 million shares have been acquired under total authorizations to
repurchase up to 570.0 million shares, including purchases made under
agreements with third parties.

Parent Company Funding
- ----------------------
In July 2004, the Parent Company filed a registration statement with the
Securities and Exchange Commission (SEC) for an additional $3 billion
aggregate amount of debt securities, common and preferred equity securities
and warrants, which was declared effective on August 19, 2004. At September
30, 2004, the Parent Company had $4.3 billion of debt or equity securities
available for issuance under shelf registrations filed with the SEC. In June
2004, the Parent Company issued $500 million of 4.75% Senior Notes due June
2009 under the shelf registrations to be used for general corporate purposes.

In addition, TRS; American Express Centurion Bank (Centurion Bank), a
wholly-owned subsidiary of TRS; American Express Credit Corporation (Credco),
a wholly-owned subsidiary of TRS; American Express Overseas Credit Corporation
Limited, a wholly-owned subsidiary of Credco; and AEB have established a
program for the issuance, outside the United States, of debt instruments to be
listed on the Luxembourg Stock Exchange. The maximum aggregate principal
amount of debt instruments outstanding at any one time under the program will
not exceed $6.0 billion. At September 30, 2004, $2.7 billion was outstanding
under this program, including (Pounds Sterling)1.25 billion (approximately
$2.2 billion) issued by Credco during the third quarter. Subsequently, in
October 2004, Credco issued (Euro)375 million (approximately $461 million)
under the program.

The Parent Company and three subsidiaries, Credco, Centurion Bank and American
Express Bank, FSB (FSB), a wholly-owned subsidiary of TRS, maintain bank
credit facilities of $10.75 billion, of which $9.28 billion was available as
of September 30, 2004, including $1.96 billion allocated to the Parent Company
and $6.7 billion allocated to Credco. As contemplated, in June 2004, Credco
borrowed $1.47 billion under these facilities as part of a change in local
funding strategy for business in Canada. Credco has the right to borrow a
maximum amount of $10.1 billion (including amounts outstanding) under these
facilities, with a commensurate reduction in the amount available to the
Parent Company. These facilities expire as follows (billions): 2005, $3.75;
2006, $2.20; 2007, $1.05 and 2009, $3.75.

21

SUPPLEMENTAL INFORMATION - MANAGED NET REVENUES

The following supplemental information is presented on the basis used by
management to evaluate operations. It differs in two respects from the
accompanying financial statements, which are prepared in accordance with GAAP.
First, revenues are presented as if there had been no asset lending
securitizations at TRS. This format is generally termed on a managed basis, as
further discussed in the TRS Results of Operations section of Management's
Discussion and Analysis (MD&A). Second, revenues are considered net of AEFA's
provisions for losses and benefits for annuities, insurance and investment
certificate products, which are essentially spread businesses, as further
discussed in the AEFA Results of Operations section of MD&A. A reconciliation
of consolidated revenues from a GAAP to a net managed basis is as follows:

Consolidated managed net revenues increased 12 percent for the three months
ended September 30, 2004 to $6.9 billion, compared with $6.1 billion for the
same period in 2003. For the nine months ended September 30, 2004,
consolidated managed net revenues increased 14 percent to $20.5 billion,
compared with $18.0 billion for the same period in 2003. For both periods,
managed net revenues rose due to higher discount revenue, management and
distribution fees, travel commissions and fees, other commissions and fees and
insurance and annuity revenues.

See TRS and AEFA segments for a discussion of why a managed basis presentation
at TRS and net revenues at AEFA is used by management and is important to
investors.

22

TRAVEL RELATED SERVICES

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
AND 2003

Statements of Income
--------------------
(Unaudited)

# - Denotes a variance of more than 100%

TRS reported net income of $726 million for the three-month period ended
September 30, 2004, a 20 percent increase from $606 million for the same
period a year ago. For the nine-month period ended September 30, 2004, TRS
reported net income of $2.1 billion, a 16 percent increase from $1.8 billion
for the same period a year ago.

The following management discussion includes information on both a GAAP basis
and managed basis. The managed basis presentation assumes there have been no
securitization transactions, i.e., all securitized cardmember loans and
related income effects are reflected in the Company's balance sheet and income
statement, respectively. The Company presents TRS information on a managed
basis because that is the way the Company's management views and manages the
business. Management believes that a full picture of trends in the Company's
cardmember lending business can only be derived by evaluating the performance
of both securitized and non-securitized cardmember loans. Asset securitization
is just one of several ways for the Company to fund cardmember loans. Use of a
managed basis presentation, including non-securitized and securitized
cardmember loans, presents a more

23

accurate picture of the key dynamics of the cardmember lending
business, avoiding distortions due to the mix of funding sources at any
particular point in time. For example, irrespective of the mix, it is
important for management and investors to see metrics, such as changes in
delinquencies and write-off rates, for the entire cardmember lending portfolio
because it is more representative of the economics of the aggregate cardmember
relationships and ongoing business performance and trends over time. It is
also important for investors to see the overall growth of cardmember loans and
related revenue and changes in market share, which are significant metrics in
evaluating the Company's performance and which can only be properly assessed
when all non-securitized and securitized cardmember loans are viewed together
on a managed basis.

On a GAAP basis, results reflect net finance charge revenue on the owned
portfolio, comprised of unsecuritized cardmember and other loans. Revenues
relating to the Company's retained interests in securitized loan receivables
are shown in net securitization income, which includes non-credit provision
components of the net gains and charges from securitization activities (as
discussed below), excess spread related to securitized loans, net finance
charge revenue on retained interests in securitized loans and servicing
income, net of related discounts or fees. Net securitization income decreased
2 percent for the three-month period ended September 30, 2004 versus the same
period a year ago primarily due to lower excess servicing income resulting
from lower finance charge yields on securitized loans. For the nine-month
period ended September 30, 2004, net securitization income was relatively flat
as the impact of higher average securitized loan balances was offset by
lower excess servicing income resulting from lower finance charge yields on
securitized loans as well as lower net gains from securitization activities.
See Selected Statistical Information below for data relating to TRS' owned
portfolio.

During the three months ended September 30, 2004, TRS recognized net gains of
$9 million ($6 million after-tax) related to net securitization activities.
The net gains consist of $72 million from the securitization of $2.1 billion
of U.S. lending receivables and charges of $63 million related to the maturity
of $0.5 billion of securitizations, interest-only strip (I/O strip) factors
and a reconciliation adjustment to lending receivable accounts. There were no
incremental securitizations during the three months ended September 30, 2003.

During the nine months ended September 30, 2004 and 2003, TRS recognized net
gains of $26 million ($17 million after-tax) and $124 million ($81 million
after-tax), respectively, from net securitization activities. For the nine
months ended September 30, 2004, the net gains consist of $230 million of
income from securitization of $3.9 billion of U.S. lending receivables and the
sale of $1.4 billion of certain retained interests from previous
securitization activities, primarily offset by $204 million of charges related
to the maturity of $3.0 billion of securitizations changes in I/O strip
assumptions and other factors. For the nine months ended September 30, 2003,
$3.5 billion of U.S. lending receivables were securitized and $1.0 billion of
securitization transactions matured.

Management views the gains from securitizations as discretionary benefits to
be used for card acquisition expenses, which are reflected in both marketing,
promotion, rewards and cardmember services and other operating expenses.
Consequently, the managed basis presentation for the three months ended
September 30, 2004 assumes that the impact of this net activity was offset by
higher marketing, promotion, rewards and cardmember services expenses of $6
million and other operating expenses of $3 million. Similarly, the managed
basis presentation for the nine months ended September 30, 2004 and 2003
assumes that the impact of this net activity was offset by higher marketing,
promotion, rewards and cardmember services expenses of $16 million and $74
million, respectively, and other operating expenses of $10 million and $50
million, respectively. Accordingly, the incremental expenses, as well as the
impact of this net activity, have been eliminated. The following tables
reconcile the GAAP basis for certain TRS income statement line items to the
managed basis information, where different.

24

GAAP BASIS TO MANAGED BASIS RECONCILIATION-- EFFECT OF SECURITIZATIONS
(Unaudited)

THREE MONTHS ENDED SEPTEMBER 30, (Dollars in millions)

# - Denotes a variance of more than 100%.

The following discussion of TRS' results of operations for the three months
ended September 30, 2004 and 2003 is presented on a managed basis.

Revenues
- --------
TRS' net revenues were up 11 percent primarily due to higher discount revenue,
travel commissions and fees, other commissions and fees and cardmember lending
net finance charge revenue.

25

Discount revenue rose 14 percent compared to a year ago as a result of a 16
percent increase in billed business partially offset by a lower discount rate.
The decrease in the discount rate primarily reflects the cumulative impact of
stronger average growth in the lower rate retail and other "everyday spend"
merchant categories (e.g., supermarkets, discounters, etc.). As previously
indicated, based on the Company's business strategy, it expects to see
continued changes in the mix of business. This, combined with volume-related
pricing discounts and selective repricing initiatives, will probably continue
to result in some average rate erosion over time. The 16 percent increase in
billed business in the third quarter resulted from an 11 percent increase in
spending per basic cardmember worldwide and 7 percent growth in
cards-in-force. U.S. cards-in-force rose 6 percent reflecting the benefit of
continued strong card acquisition spending and an improved average customer
retention level. International cards-in-force increased 8 percent due to
growth in both proprietary and network partnership cards. U.S. billed business
rose 14 percent reflecting growth of 14 percent within the consumer card
business, 18 percent within small business services and 10 percent within
Corporate Services. U.S. non-T&E related volume categories, which represented
approximately 67 percent of U.S. billed business during the third quarter of
2004, increased 18 percent over the same period a year ago. U.S. T&E volumes
rose 8 percent reflecting general spending strength across all T&E industries
during the quarter. Total billed business outside the United States, excluding
the impact of foreign exchange translation, was up 15 percent reflecting
double-digit growth in all regions. Worldwide airline related volumes, which
represented 12 percent of total billed business volumes during the quarter,
rose 9 percent as a result of 16 percent growth in transaction volume,
partially offset by a 7 percent decrease in the average airline charge.

Cardmember lending net finance charge revenue increased 4 percent as the
benefits from 8 percent growth in average worldwide lending balances were
partially offset by a decline in the portfolio yield. The net interest yield
on the worldwide lending portfolio decreased compared to the prior year
reflecting an increase in the proportion of the portfolio on introductory or
promotional rates, higher paydown rates and improved credit quality, which
reduces the proportion of the portfolio at default interest rates. Net card
fees increased 2 percent versus a year ago, reflecting the growth in
cards-in-force. The average fee per proprietary card-in-force was $34 for the
three-month period ended September 30, 2004 versus $35 for the same period in
2003.

Travel commissions and fees rose 22 percent due to a 23 percent increase in
travel sales, reflecting the Rosenbluth acquisition and improvement within the
travel environment. Other commissions and fees increased 21 percent on greater
volume-related foreign exchange conversion fees, card fees and assessments.
Other revenues increased 5 percent due to greater merchant-related revenues,
higher publishing revenues and larger insurance premiums, partially offset by
lower ATM revenues and lower interest income on investment and liquidity pools
held within card funding vehicles.

Expenses
- --------
TRS' expenses were up 10 percent reflecting higher marketing, promotion,
rewards and cardmember services expenses, human resources expenses and other
operating expenses, partially offset by reduced provisions for losses and
lower charge card interest expense.

Marketing, promotion, rewards and cardmember services expenses increased 28
percent compared to the prior year on increased rewards costs, reflecting a
higher redemption rate, strong volume growth and the continued increase in
cardmember loyalty program participation, as well as the Company's continued
focus on business building activities.

The provision for losses on charge card products decreased 3 percent, despite
higher volume, primarily due to strong credit quality as reflected in improved
past due percentages and net loss ratios. The provision for losses on the
worldwide lending portfolio decreased 13 percent despite growth in loans
outstanding due to well-controlled credit. Reserve coverage ratios, which were
in excess of 100 percent of past due balances, remained strong.

Other provisions for losses increased primarily reflecting a reconciliation of
securitization-related lending receivable accounts, which resulted in a charge
of $115 million (net of $32 million of reserves previously provided) for
balances accumulated over the prior five-year period as a result of a
computational error. The amount of the error was immaterial to any of the
quarters in which it occurred and, since the identification of this error, the
Company has performed a comprehensive review and revised its procedures
accordingly.

26

Separately, other provisions were favorably impacted by a reduction in
merchant-related reserves of approximately $60 million that reflects
modifications in certain merchant agreements to mitigate loss exposure and
ongoing favorable credit experience with merchants.

Charge card interest expense decreased 6 percent due to a lower effective cost
of funds, partially offset by higher average receivable balances.

Human resources expenses increased 15 percent versus the third quarter last
year due to increased costs related to merit increases, management incentives
and employee benefits, and the impact of the 2003 acquisition of Rosenbluth.
Other operating expenses increased 3 percent reflecting, in part, the impact
of increased technology costs related to greater business and service volumes,
higher equipment-related technology costs and the Rosenbluth acquisition.
These increases were partially offset by the impact of foreign currency
translation gains.

27

NINE MONTHS ENDED SEPTEMBER 30, (Dollars in millions)

The following discussion of TRS' results of operations for the nine months
ended September 30, 2004 and 2003 is presented on a managed basis.

Revenues
- --------
TRS' net revenues were up 12 percent primarily due to higher discount revenue,
travel commissions and fees, other commissions and fees and net card fees.

Discount revenue rose 17 percent compared to a year ago as a result of an 18
percent increase in billed business partially offset by a lower discount rate.
The decrease in the discount rate primarily reflects the cumulative impact of
stronger average growth in the lower rate retail and other "everyday spend"
merchant categories (e.g.,

28

supermarkets, discounters, etc.). The 18 percent increase in billed business
in the first nine months of 2004 resulted from a 14 percent increase in
spending per basic cardmember worldwide and 7 percent growth in
cards-in-force. U.S. cards-in-force rose 6 percent reflecting the benefit of
continued strong card acquisition spending and an improved average customer
retention level. International cards-in-force increased 8 percent due to
growth in both proprietary and network partnership cards. U.S. billed business
rose 17 percent reflecting growth of 17 percent within the consumer card
business, 21 percent within small business services and 13 percent within
Corporate Services. U.S. non-T&E related volume categories, which represented
approximately 66 percent of U.S. billed business during the first nine months
of 2004, increased 20 percent over the same period a year ago. U.S. T&E
volumes rose 12 percent reflecting continued improvement in all T&E industries
during the nine months. Total billed business outside the United States,
excluding the impact of foreign exchange translation, was up 15 percent
reflecting strong double-digit growth in all regions. Worldwide airline
related volumes, which represented 13 percent of total billed business volumes
during the nine months, rose 16 percent as a result of 15 percent growth in
transaction volume and a slight increase in the average airline charge.

Cardmember lending net finance charge revenue rose 3 percent as 10 percent
growth in the average worldwide lending balances was partially offset by a
decline in the net interest yield. The net interest yield on the worldwide
portfolio decreased compared to the prior year reflecting an increase in the
proportion of the portfolio on introductory or promotional rates, a decrease
in the rates on those balances, higher paydown rates and improved credit
quality, which reduces the proportion of the portfolio at default interest
rates. Net card fees increased 4 percent versus a year ago, reflecting the
growth in cards-in-force. The average fee per proprietary card-in-force was
$34 and $35 for the nine-month periods ended September 30, 2004 and 2003,
respectively.

Travel commissions and fees rose 24 percent due to a 29 percent increase in
travel sales, reflecting the Rosenbluth acquisition and improvement within the
travel environment. Other commissions and fees increased 17 percent on greater
volume-related foreign exchange conversion fees, card fees and assessments.
Other revenues increased 3 percent due to greater merchant-related revenues,
higher publishing revenues and larger insurance premiums, partially offset by
lower interest income on investment and liquidity pools held within card
funding vehicles as well as lower ATM revenues.

Expenses
- --------
TRS' expenses were up 11 percent reflecting higher marketing, promotion,
rewards and cardmember services expenses, human resources expenses and other
operating expenses, partially offset by reduced provisions for losses and
lower charge card interest expense.

Marketing, promotion, rewards and cardmember services expenses increased 35
percent compared to the prior year on increased rewards costs, reflecting a
higher redemption rate, strong volume growth and the continued increase in
cardmember loyalty program participation, as well as the Company's continued
focus on business building activities.

The provision for losses on charge card products decreased 5 percent, despite
higher volume, primarily due to strong credit quality as reflected in past due
percentages and net loss ratios. The provision for losses on the worldwide
lending portfolio decreased 11 percent despite growth in loans outstanding due
to well-controlled credit. Reserve coverage ratios, which were in excess of
100 percent of past due balances, remained strong. Other provisions for losses
increased as previously discussed in the three-month results of operations
section.

Charge card interest expense declined 14 percent due to a lower effective cost
of funds, partially offset by higher average receivable balances.

Human resources expenses increased 14 percent versus last year due to
increased costs related to merit increases, management incentives and employee
benefits and the impact of the 2003 acquisition of Rosenbluth. Other operating
expenses increased 9 percent reflecting, in part, the impact of increased
technology costs related to greater business and service volume-related costs,
higher equipment-related technology costs, the Rosenbluth acquisition and the
impact of foreign currency translation losses. These increases were partially
offset by the benefits of reengineering initiatives and other cost containment
efforts.

29

Selected Statistical Information
--------------------------------
(Unaudited)

(Amounts in billions, except percentages and where indicated)

* Cards-in-force include proprietary cards and cards issued under network
partnership agreements outside the United States. Average discount rate,
average basic cardmember spending and average fee per card are computed
from proprietary card activities only.

** These data relate to Visa and Eurocards issued in connection with joint
venture activities.

30

Selected Statistical Information (continued)
--------------------------------------------
(Unaudited)

(Amounts in billions, except percentages and where indicated)

# - Denotes a variance of more than 100%.

TRS' owned portfolio is primarily comprised of cardmember receivables
generated by the Company's charge card products, unsecuritized U.S. cardmember
loans, international cardmember loans and unsecuritized equipment leasing
receivables (see Other Events section of Consolidated Results of Operations
for information regarding the sale of the equipment leasing business).

As discussed more fully in the TRS Liquidity and Capital Resources section
below, the Company securitizes U.S. cardmember loans as part of its financing
strategy; consequently, the level of unsecuritized U.S. cardmember loans is
primarily a function of the Company's financing requirements. As a portfolio,
unsecuritized U.S. cardmember loans tend to be less seasoned than securitized
loans, primarily because of the lead time required to designate and securitize
each loan. The Company does not currently securitize international loans.
Trends in delinquency,

31

reserve coverage and net write-off rates have historically been generally
comparable on both an owned and managed basis.

Airline Industry Matters
- ------------------------

Historically, the Company has not experienced significant losses resulting
from a particular airline's scaling-back or closure of operations due to
bankruptcy or other financial challenges because the volumes generated from
the airline are typically shifted to other participants in the industry
that accept the Company's card products. Nonetheless, the Company is exposed
to business and credit risk in the airline industry primarily through
business arrangements where the Company has remitted payment to the airline
for a cardmember purchase of tickets that have not yet been used or "flown".
This creates a potential exposure for the Company in the event that the
cardmember is not able to use the ticket and the Company, based on the facts
and circumstances, credits the cardmember for the unused ticket.
Historically, this type of exposure has not generated any significant losses
for the Company because of the need for an airline that is operating under
bankruptcy protection to continue accepting credit and charge cards and
honoring requests for credits and refunds in the ordinary course in
furtherance of its reorganization and its formal assumption, with bankruptcy
court approval, of its card acceptance agreement, including approval of the
Company's right to hold cash reserves when necessary. The Company's current
airline merchant agreements generally allow the Company to hold cash reserves
to cover these potential exposures to provide credits to cardmembers.
Typically, as an airline's financial situation deteriorates the Company
increases these reserves to protect itself in the event of an ultimate
liquidation of the airline. The Company's goal in these distressed situations
is to hold sufficient cash reserves over time to ensure that upon liquidation
the reserve is equivalent to the credit exposure related to any unused tickets.

LIQUIDITY AND CAPITAL RESOURCES

Selected Balance Sheet Information
----------------------------------
(GAAP Basis)

(Dollars in billions, except percentages)

* Computed on a trailing 12-month basis using total shareholder's equity as
included in the Consolidated Financial Statements prepared in accordance
with GAAP.
** Computed on a trailing 12-month basis using total assets as included in
the Consolidated Financial Statements prepared in accordance with GAAP.

Net accounts receivable and worldwide cardmember loans increased as compared
to September 30, 2003, primarily as a result of higher average cardmember
spending and an increase in the number of cards-in-force, and decreased as
compared to December 31, 2003, primarily as a result of higher seasonal
spending at year-end.

Total debt increased as compared to September 30, 2003 primarily as a result
of increased funding requirements due to increases in charge card receivables
and cardmember loan balances as noted above. New long-term borrowing activity
during 2004 is described below.

TRS funds its charge card receivables and cardmember loans using various
funding sources, such as short- and long-term debt including medium-term
notes, commercial paper and asset securitizations. As part of the

32

Company's ongoing funding activities, during the nine months ended September
30, 2004, Credco issued approximately $2.6 billion of floating rate medium-term
notes with maturities of one to three years. As of September 30, 2004, Credco
had the ability to issue approximately $7.2 billion of debt securities under
shelf registration statements filed with the SEC.

As part of its receivables funding activities, Credco regularly reviews
funding sources and strategies in international markets. As noted earlier, in
June 2004, Credco borrowed $1.5 billion under its bank credit facilities as
part of a change in local funding strategy for business in Canada. In July
2004, Credco entered into a new 5-year multi-bank credit facility for AUD
$3.25 billion (approximately U.S. $2.3 billion). In September 2004, Credco
borrowed AUD $2.7 billion (approximately U.S. $1.9 billion) under this
facility to provide an alternate funding source for business in Australia
Separately, in August and September 2004, Credco issued (Pounds Sterling)1.25
billion approximately $2.2 billion) of fixed-rate debt instruments with
maturities of three to five years as part of a previously established program
outside the United States (see Parent Company Funding section of Consolidated
Liquidity and Capital Resources). Subsequently, in October 2004, Credco issued
a (Euro)375 million (approximately $461 million) fixed-rate debt instrument
with a maturity of five years under the program. At September 30, 2004,
Credco's committed bank line coverage of net short-term debt was 316%.

In the fourth quarter of 2003, the Company began a program to develop a
liquidity portfolio to provide back-up liquidity, primarily for the commercial
paper program at Credco, and also flexibility for other short-term funding
programs at Centurion Bank. These funds are invested in two to three year U.S.
Treasury securities. At September 30, 2004, the Company held $4.0 billion in
U.S. Treasury notes under this program.

The American Express Credit Account Master Trust (the Master Trust)
securitizes assets consisting of loans arising in a portfolio of designated
consumer American Express Credit Card, Optima Line of Credit and Sign &
Travel/Extended Payment Option revolving credit accounts or features owned by
Centurion Bank and FSB and, in the future, may include other charge or credit
accounts, features or products. AECB and FSB sell the assets to be securitized
to special purpose, bankruptcy remote subsidiaries, which in turn transfer the
assets to the Master Trust. The Master Trust securitized $3.9 billion of loans
during the first nine months of 2004 through the public and private issuance
of investor certificates. In addition, in June 2004, the Company sold $1.4
billion of certain retained interests previously issued by the Master Trust.
In the nine months ended September 30, 2004, $3.0 billion of investor
certificates previously issued by the Master Trust matured. During the next 12
months, $4.0 billion of investor certificates that were previously issued by
the Master Trust are scheduled to mature. When investor certificates mature,
principal collections received from the Master Trust assets are used to redeem
the certificates. As of September 30, 2004, $20.2 billion of U.S. Cardmember
loans had been sold, net of retained subordinated interest of $0.1 billion,
for a total amount securitized of $20.3 billion.

The American Express Master Trust (the Trust) securitizes charge card
receivables through the issuance of trust certificates that remain on the
Consolidated Balance Sheets. In the nine months ended September 30, 2004, $0.3
billion of investor certificates previously issued by the Trust matured.
During the next 12 months, the total $2.7 billion of accounts receivable trust
certificates that were previously issued by the Trust are scheduled to mature.
At the time of these maturities, alternate sources of funding for the net
outstanding balance of $2.5 billion will be provided by the Company's funding
programs.

33

AMERICAN EXPRESS FINANCIAL ADVISORS

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED September 30, 2004
AND 2003

Statements of Income
--------------------
(Unaudited)

# - Denotes a variance larger than 100%.

* Reflects a $109 million non-cash pretax charge ($71 million after-tax)
related to the January 1, 2004 adoption of SOP 03-1. Reclassifications of
prior period amounts to conform to AEFA's current period presentation as a
result of adopting SOP 03-1 were not material.

34

Selected Statistical Information
--------------------------------
(Unaudited)

(Amounts in millions, except percentages and where indicated)

# - Denotes a variance of more than 100%.

RESULTS OF OPERATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

AEFA reported net income of $186 million for the three months ended September
30, 2004, down 6 percent from $197 million in the same period a year ago
reflective of the favorable prior year tax adjustment noted below. Pretax
income rose 14 percent.

Total revenues increased 12 percent primarily due to significantly higher
management and distribution fees, increased net investment income and greater
insurance premiums. In addition, the acquisition of Threadneedle on September
30, 2003 contributed approximately 7 percent to the revenue growth and a
modest contribution to net income growth.

35

Management and distribution fees increased 21 percent representing a 34
percent increase in management fees and a 7 percent increase in distribution
fees. The management fees increase resulted from higher average assets under
management, reflecting the impact from the September 30, 2003 acquisition of
Threadneedle, improvement in equity market valuations versus last year and
net asset inflows. Distribution fees increased as a result of greater mutual
fund fees, in particular Strategic Portfolio Services (SPS) wrap fees,
partially offset by lower limited partnership and brokerage-related revenues.

Net investment income increased 5 percent primarily due to net investment
gains in the current period versus net investment losses a year ago and the
benefits of slightly higher levels of invested assets. For the three months
ended September 30, 2004, $25 million of total investment gains were partially
offset by $14 million of impairments and losses. The total investment gains
include a $7 million benefit primarily reflecting lower than expected losses
resulting from management's first quarter decision to liquidate a secured loan
trust managed by AEFA. Also included in these total investment gains and
losses are $15 million of gross realized gains and $6 million of gross
realized losses from sales of securities classified as Available-for-Sale. For
the three months ended September 30, 2003, $35 million of total investment
gains were more than offset by $48 million of impairments and losses. Included
in these total investment gains and losses are $32 million of gross realized
gains and $37 million of gross realized losses from sales of securities, as
well as $5 million of other-than-temporary impairment losses on investments,
classified as Available-for-Sale. Other revenues increased 8 percent due to
strong property-casualty and higher life insurance-related revenues.

In the following table, the Company presents AEFA's aggregate revenues for the
quarters ended September 30, 2004 and 2003 on a basis that is net of
provisions for losses and benefits because the Company manages the AEFA
business and evaluates its financial performance, where appropriate, in terms
of the "spread" on its products. An important part of AEFA's business is
margin related, particularly the insurance, annuity and certificate
businesses.

One of the drivers for the AEFA business is the return on invested cash,
primarily generated by sales of insurance, annuities and investment
certificates, less provisions for losses and benefits on these products. These
investments tend to be interest rate sensitive. Thus, GAAP revenues tend to be
higher in periods of rising interest rates and lower in times of decreasing
interest rates. The same relationship is true of provisions for losses and
benefits, only it is more accentuated period-to-period because rates credited
to customers' accounts generally reset at shorter intervals than the yield on
underlying investments. The Company presents this portion of the AEFA business
on a net basis to eliminate potentially less informative comparisons of
period-to-period changes in revenue and provisions for losses and benefits in
light of the impact of these changes in interest rates.

The provision for losses and benefits for annuities decreased 9 percent
primarily due to lower interest crediting rates and the effect of depreciation
in the S&P 500 on equity indexed annuities during the current quarter versus
appreciation in the same period a year ago, partially offset by a higher
average inforce level. Insurance provisions increased 5 percent as higher
inforce levels were partially offset by lower life insurance interest
crediting rates. Investment certificates provisions decreased 1 percent
primarily due to the effect on the stock market certificate product of
depreciation in the S&P 500 during the current quarter versus appreciation in
the same period a year ago, partially offset by higher average reserves and
interest crediting rates.

36

Human resources expense increased 20 percent reflecting the effects of the
Threadneedle acquisition, higher field force compensation-related costs,
higher salaries and employee benefit costs. The increase in human resources
expenses also reflects a $9 million third quarter decrease in favorable DAC
adjustments this year versus last year. Other operating expenses increased 27
percent reflecting the effect of the Threadneedle acquisition, costs related
to various securities industry regulatory and legal matters and higher
marketing and promotion expense. These increases were partially offset by a
$31 million favorable benefit from DAC adjustments this year versus last year.
See the DAC section below for further discussion of DAC and related
adjustments.

The effective tax rate at AEFA rose primarily as a result of the effect of the
$29 million reduction to tax expense in the prior year related to the
finalization of the 2002 tax return filed during the third quarter and the
publication of favorable technical guidance related to the taxation of
dividend income.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

AEFA's income before accounting change rose 21 percent to $588 million for the
nine months ended September 30, 2004. AEFA reported net income of $517
million, up 6 percent from $487 million in the same period a year ago. AEFA's
results for the nine months ended September 30, 2004 reflect the $71 million
($109 million pretax) impact of the January 1, 2004 adoption of SOP 03-1. SOP
03-1 requires insurance enterprises to establish liabilities for benefits that
may become payable under variable annuity death benefit guarantees or other
insurance or annuity contract provisions.

Total revenues increased 17 percent primarily due to significantly higher
management and distribution fees and greater insurance premiums. In addition,
the acquisition of Threadneedle on September 30, 2003 contributed
approximately 7 percent to the revenue growth and a modest contribution to net
income growth.

Management and distribution fees increased 33 percent representing a 41
percent increase in management fees and a 25 percent increase in distribution
fees. The management fees increase is primarily due to higher average assets
under management, reflecting the impact from the late 2003 acquisition of
Threadneedle, improvement in equity market valuations versus last year and net
asset inflows. Distribution fees increased as a result of greater mutual fund
fees, in particular SPS wrap fees, and increased brokerage-related activities
partially offset by lower limited partnership product sales.

Net investment income rose 4 percent versus last year primarily due to the
benefits of slightly higher levels of invested assets and a slightly higher
yield. For the nine months ended September 30, 2004, $81 million of total
investment gains were partially offset by $78 million of impairments and
losses. The total investment gains include a total $25 million in benefits
reflecting lower than expected losses resulting from management's first
quarter decision to liquidate a secured loan trust managed by AEFA. Total
investment losses include the original first quarter $49 million charge
related to the same early liquidation. Also included in these total investment
gains and losses are $50 million of gross realized gains and $16 million of
gross realized losses from sales of securities, as well as $1 million of
other-than-temporary impairment losses on investments, classified as
Available-for-Sale. For the nine months ended September 30, 2003, $286 million
of total investment gains were more than offset by $310 million of impairments
and losses. Included in these total investment gains and losses are $281
million of gross realized gains and $99 million of gross realized losses from
sales of securities, as well as $163 million of other-than-temporary
impairment losses on investments, classified as Available-for-Sale. Other
revenues increased 14 percent due to higher property-casualty and life
insurance-related revenues.

In the following table, the Company presents AEFA's aggregate revenues for the
nine months ended September 30, 2004 and 2003 on a basis that is net of
provisions for losses and benefits (see three month discussion for reasons for
this presentation).

37

The provision for losses and benefits for annuities decreased 7 percent
primarily due to lower interest crediting rates and the effect on equity
indexed annuities of lower appreciation in the S&P 500 during the first nine
months of the year versus the same period a year ago, partially offset by a
higher average inforce level. Insurance provisions increased 8 percent as
higher average inforce levels were partially offset by lower life insurance
interest crediting rates. Investment certificates provisions decreased 5
percent primarily due to lower interest crediting rates and the effect on the
stock market certificate product of lower appreciation in the S&P 500 during
the first nine months of the year versus the same period a year ago, partially
offset by higher average reserves.

Human resources expense increased 24 percent reflecting the effects of the
Threadneedle acquisition, higher field force compensation-related costs and
merit increases. The increase in human resources expenses also reflects a $9
million third quarter decrease in favorable DAC adjustments this year versus
last year. These increases were partially offset by a first quarter $44
million DAC valuation benefit reflecting a portion of the benefit of the
lengthening of amortization periods for certain insurance and annuity
products. The total first quarter DAC valuation benefit of $66 million
(including the $22 million benefit related to other operating expenses noted
below) is discussed in more detail in the following DAC section. Other
operating expenses increased 26 percent reflecting the effect of the
Threadneedle acquisition and costs related to various securities industry
regulatory and legal matters. These increases were partially offset by a $31
million favorable benefit from DAC adjustments this year versus last year and
the first quarter $22 million DAC valuation benefit. See the DAC section below
for further discussion of DAC and related adjustments.

The effective tax rate at AEFA rose primarily as a result of required
amendments to prior-year tax returns recognized in the second quarter 2004 and
the effect of the $29 million reduction to tax expense in the third quarter
2003 related to the finalization of the 2002 tax return filed during the third
quarter and the publication of favorable technical guidance related to the
taxation of dividend income.

DEFERRED ACQUISITION COSTS

Deferred acquisition costs represent the costs of acquiring new business,
principally direct sales commissions and other distribution and underwriting
costs that have been deferred on the sale of annuity, life and health
insurance and, to a lesser extent, property/casualty and certain mutual fund
products. For annuity and insurance products, DAC are amortized over periods
approximating the lives of the business, generally as a percentage of premiums
or estimated gross profits or as a portion of the interest margins associated
with the products. For certain mutual fund products, DAC are generally
amortized over fixed periods on a straight-line basis.

For annuity and insurance products, the projections underlying the
amortization of DAC require the use of certain assumptions, including interest
margins, mortality rates, persistency rates, maintenance expense levels and
customer asset value growth rates for variable products. Management routinely
monitors a wide variety of trends in the business, including comparisons of
actual and assumed experience. The customer asset value growth rate is the
rate at which contract values are assumed to appreciate in the future. The
rate is net of asset fees and anticipates a blend of equity and fixed income
investments. Management reviews and, where appropriate, adjusts its
assumptions with respect to customer asset value growth rates on a quarterly
basis.

38

Management monitors other principal DAC assumptions, such as persistency,
mortality rates, interest margin and maintenance expense level assumptions,
each quarter. Unless management identifies a material deviation over the
course of the quarterly monitoring, management reviews and updates these DAC
assumptions annually in the third quarter of each year. When assumptions are
changed, the percentage of estimated gross profits or portion of interest
margins used to amortize DAC might also change. A change in the required
amortization percentage is applied retrospectively; an increase in
amortization percentage will result in an increase in DAC amortization expense
while a decrease in amortization percentage will result in a decrease in DAC
amortization expense. The impact on results of operations of changing
assumptions with respect to the amortization of DAC can be either positive or
negative in any particular period and is reflected in the period in which such
changes are made. As a result of these reviews, AEFA took actions in the third
quarters of 2004 and 2003 that impacted DAC balances and expenses.

In the third quarter 2004, these actions resulted in a net $24 million DAC
amortization expense reduction ($13 million reduction in human resources
expense and $11 million decrease in other operating expense) reflecting: (1) a
$27 million DAC amortization reduction reflecting lower than previously
assumed surrender and mortality rates on variable annuity products, higher
surrender charges collected on Universal and Variable Universal Life products
and higher than previously assumed interest rate spreads on annuity and
Universal Life products; (2) a $3 million DAC amortization reduction
reflecting the extension of the mean reversion period by one year on variable
annuity and Variable Universal Life products; and (3) a $6
million DAC amortization increase primarily reflecting a reduction in
estimated future premiums on variable annuity products.

In the third quarter 2003, these actions resulted in a net $2 million DAC
amortization expense reduction ($22 million reduction in human resources
expense and $20 million increase in other operating expense) reflecting: (1) a
$106 million DAC amortization reduction resulting from extending 10-15 year
amortization periods for certain Flex Annuity products to 20 years based on
current measurements of meaningful life in which exchanges of Flex Annuity
contracts for other AEFA variable annuity contracts are treated as
continuations rather than terminations; (2) a $92 million DAC amortization
increase resulting from the recognition of premium deficiency on AEFA's
Long-Term Care Products; and (3) a $12 million net DAC amortization increase
across AEFA's Universal Life, Variable Universal Life and annuity products,
primarily reflecting lower than previously assumed interest rate spreads,
separate account fee rates, and account maintenance expenses.

During the first quarter of 2004 and in conjunction with the adoption of SOP
03-1, AEFA extended the time periods over which DAC associated with certain
insurance and annuity products are amortized. In adopting SOP 03-1, AEFA
established additional liabilities for insurance benefits that may become
payable under variable annuity death benefit guarantees or on single pay
universal life contracts. In order to establish the proper relationships
between these liabilities and DAC associated with the same contracts, AEFA
changed its estimates of meaningful life for certain contracts so DAC
amortization periods are the same as liability funding periods. As a result,
in the first quarter of 2004, AEFA recognized a $66 million valuation benefit
reflecting the lengthening of the amortization periods for the same contracts
impacted by SOP 03-1.

DAC balances for various insurance, annuity and other products sold by AEFA
are set forth below:

IMPACT OF MARKET VOLATILITY ON RESULTS OF OPERATIONS

Various aspects of AEFA's business are impacted by equity market levels and
other market-based events. Several areas in particular involve DAC and
deferred sales inducements, recognition of guaranteed minimum death benefits
(GMDB) and certain other variable annuity benefits, asset management fees and
structured investments. The direction and magnitude of the changes in equity
markets can increase or decrease amortization of DAC and

39

deferred sales inducement benefits, incurred amounts under GMDB and other
variable annuity benefit provisions and asset management fees and
correspondingly affect results of operations in any particular period.
Similarly, the value of AEFA's structured investment portfolio and derivatives
arising from the consolidation of certain secured loan trusts are impacted by
various market factors. Persistency of, or increases in, bond and loan default
rates, among other factors, could result in negative adjustments to the market
values of these investments in the future, which would adversely impact
results of operations. See AEFA's Liquidity and Capital Resources section of
MD&A for a further discussion of structured investments and consolidated
derivatives.

MUTUAL FUND INDUSTRY DEVELOPMENTS

As has been widely reported, the SEC, the National Association of Securities
Dealers, Inc. (NASD) and several state attorneys general have brought
proceedings challenging several mutual fund industry practices, including late
trading, market timing, disclosure of revenue sharing arrangements and
inappropriate sales of B shares. AEFA has received requests for information
concerning its practices and is providing information and cooperating fully
with these inquiries.

In May 2004, the Company reported that the broker-dealer subsidiary of AEFA
had received notification from the staff of the NASD indicating that it had
made a preliminary determination to recommend that the NASD bring an action
against AEFA for potential violations of federal securities laws and the rules
and regulations of the Securities and Exchange Commission and the NASD. The
notice received by AEFA comes in the context of a broader industry-wide review
of the mutual fund and brokerage industries that is being conducted by various
regulators. The NASD staff's allegations relate to AEFA's practices with
respect to various revenue sharing arrangements pursuant to which AEFA
receives payments from certain non-proprietary mutual funds for agreeing to
make their products available through AEFA's national distribution network. In
particular, the NASD has alleged that AEFA (i) failed to properly disclose
such revenue sharing arrangements from January 2001 until May 2003, (ii)
failed to properly disclose such revenue sharing arrangements in its brokerage
confirmations and (iii) received directed brokerage from January 2001 until
December 2003. The notice from the NASD staff is intended to give AEFA an
opportunity to discuss the issues it has raised. AEFA has been availing itself
of this opportunity and continues to cooperate fully with the NASD's inquiry
regarding this matter, as well as all other regulatory inquiries.

In addition to the foregoing, in February 2004 AEFA was one of 15 firms that
settled an enforcement action brought by the SEC and the NASD relating to
breakpoint discounts (i.e., volume discounts available to investors who make
large mutual fund purchases) pursuant to which AEFA paid a fine of $3.7
million and is in the process of reimbursing customers to whom the firm failed
to deliver such discounts.

Congress has proposed legislation and the SEC has proposed and, in some
instances, adopted rules relating to the mutual fund industry, including
expenses and fees, mutual fund corporate governance and disclosures to
customers. While there remains a significant amount of uncertainty as to what
legislative and regulatory initiatives may ultimately be adopted, these
initiatives could impact mutual fund industry participants' results, including
AEFA's, in future periods.

40

LIQUIDITY AND CAPITAL RESOURCES

Selected Balance Sheet Information
----------------------------------

(Dollars in billions, except percentages)

* Computed on a trailing 12-month basis using total shareholder's equity as
included in the Consolidated Financial Statements prepared in accordance
with GAAP.

Investments increased compared to September 30, 2003 primarily due to proceeds
from sales of the underlying fixed rate products, partially offset by lower
unrealized appreciation. Investments include $3.1 billion, $3.2 billion and
$2.5 billion of below investment grade securities (excluding net unrealized
appreciation and depreciation) at September 30, 2004, December 31, 2003 and
September 30, 2003, respectively. These investments represent 7 percent, 8
percent and 6 percent of AEFA's investment portfolio at September 30, 2004,
December 31, 2003 and September 30, 2003, respectively. Non-performing assets
relative to invested assets (excluding short-term cash positions) were 0.03%,
0.07% and 0.1% at September 30, 2004, December 31, 2003 and September 30,
2003, respectively. Management believes a more relevant measure of exposure of
AEFA's below investment grade securities should exclude $229 million of below
investment grade securities (excluding net unrealized appreciation and
depreciation), which were recorded as a result of the adoption of the
Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities," (FIN 46). These
assets are not available for AEFA's general use as they are for the benefit of
the collateralized debt obligation (CDO) debt holders and reductions in values
of such investments will be fully absorbed by the third party investors.
Excluding the impacts of FIN 46, investments include $2.9 billion of below
investment grade securities (excluding net unrealized appreciation and
depreciation), representing 7 percent of AEFA's investment portfolio at
September 30, 2004.

During 2004, AEFA continued to hold investments in CDOs and an SLT, some of
which are also managed by AEFA, and were not consolidated pursuant to the
adoption of FIN 46 as the Company was not considered a primary beneficiary. As
a condition to its managing certain CDOs, AEFA is required to invest in the
residual or "equity" tranche of the CDO, which is typically the most
subordinated tranche of securities issued by the CDO entity. AEFA invested in
CDOs and the SLT as part of its investment strategy in order to offer a
competitive rate to contractholders' accounts. AEFA's exposure as an investor
is limited solely to its aggregate investment in the CDOs and the SLT, and it
has no obligations or commitments, contingent or otherwise, that could require
any further funding of such investments. As of September 30, 2004, the
carrying values of the CDO residual tranches and SLT notes, managed by AEFA,
were $28 million and nil, respectively. AEFA also has a retained interest in a
CDO securitization with a carrying value of $696 million, of which $514
million is considered investment grade, as well as an additional $25 million
in rated CDO tranches and $25 million in a minority-owned SLT, both of which
are managed by third parties. CDOs and the SLT are illiquid investments. As an
investor in the residual tranche of CDOs, AEFA's return correlates to the
performance of portfolios of high-yield bonds and/or bank loans. As a
noteholder of the SLT, AEFA's return is based on a reference portfolio of
loans.

41

The carrying value of the CDOs and the SLT investment, and AEFA's projected
return are based on discounted cash flow projections that require a
significant degree of management judgment as to assumptions primarily related
to default and recovery rates of the high-yield bonds and/or bank loans either
held directly by the CDO or in the reference loan portfolio of the SLT and, as
such, are subject to change. Generally, the SLT is structured such that the
principal amount of the loans in the reference portfolio may be up to five
times that of the par amount of the notes held by AEFA. Although the exposure
associated with AEFA's investment in CDOs and the SLT is limited to the
carrying value of such investments, they have additional volatility associated
with them because the amount of the initial value of the loans and/or other
debt obligations in the related portfolios is significantly greater than
AEFA's exposure. In addition, the derivatives recorded as a result of
consolidating certain SLTs under FIN 46 are valued based on the expected
performance of a reference portfolio of high-yield loans. The exposure to loss
as a result of AEFA's investment in these SLTs consolidated under FIN 46 is
represented by the pretax net assets of the consolidated SLTs, which were $472
million at September 30, 2004. Deterioration in the value of the high-yield
bonds or bank loans would likely result in deterioration of AEFA's investment
return with respect to the relevant CDO, SLT investment or consolidated
derivative, as the case may be. In the event of significant deterioration of a
portfolio, the relevant CDO, SLT investment or SLT structure containing the
consolidated derivative may be subject to early liquidation, which could
result in further deterioration of the investment return or, in severe cases,
loss of the CDO, SLT or consolidated derivative carrying amount.

Separate account assets increased from the prior year due to a net market
appreciation and foreign currency translation impacts and net inflows.
Separate account assets increased from December 31, 2003 due to net inflows
and a net market appreciation and foreign currency translation impact.

Client contract reserves increased 5 percent when compared to September 30,
2003 primarily as a result of positive net cash flows in fixed insurance,
fixed annuities and investment certificates.

42

AMERICAN EXPRESS BANK

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
AND 2003

Statements of Income
--------------------
(Unaudited)

AEB reported net income of $32 million and $90 million for the three and nine
months ended September 30, 2004, respectively, up from $27 million and $73
million, respectively, for the same periods a year ago. For the nine-month
period, results include $11 million ($8 million after-tax) of human resources
and other operating costs reflecting AEB's decision to further rationalize
certain New York and Asia activities.

Net interest income declined for both periods due to lower levels of Personal
Financial Services (PFS) loans, reflecting AEB's prior decision to temporarily
curtail loan origination in Hong Kong and lower spreads in the investment
portfolio in the three-month period. Commissions and fees increased 20 percent
and 23 percent, respectively, primarily due to higher volumes in the Financial
Institutions Group (FIG) and Private Banking. Foreign exchange income and
other revenues rose 10 percent and 8 percent, respectively, due to higher
joint venture revenues in Egypt and gains on sales of securities for the
three-month period. The nine-month period reflected higher client activity in
Private Banking and PFS, partially offset by lower gains on sales of
securities and lower FIG revenue.

Human resources expenses decreased 1 percent and rose 11 percent for the three
and nine-month periods ended September 30, 2004, respectively. For the
three-month period, expenses decreased primarily due to severance costs
recorded in the third quarter of 2003 related to the downsizing of operations
in Greece. For the nine-month period, the increase in expenses reflects higher
management incentive costs, merit increases and reengineering expenses in New
York and Asia, noted previously. Other operating expenses rose 7 percent and
10 percent, respectively, for the same periods primarily due to higher
technology-related and advertising and promotion expenses in the three-month
period and currency translation losses resulting from AEB's decision to
further rationalize certain activities in Asia in the nine-month period.

Provision for losses decreased 46 percent and 65 percent for the three and
nine months, respectively, due to an improvement in bankruptcy-related
write-offs in the consumer lending portfolio in Hong Kong and lower PFS loan
volumes.

43

LIQUIDITY AND CAPITAL RESOURCES

Selected Balance Sheet Information (GAAP Basis)
-----------------------------------------------

(b) Includes assets managed by AEFA.
(c) Excludes American Express International Deposit Company's total assets
(which are 100% consolidated at AEFA).
(d) Computed on a trailing 12-month basis using total assets as included in
the Consolidated Financial Statements prepared in accordance with GAAP.
(e) Computed on a trailing 12-month basis using total shareholder's equity as
included in the Consolidated Financial Statements prepared in accordance
with GAAP.
(f) Based on legal entity information.

AEB had worldwide loans outstanding at September 30, 2004 of approximately
$6.4 billion, down from $6.5 billion at December 31, 2003 and up from $6.2
billion at September 30, 2003. The increase since September 30, 2003 results
from a $300 million increase in Financial Institution loans, partially offset
by a $100 million decrease in Corporate Banking loans. As of September 30,
2004 and December 31, 2003, consumer and Private Banking loans comprised 68
percent of total loans as compared to 67 percent at September 30, 2003.
Financial Institution loans comprised 31 percent of total loans at September
30, 2004 as compared to 29 percent at December 31, 2003 and 28 percent at
September 30, 2003. Corporate Banking loans comprised 1 percent of total loans
at September 30, 2004 versus 3 percent at December 31, 2003 and 5 percent at
September 30, 2003 as AEB continues to wind down its Corporate Banking
business.

Total non-performing loans of $32 million at September 30, 2004 decreased from
$78 million at December 31, 2003 and $84 million at September 30, 2003. The
decreases reflect loan payments and write-offs, partially offset by net
downgrades.

Other banking activities, such as securities, unrealized gains on foreign
exchange and derivatives contracts, various credit-related commitments and
market placements added approximately $7.5 billion, $7.6 billion and $8.0
billion to AEB's credit exposures at September 30, 2004, December 31, 2003 and
September 30, 2003, respectively. Included in these additional exposures at
September 30, 2004, December 31, 2003 and September 30, 2003 are

44

relatively lower risk cash and securities-related balances totaling $5.2
billion, $5.4 billion and $5.9 billion, respectively.

Private Banking, FIG and PFS managed assets in total rose over the past 12
months primarily due to net asset inflows, market appreciation and a positive
foreign currency translation impact.

CORPORATE AND OTHER

Corporate and Other reported net expenses of $65 million and $181 million for
the three and nine months ended September 30, 2004, respectively, compared
with net expenses of $60 million and $160 million in the same periods a year
ago. Net expenses increased primarily due to increased corporate investment
spending on compliance and technology projects. For the nine-month period,
these increases were partially offset by an $18 million benefit from the final
settlement of a Federal tax audit.

OTHER REPORTING MATTERS
ACCOUNTING DEVELOPMENTS

See "Recently Issued Accounting Standards" section of Note 1 to the
Consolidated Financial Statements.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective. There have not
been any changes in the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act)during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements, which are subject to risks
and uncertainties. The words "believe," "expect," "anticipate," "optimistic,"
"intend," "plan," "aim," "will," "may," "should," "could," "would," "likely,"
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. The
Company undertakes no obligation to update or revise any forward-looking
statements. Factors that could cause actual results to differ materially from
these forward-looking statements include, but are not limited to: the
Company's ability to improve its operating expense to revenue ratio both in
the short-term and over time, which will depend in part on the effectiveness
of reengineering and other cost-control initiatives, as well as factors
impacting the Company's revenues; the Company's ability to cost effectively
manage and expand cardmember benefits, including containing the growth of its
marketing, promotion, rewards and cardmember services expenses; the Company's
ability to accurately estimate the provision for the cost of the Membership
Rewards program; the Company's ability to grow its business and meet or exceed
its return on shareholders' equity target by reinvesting approximately 35% of
annually-generated capital, and returning approximately 65% of such capital to
shareholders, over time, which will depend on the Company's ability to manage
its capital needs and the effect of business mix, acquisitions and rating
agency requirements; the ability of the Company to generate sufficient
revenues for expanded investment spending and to actually spend such funds to
the extent available, and the ability to capitalize on such investments to
improve business metrics; credit risk related to consumer debt, business
loans, merchant bankruptcies and other credit exposures both in the U.S. and
internationally; volatility in the valuation assumptions

45

for the interest-only (I/O) strip relating to TRS' lending securitizations;
fluctuation in the equity and fixed income markets, which can affect the
amount and types of investment products sold by AEFA, the market value of its
managed assets, and management, distribution and other fees received based on
the value of those assets; AEFA's ability to recover Deferred Acquisition
Costs (DAC), as well as the timing of such DAC amortization, in connection
with the sale of annuity, insurance and certain mutual fund products; changes
in assumptions relating to DAC, which could impact the amount of DAC
amortization; the ability to improve investment performance in AEFA's
businesses, including attracting and retaining high-quality personnel; the
success, timeliness and financial impact, including costs, cost savings and
other benefits including increased revenues, of reengineering initiatives
being implemented or considered by the Company, including cost management,
structural and strategic measures such as vendor, process, facilities and
operations consolidation, outsourcing (including, among others, technologies
operations), relocating certain functions to lower-cost overseas locations,
moving internal and external functions to the Internet to save costs, and
planned staff reductions relating to certain of such reengineering actions;
the ability to control and manage operating, infrastructure, advertising and
promotion and other expenses as business expands or changes, including
balancing the need for longer-term investment spending; the potential negative
effect on the Company's businesses and infrastructure, including information
technology, of terrorist attacks, disasters or other catastrophic events in
the future; the impact on the Company's businesses resulting from continuing
geopolitical uncertainty; the overall level of consumer confidence; consumer
and business spending on the Company's travel related services products,
particularly credit and charge cards and growth in card lending balances,
which depend in part on the ability to issue new and enhanced card products
and increase revenues from such products, attract new cardholders, capture a
greater share of existing cardholders' spending, sustain premium discount
rates on its card products in light of market pressures, increase merchant
coverage, retain cardmembers after low introductory lending rates have
expired, and expand the global network services business; the triggering of
obligations to make payments to certain co-brand partners, merchants, vendors
and customers under contractual arrangements with such parties under certain
circumstances; AEFA's ability to develop and roll out new and attractive
products to clients in a timely manner and effectively manage the economics in
selling a growing volume of non-proprietary mutual funds and other retail
financial products to clients; successfully cross-selling financial, travel,
card and other products and services to the Company's customer base, both in
the United States and internationally; a downturn in the Company's businesses
and/or negative changes in the Company's and its subsidiaries' credit ratings,
which could result in contingent payments under contracts, decreased liquidity
and higher borrowing costs; fluctuations in interest rates, which impact the
Company's borrowing costs, return on lending products and spreads in the
insurance, annuity and investment certificate businesses; credit trends and
the rate of bankruptcies, which can affect spending on card products, debt
payments by individual and corporate customers and businesses that accept the
Company's card products and returns on the Company's investment portfolios;
bankruptcies, restructurings or similar events affecting the airline or any
other industry representing a significant portion of TRS' billed business,
including any potential negative effect on particular card products and
services and billed business generally that could result from the actual or
perceived weakness of key business partners in such industries; risks
associated with the Company's commitment to Delta Air Lines to prepay $500
million for the future purchases of Delta SkyMiles rewards points and to loan
$100 million to Delta; fluctuations in foreign currency exchange rates;
political or economic instability in certain regions or countries, which could
affect lending and other commercial activities, among other businesses, or
restrictions on convertibility of certain currencies; changes in laws or
government regulations; the costs and integration of acquisitions; and
outcomes and costs associated with litigation and compliance and regulatory
matters. A further description of these and other risks and uncertainties can
be found in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, and its other reports filed with the SEC.

46

PART II. OTHER INFORMATION

AMERICAN EXPRESS COMPANY

Item 1. Legal Proceedings

The Company and its subsidiaries are involved in a number of legal and
arbitration proceedings, including class actions, concerning matters
arising in connection with the conduct of their respective business
activities. The Company believes it has meritorious defenses to each
of these actions and intends to defend them vigorously. The Company
believes that it is not a party to, nor are any of its properties the
subject of, any pending legal or arbitration proceedings that would
have a material adverse effect on the Company's consolidated financial
condition, results of operations or liquidity. However, it is possible
that the outcome of any such proceedings could have a material impact
on results of operations in any particular reporting period as the
proceedings are resolved. Certain legal proceedings involving the
Company are set forth below. For a discussion of certain other legal
proceedings involving the Company and its subsidiaries, please refer
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.

Beginning in mid-July 2002, 12 putative class action lawsuits were
filed in the United States District Court for the Southern District of
New York. In October 2002, these cases were consolidated under the
caption In re American Express Company Securities Litigation. These
lawsuits allege violations of the federal securities laws and the
common law in connection with alleged misstatements regarding certain
investments in high-yield bonds and write-downs in the 2000-2001
timeframe. The purported class covers the period from July 18, 1999 to
July 17, 2001. The actions seek unspecified compensatory damages as
well as disgorgement, punitive damages, attorneys' fees and costs, and
interest. On March 31, 2004, the Court granted the Company's motion to
dismiss the lawsuit. Plaintiffs have appealed the dismissal to the
United States Court of Appeals for the Second Circuit.

The Company has been named in several purported class actions in
various state courts alleging that the Company violated the respective
state's laws by wrongfully collecting amounts assessed on converting
transactions made in foreign currencies to U.S. dollars and/or failing
to properly disclose the existence of such amounts in its Cardmember
agreements and billing statements. The plaintiffs in the actions seek,
among other remedies, injunctive relief, money damages and/or
attorneys' fees on their own behalf and on behalf of the putative
class of persons similarly situated. On October 15, 2004, the U.S.
District Court for the Southern District of Florida granted
preliminary approval of a nationwide class action settlement to
resolve all lawsuits and allegations with respect to the Company's
collection and disclosure of fees assessed on transactions made in
foreign currencies in the case captioned Lipuma v. American Express
Bank, American Express Travel Related Services Company, Inc. and
American Express Centurion Bank (filed in August 2003). The settlement
that has been preliminarily approved by the Court contemplates that
the Company would (a) deposit $75 million into a fund that would be
established to reimburse class members with valid claims, make certain
contributions to charitable organizations to be identified later and
pay attorneys' fees and (b) make certain changes to the disclosures in
its Cardmember agreements and billing statements regarding its foreign
currency conversion practices. The Company has established reserves to
cover the proposed payment that would be made to reimburse class
members and pay attorneys' fees. The preliminary approval order
enjoins all other proceedings that make related allegations pending a
final approval hearing including, but not limited to the following
cases: (i) Environmental Law Foundation, et al. v. American Express
Company, et al., Superior Court of Alameda County, California (filed
March 2003); (ii) Rubin v. American Express Company and American
Express Travel Related Services Company, Inc., Circuit Court of
Madison County, Illinois (filed April 2003); (iii) Angie Arambula, et
al. v. American Express Company, et al., District Court of

47

Cameron County, Texas, 103rd Judicial District (filed May 2003); (iv)
Fuentes v. American Express Travel Related Services Company, Inc. and
American Express Company, District Court of Hidalgo County, Texas
(filed May 2003); (v) Wick v. American Express Company, et al.,
Circuit Court of Cook County, Illinois (filed May 2003); (vi) Bernd
Bildstein v. American Express Company, et al., Supreme Court of Queens
County, New York (filed June 2003); (vii) Janowitz v. American Express
Company, et al., Circuit Court of Cook County, Illinois (filed
September 2003); (viii) Paul v. American Express Company, et al.,
Superior Court of Orange County, California (filed January 2004); and
(ix) Ball v. American Express, et al., Superior Court of San Joaquin,
California (filed August 2004).

The Company has been named in a number of purported class actions in
which the plaintiffs allege an unlawful antitrust tying arrangement
between the Company's charge cards, credit cards and debit cards in
violation of various state and federal laws, including the following:
(i) Cohen Rese Gallery et al. v. American Express Company et al., U.S.
District Court for the Northern District of California (filed July
2003); (ii) Italian Colors Restaurant v. American Express Company et
al., U.S. District Court for the Northern District of California
(filed August 2003); (iii) DRF Jeweler Corp. v. American Express
Company et al., U.S. District Court for the Southern District of New
York (filed December 2003); (iv) Hayama Inc. v. American Express
Company et al., Superior Court of California, Los Angeles County
(filed December 2003); (v) Chez Noelle Restaurant v. American Express
Company et al., U.S. District Court for the Southern District of New
York (filed January 2004); (vi) Mascari Enterprises d/b/a Sound
Stations v. American Express Company et al., U.S. District Court for
the Southern District of New York (filed January 2004); (vii) Mims
Restaurant v. American Express Company et al., U.S. District Court for
the Southern District of New York (filed February, 2004); and (viii)
The Marcus Corporation v. Amercian Express Company et al., U.S.
District Court for the Southern District of New York (filed July,
2004). The plaintiffs in these actions seek injunctive relief and an
unspecified amount of damages. Upon motion to the Court by the
Company, the venue of the Cohen Rese and Italian Colors actions was
moved to the U.S. District Court for the Southern District of New York
in December 2003. Each of the above-listed actions (except for Hayama)
is now pending in the U.S. District Court for the Southern District of
New York. On April 30, 2004, the Company filed a motion to dismiss all
the actions filed prior to such date that were pending in the U.S.
District Court for the Southern District of New York. A decision on
that motion is pending. In addition, the Company has asked the Court
in the Hayama action to stay that action pending resolution of the
motion in the Southern District of New York.

The Securities and Exchange Commission (the "SEC"), NASD, Inc. (the
"NASD"), and several state attorneys general have brought numerous
enforcement proceedings against individuals and firms challenging
several mutual fund industry practices including late trading
(allowing mutual fund customers to receive 4:00 p.m. ET prices for
orders placed or confirmed after 4:00 p.m. ET), market timing (abusive
rapid trading in mutual fund shares), disclosure of revenue sharing
arrangements, which are paid by fund advisers or companies to
brokerage firms who agree to sell those funds, and inappropriate sales
of B (no front end load) shares. American Express Financial Advisors
("AEFA") has received requests for information and has been contacted
by regulatory authorities concerning its practices and is cooperating
fully with these inquiries.

In May 2004, the Company reported that the broker-dealer subsidiary of
AEFA had received notification from the staff of the NASD indicating
that it had made a preliminary determination to recommend that the
NASD bring an action against AEFA for potential violations of federal
securities laws and the rules and regulations of the SEC and the NASD.
The notice received by AEFA comes in the context of a broader
industry-wide review of the mutual fund and brokerage industries that
is being conducted by various regulators. The NASD staff's allegations
relate to AEFA's practices with respect to various revenue sharing
arrangements pursuant to which AEFA receives payments from certain
non-proprietary mutual funds for agreeing to make their products
available through AEFA's national distribution network. In particular,
the NASD has alleged that

48

AEFA (i) failed to properly disclose such revenue sharing arrangements
from January 2001 until May 2003, (ii) failed to properly disclose
such revenue sharing arrangements in its brokerage confirmations and
(iii) received directed brokerage from January 2001 until December
2003. The notice from the NASD staff is intended to give AEFA an
opportunity to discuss the issues it has raised. AEFA has been
availing itself of this opportunity and continues to cooperate fully
with the NASD's inquiry regarding this matter, as well as all other
regulatory inquiries.

On October 3, 2004, a purported class action complaint captioned In re
American Express Financial Advisors Securities Litigation was filed in
the United States District Court for the Southern District of New
York. The action names the following defendants: American Express,
American Express Financial, American Express Advisors, and James M.
Cracchiolo in his capacity as President and CEO of American Express
Financial and Chairman and CEO of American Express Advisors. Certain
American Express Funds are also named as nominal defendants. The
action is a consolidation of the following actions: (i) Naresh Chand
v. American Express Company, American Express Financial Corporation
and American Express Financial Advisors, Inc. (filed March 2004); (ii)
Elizabeth Flenner v. American Express Company et al. (file March
2004); (iii) John B. Perkins v. American Express Company et al. (filed
March 2004); (iv) Kathie Kerr v. American Express Company et al.
(filed April 2004); and (v) Leonard D. Caldwell, Gale D. Caldwell and
Richard T. Allen v. American Express Company et al. (filed April
2004). The plaintiffs allege violations of certain federal securities
laws and/or state statutory and common law. The plaintiffs, among
other things, allege that the defendants did not adequately disclose
AEFA financial advisors' incentive to sell American Express-branded
mutual funds to clients, as well as the "incentive arrangements" for
the sale to and continued holding by AEFA clients of mutual funds of
eleven mutual fund families ("preferred funds") from whom AEFA
received revenue sharing payments. The lawsuits seek an unspecified
amount of damages, rescission and restitution. The Company intends to
file a motion to dismiss the complaint. In addition, two lawsuits
making similar allegations (based solely on state causes of actions)
were filed in the Supreme Court of the State of New York: Beer v.
American Express Company and American Express Financial Advisors and
You v. American Express Company and American Express Financial
Advisors. The Company has sought to remove these two actions to the
United States District Court for the Southern District of New York.
Plaintiffs have sought to remand the cases to state court. The Court's
decision on the remand motion is pending.

In addition to the foregoing, in February 2004 AEFA was one of 15
firms that settled an enforcement action brought by the SEC and the
NASD relating to breakpoint discounts (i.e., volume discounts
available to investors who make large mutual fund purchases) pursuant
to which AEFA agreed to pay a fine of $3.7 million and to reimburse
customers to whom the firm failed to deliver such discounts.

In June 2004, an action captioned John E. Gallus et al. v. American
Express Financial Corp. and American Express Financial Advisors, Inc.
was filed in the United States District Court for the District of
Arizona. The plaintiffs allege that they are investors in several
"AXP" mutual funds and they purport to bring the action derivatively
on behalf of those funds under the Investment Company Act of 1940. The
plaintiffs allege that fees allegedly paid to the defendants by the
funds for investment advisory and administrative services are
excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The
plaintiffs voluntarily agreed to transfer this case to the United
States District Court for the District of Minnesota. The Company
intends to file a motion to dismiss the complaint.

On July 22, 2004, a purported class action captioned Ross, et al. v.
American Express Company, American Express Travel Related Services and
American Express Centurion Bank was filed in the United States
District Court for the Southern District of New York. The complaint
alleges that AMEX conspired with the Visa, MasterCard and Diners Club
in the setting of foreign conversion rates and in the inclusion of
arbitration clauses in certain of their card member

49

agreements. The basis for these allegations is the presence of an
American Express lawyer at a seminar where legal issues common to the
financial services industry were discussed. Those meetings were
attended by in-house lawyers of financial institutions including
American Express. The suit seeks injunctive relief and unspecified
damages. The class is defined as "all Visa, MasterCard and Diners Club
general purpose cardholders who used cards issued by any of the MDL
Defendant Banks...." American Express cardholders are not part of the
class. The Company intends to file a motion to dismiss the complaint
as to American Express.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities

(e) Issuer Purchases of Securities

The table below sets forth the information with respect to purchases
of the Company's common stock made by or on behalf of the Company
during the quarter ended September 30, 2004.

(1) The Board of Directors of the Company authorized the repurchase
of 120 million shares of common stock in November 2002. At
present, the Company has approximately 89.5 million shares
remaining under such authorization. Such authorization does not
have an expiration date, and at present, there is no intention
to modify or otherwise rescind such authorization. Since
September 1994, the Company has acquired 480.5 million shares
under various Board authorizations to repurchase up to an
aggregate of 570.0 million shares, including purchases made
under agreements with third parties.

(2) Includes: (1) shares delivered or attested to in satisfaction
of the exercise price and/or tax withholding obligation by
holders of employee stock options who exercised options
(granted under the Company's incentive compensation plans) and
(2) restricted shares withheld (under the terms of grants under
the Company's incentive compensation plans) to offset tax
withholding obligations that occur upon vesting and release of
restricted shares. The Company's incentive compensation plans
provide that the value of the shares delivered or attested to,
or withheld, shall be the average of the high and low price of
the Company's common stock on the date the relevant transaction
occurs.

50

(3) Share purchases under publicly announced programs are made
pursuant to open market purchases or privately negotiated
transactions (including with employee benefit plans) as market
conditions warrant and at prices the Company deems appropriate.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

See Exhibit Index on page E-1 hereof.

(b) Reports on Form 8-K:

Form 8-K, dated July 26, 2004, Items 2.02 and 7.01 (formerly Items
12 and 9, respectively), reporting the Company's financial results
for the three and six months ended June 30, 2004, and including a
2004 Second Quarter Earnings Supplement.

Form 8-K, dated August 4, 2004, Item 7.01 (formerly Item 9),
reporting on a presentation delivered by Kenneth I. Chenault,
Chairman and Chief Executive Officer of the Company, and Edward P.
Gilligan, Group President, Global Corporate Services and
International Payments, to the financial community.

Form 8-K, dated September 14, 2004, Item 7.01, reporting on a
presentation delivered by Gary L. Crittenden, Executive Vice
President and Chief Financial Officer of the Company, at the
Lehman Brothers 2004 Financial Services Conference.

Form 8-K, dated October 22, 2004, Item 7.01, reporting on the
signing of an agreement for the sale of American Express Business
Finance Corporation to Key Equipment Finance.

Form 8-K, dated October 25, 2004, Items 2.02 and 7.01, reporting
the Company's financial results for the three and nine months
ended September 30, 2004, and including a 2004 Third Quarter
Earnings Supplement.

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SIGNATURES

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 EXPRESS COMPANY
(Registrant)

Date: November 8, 2004 By /s/ Gary L. Crittenden
----------------------------------
Gary L. Crittenden
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

Date: November 8, 2004 By /s/ Joan C. Amble
----------------------------------
Joan C. Amble
Senior Vice President and
Comptroller
(Principal Accounting Officer)

52

EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report:

E-1