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EXHIBIT 99.3
[AMERICAN EXPRESS(R) LOGO]
2009
Third Quarter
Earnings Supplement
The enclosed summary should be read in conjunction with the text and
statistical tables included in American Express Company's (the "Company" or
"AXP") Third Quarter 2009 Earnings Release.
This presentation contains certain forward-looking statements that are subject
to risks and uncertainties and speak only as of the date on which they are
made. Important factors that could cause actual results to differ materially
from these forward-looking statements, including the Company's financial and
other goals, are set forth on page 23 of this Supplement, pages 59-61 in the
Company's 2008 Annual Report to Shareholders and in its 2008 Annual Report on
Form 10-K, and other reports, on file with the Securities and Exchange
Commission.
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
FINANCIAL RESULTS
- Third quarter diluted EPS from continuing operations attributable to
common shareholders of $0.54 decreased 27% versus $0.74 last year. Total
revenues net of interest expense decreased 16%. Return on average common
equity ("ROCE") was 10.4% and return on average tangible common equity
("ROTCE"), which excludes goodwill and intangibles, was 13.5%.*
- 3Q '09 Income from continuing operations included a $180MM ($113MM
after-tax) benefit related to the accounting for a net investment in
the Company's consolidated foreign subsidiaries, as discussed
further on page 4. Excluding that benefit, adjusted diluted earnings
per share from continuing operations were $0.44 and decreased 41%.**
- 3Q '08 Income from continuing operations included a $100MM ($62MM
after-tax) charge to the fair market value of the Company's
interest-only strip ("I/O Strip").
- The discontinued operations line in the Consolidated Financial
Statements contains the results of operations, assets and
liabilities related to various business sales. During 3Q '09 and 3Q
'08, this primarily includes the results from American Express
International Deposit Company ("AEIDC"), which was sold to Standard
Chartered PLC ("Standard Chartered") this quarter, as discussed
further on page 6.
-- 3Q '09 results included $2MM of losses from discontinued
operations versus $46MM of losses last year.
- Including discontinued operations, diluted EPS on a net income basis
attributable to common shareholders of $0.53 decreased 24% versus
$0.70 last year. Excluding the 3Q '09 benefit referenced above,
adjusted net income per share was $0.43 and decreased 39%.**
BUSINESS METRICS
- Compared with the third quarter of 2008:
- Worldwide billed business of $156.6B decreased 11% as the negative
impact of the global economic slowdown continued to be evident
within a lower level of card spending. A comparatively stronger U.S.
dollar resulted in a 2% greater decline versus last year within the
reported worldwide growth rate.
- Worldwide total cards-in-force of 88.4MM decreased 4%, or 3.7MM,
from last year, and 0.1MM from last quarter. The decrease versus
last year reflects the cancellation of a total of 3.3MM inactive
cards during 2009, partially offset by the migration of cards from
GE's commercial card and corporate purchasing unit, Corporate
Payment Services ("CPS"), to the American Express network, primarily
in 1Q '09. The comparison to both periods also reflects a relatively
low level of card acquisition investments in recent quarters.
- Worldwide average spending per proprietary basic cards-in-force
decreased 5% reflecting the impact of the weak economic environment
in both the U.S. and international markets, which was partially
offset by the effect of the inactive card cancellations referenced
above. A comparatively stronger U.S. dollar resulted in a 2% greater
decline versus last year within the reported average spending growth
rate.
- Worldwide owned cardmember lending balances of $31.5B decreased 31%.
On a managed basis, including securitized loans, cardmember lending
balances of $60.7B declined 20%. These decreases reflected the lower
cardmember spending levels and the Company's credit-related actions
in the U.S. and certain international markets.
FINANCIAL HIGHLIGHTS
- SECURITIZATION INCOME, NET: Decreased 65% to $71MM, primarily due to
lower excess spread, net, driven by increased write-offs and lower
interest and fee income on cardmember loans, partially offset by the 3Q
'08 charge to the fair value of the I/O Strip and lower interest expense
due to lower rates paid on variable-rate investor certificates.
Securitization income, net represents the non-credit provision components
of the gains/(losses) from securitization activities within the U.S. Card
Services ("USCS") segment, fair value changes of the related I/O Strip
and excess spread related to securitized loans and servicing income, net
of related discounts or fees. As of September 30, 2009, the fair market
value of the I/O Strip remained at $0 versus $38MM as of September 30,
2008.
- TOTAL INTEREST INCOME: Decreased 29%, primarily due to lower interest and
fees on loans and lower yields on investment securities and deposits. The
decreased interest and fees on loans was primarily driven by a lower
average owned loan balance, reduced market interest rates and the impact
of various customer assistance programs, partially offset by the benefits
of certain repricing initiatives.
- TOTAL INTEREST EXPENSE: Decreased 39%, primarily reflecting a lower cost
of funds driven by the benefit of lower market interest rates on
variable-rate long-term and short-term debt, as well as a lower average
balance of short-term borrowings, partially offset by higher average
customer deposits.
---------
* Please refer to Appendix I of the Third Quarter 2009 Earnings Release for
the components of return on average equity ("ROE"), ROCE and ROTCE on a
consolidated basis and Appendix II for return on average segment capital
("ROSC") and return on average tangible segment capital ("ROTSC") on a
segment basis.
** Management believes the adjusted per share numbers provide useful metrics
to evaluate the ongoing operating performance of the Company.
- 1 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- TOTAL PROVISIONS FOR LOSSES: Decreased 13%, primarily due to lower owned
loan and receivable balances and improved charge card-related credit
indicators, partially offset by a higher cardmember lending reserve
level. Cardmember lending loss reserves of $3.4B increased $140MM versus
2Q '09.
- MARKETING AND PROMOTION EXPENSES: Decreased 22% versus last year due to
the relatively lower discretionary spending level resulting from the
Company's ongoing reengineering activities. Expenses rose 43%, or $152MM,
versus 2Q '09, reflecting the increased spending resulting from the
provision benefits related to the better than initially forecasted 3Q '09
credit performance, as discussed further on page 5.
- CARDMEMBER REWARDS EXPENSE: Decreased 13%, primarily reflecting lower
overall rewards-related spending volumes, and the benefit of a revised,
more restrictive, redemption policy related to 30 day past due accounts,
partially offset by higher redemption costs.
- SALARIES AND EMPLOYEE BENEFITS EXPENSE: Decreased 14%, primarily
reflecting lower employee levels and related costs due to the Company's
ongoing reengineering initiatives, partially offset by costs related to
employee compensation program-related changes.
- Compared with last year, the total employee count from continuing
operations of 59,200 decreased by 7,300 employees, or 11%. Compared
with last quarter, the employee count declined by 1,500 employees,
or 3%.
- SEGMENT INTEREST EXPENSE ALLOCATIONS: Beginning 1Q '09, the Company
changed the manner in which it assesses the performance of its reportable
operating segments to exclude the impact of its excess liquidity funding
levels. Accordingly, the debt and related cash/investment balances
associated with the Company's excess liquidity funding and the related
net negative interest spread are no longer included within the reportable
operating segment results (primarily within USCS and Global Commercial
Services, or "GCS") and are now being reported in the Corporate & Other
segment. The segment results for quarters prior to 1Q '09 have not been
revised for this change.
CAPITAL
- CAPITAL PURCHASE PROGRAM: On January 9, 2009, as part of the U.S.
Department of the Treasury's (the "Treasury") Capital Purchase Program
("CPP"), the Company issued to the Treasury $3.39B of preferred shares.
Additionally, the Company issued warrants with a 10-year term to purchase
common shares for up to 15% of that amount, or 24.3MM shares, at a per
share exercise price of $20.95. In 1Q '09, both the preferred shares and
warrants were recorded in the equity section in the Company's balance
sheet at $3.16B and $232MM, respectively. The preferred shares were
scheduled to accrete to their face value over a five year period.
On June 9, 2009, the Company announced that it had received notification
from the Treasury that it had met all of the requirements to repurchase
the CPP preferred shares. This included the pre-condition that the
Company raise capital in the public markets, which it successfully did
with its issuance of $3.0B of non-guaranteed senior debt on May 18, 2009
and the completion of a $500MM common equity offering on June 5, 2009. As
such, the Company completed the repurchase of the CPP shares on June 17,
2009. Upon repurchase, the accretion of the preferred shares to face
value was accelerated, amounting to a one-time negative EPS impact during
2Q '09 of $212MM, or $0.18 per basic and diluted common share.
Additionally, the Company recorded $13MM in preferred shares dividends,
as well as $9MM of related accretion of the preferred shares, for the
period ended June 17, 2009 when the shares were repurchased, which
further reduced 2Q '09 diluted EPS by approximately $0.02 per share.
On July 1, 2009, the Company submitted notice to the Treasury of its
intent to repurchase the warrants issued under the CPP program. On July
29, 2009, the Company repurchased the warrants for $340MM, which provided
the Treasury with an annualized return on the Company's CPP participation
of 26%. The warrant repurchase resulted in a reduction of cash and
corresponding adjustment to Retained Earnings and Additional Paid-In
Capital on the Company's Consolidated Balance Sheet. There was no impact
to the Company's Consolidated Net Income or EPS.
- CAPITAL DISTRIBUTION TO SHAREHOLDERS: During 3Q '09, approximately 77% of
capital generated was distributed to shareholders through our quarterly
common share dividend and the repurchase of the warrants issued under
the CPP, as earnings were suppressed by the challenging economic
environment.
No shares have been repurchased over the last six quarters, as share
repurchases were suspended during 1Q '08 in light of the challenging
global economic environment and limitations while under the CPP. Since
the inception of repurchase programs in December 1994, 670MM shares have
been acquired under cumulative Board authorizations to repurchase up to
770MM shares. On a cumulative basis, since 1994 the Company has
distributed 68% of capital generated through share repurchases and
dividends.*
---------
* Without considering the 2Q '09 common stock issuance, the distribution to
shareholders of capital generated through share repurchases and dividends
on a cumulative basis since 1994 through 3Q '09 would have been
approximately 69%.
- 2 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- SHARES OUTSTANDING AND REPURCHASE ACTIVITY: Total shares outstanding
were flat during 3Q '09.
Millions of Shares
-----------------------------------
3Q '09 2Q '09 3Q '08
------ ------ ------
Shares outstanding - beginning of period 1,189 1,168 1,159
Issuance of common shares - 22 -
Repurchase of common shares - - -
Employee benefit plans, compensation and other - (1) 1
------ ------ ------
Shares outstanding - end of period 1,189 1,189 1,160
====== ====== ======
- CAPITAL RATIOS: As of September 30, 2009, the Company's key consolidated
capital ratios* were as follows:
($ in B) "Well Capitalized"
September 30, Pro Forma for Regulatory
2009 Actual SFAS 166/167** Benchmarks
------------- -------------- ------------------
Risk-Based Capital
Tier 1 9.7% 8.2% 6%
Total 11.8% 10.4% 10%
Tier 1 Leverage 9.6% 6.6% 5%
Tier 1 Common Equity/Risk Weighted Assets (RWA) 9.7% 8.2% 4%***
Tangible Common Equity (TCE)/RWA 9.7% 8.1%
Tier 1 Capital $ 10.9 $ 9.1
Tier 1 Common Equity $ 10.9 $ 9.1
Tier 2 Capital $ 2.3 $ 2.4
Total Average Assets+ $ 113.3 $ 137.2
RWA $ 112.3 $ 110.6
TCE++ $ 10.9 $ 8.9
FUNDING AND LIQUIDITY
- FUNDING SOURCES: The Company's primary funding activities focus on a
mixture of retail deposits, unsecured debt and asset-backed securities.
The Company currently has an objective to hold excess cash and readily
marketable securities to satisfy all maturing obligations and fund normal
business operations for in excess of a 12-month period, in addition to
having access to significant additional contingent liquidity sources, in
the event that access to its primary funding sources should become
unavailable. As of September 30, 2009, the Company held $25B of excess
cash and readily marketable securities on its balance sheet.
The Company offers brokered deposits within its American Express
Centurion Bank and American Express Bank, FSB subsidiaries (together, the
"Banks"). These funds are insured up to $250,000 through the Federal
Deposit Insurance Corporation ("FDIC"). In addition, during 2Q '09, the
Company launched a direct deposit-taking program, Personal Savings from
American Express. This program makes FDIC-insured certificates of deposit
("CDs") and high-yield savings account products available directly from
American Express Bank, FSB to consumers.
On March 3, 2009, the Department of the Treasury and the Federal Reserve
Board announced the launch of the Term Asset-Backed Securities Loan
Facility ("TALF"), which is currently set to expire on March 31, 2010.
Securitized credit and charge card receivables are eligible collateral
under the TALF, provided the securities qualify for AAA ratings from two
or more major nationally recognized statistical rating organizations
("NRSROs"). The Company believes that an additional $12.1B of securities
backed by its cardmember loans or receivables would be eligible under
this program.
In addition to deposit, unsecured and asset-backed funding, the Company
can draw upon various other funding sources:
- COMMERCIAL PAPER: The Company had continuous access to the
commercial paper market throughout the quarter. In addition, the
Commercial Paper Financial Facility ("CPFF") became operational on
October 27, 2008, and is currently set to expire on February 1,
2010. Through its subsidiary, American Express Credit Corporation
("Credco"), the Company is eligible to have up to $14.7B of
commercial paper outstanding through the CPFF. The commercial paper
must be rated at least A1/P1/F1 by two or more major NRSROs
---------
* These ratios represent a preliminary estimate as of the date of this
Earnings Supplement and may be revised in the Company's Third Quarter
2009 Form 10-Q.
** Pro forma for SFAS 166/167 assumes the recognition of corresponding
reserves and other adjustments, which would result in TCE, Tier 1 Common
Equity and RWA decreasing by $2.0B, $1.8B and $1.7B respectively; and
Tier 2 Capital and Total Average Assets increasing by $0.1B and $23.9B,
respectively.
*** The regulatory benchmark of 4% was used within the Supervisory Capital
Assessment Program, conducted earlier in 2009.
+ For the purpose of calculating the Tier 1 Leverage Ratio.
++ Based upon common shareholders' equity of $13.9B less goodwill and
intangibles of $3.0B.
- 3 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
to qualify for participation in the CPFF. At September 30, 2009, the
Company had $1.1B of commercial paper outstanding, none of which was
placed with the CPFF.
- DISCOUNT WINDOW: The Banks are insured depository institutions that
have the capability of borrowing from the Federal Reserve Bank of
San Francisco (i.e., access to the Federal Reserve Bank discount
window), subject to the amount of qualifying collateral that they
pledge. The Federal Reserve has indicated that both credit and
charge card receivables are a form of qualifying collateral for
secured borrowings made through the discount window or its Term
Auction Facility (TAF) program.
- BANK LINES: At September 30, 2009, the Company maintained committed
bank lines of credit totaling $12.0B, of which $3.1B was drawn as
part of the Company's normal non-U.S. funding activities. The
committed facilities have $2.0B of expirations in 2010 and $3.3B in
2011, with the remainder expiring in 2012.
- FUNDING ACTIVITIES: During 3Q '09, the Company funded its business
through payments received from customers on loan and receivable balances,
its deposit-taking activities within the Banks, asset-backed
securitization activity and unsecured non-guaranteed debt issuance.
- DEPOSITS: The Company held the following deposits as of 3Q '09.
($ in B) 3Q '09 2Q '09 Change
---------- ---------- ----------
U.S. Retail Deposits* $ 23.2 $ 19.1 $ 4.1
Institutional & Other Deposits 0.7 1.0 (0.3)
------ ------ ------
Total $ 23.9 $ 20.1 $ 3.8
====== ====== ======
The average duration and rate on outstanding U.S. retail CDs was 26
months and 2.5%, respectively.
- TALF-ELIGIBLE ABS: On September 11, 2009, the Company closed on a
$1.25B 5-year, TALF-eligible, Class A security offering, priced at
one-month LIBOR plus 125bps. The Company issued and retained $265MM
of subordinated securities related to this transaction.
- UNSECURED NON-GUARANTEED DEBT: During the quarter, the Company
completed a 5-year unsecured, non-guaranteed debt transaction
through its Credco subsidiary, with the issuance of $1.5B of notes
on August 25, 2009, with a coupon of 5.125%. In addition, on October
1, 2009, Credco issued GBP 750MM of 5-year notes with a coupon of
5.375%. On October 5, 2009, the Company issued through its American
Express Canada Credit Corporation subsidiary CAD $800MM of 5-year
notes with a coupon of 4.853% and CAD $150MM of 2-year notes priced
at 3-month CDOR (Canadian Deposit Offered Rate) plus 170bps.
- FUNDING REQUIREMENTS: The maturities of the Company's long-term debt,
debt issued in connection with off-balance sheet securitizations and
long-term CDs for the following four quarters are as follows:
($ in B) Funding Maturities
------------------------------------------------------
Off-Balance Certificates of
Quarter Ending: Long-term Sheet Deposit Total
--------------- --------- ----------- --------------- -------
December 31, 2009 $ 2.7 $ - $ 1.7 $ 4.4
March 31, 2010 2.3 2.7 0.8 5.8
June 30, 2010 2.6 1.8 - 4.4
September 30, 2010 1.6 1.8 0.2 3.6
------ ------ ------ ------
$ 9.2 $ 6.3 $ 2.7 $ 18.2
====== ====== ====== ======
OTHER ITEMS OF NOTE
- BENEFIT RECORDED RELATED TO A NET INVESTMENT IN CONSOLIDATED FOREIGN
SUBSIDIARIES: In 3Q '09, the Company recorded a $180MM ($113MM after-tax)
benefit, reflected in the "other, net" expense line in the Corporate &
Other segment, associated with the Company's accounting for a net
investment in consolidated foreign subsidiaries. $135MM ($85MM after-tax)
of this benefit represents a correction of an error related to the
accounting for cumulative translation adjustments in prior periods. The
impact of the incorrect accounting was not material to any of the
quarterly or annual periods in which it occurred. The error resulted in:
a $60MM ($38MM after-tax) income overstatement in 2Q '09, a $135MM ($85MM
after-tax) income understatement in 4Q '08 and minimal amounts for all
other periods affected dating back to 3Q '07, when the incorrect
accounting originated. A non-recurring $45MM ($28MM after-tax) related
benefit was also recorded in 3Q '09 as a result of changes in the fair
value of certain foreign exchange forward contracts that are economic
hedges to foreign currency exposures of net investments in consolidated
foreign subsidiaries.
- REENGINEERING INITIATIVES: On October 30, 2008, the Company announced
various reengineering initiatives which were expected to produce cost
benefits of approximately $1.8B in 2009 versus the previously anticipated
spending levels. These initiatives include: reducing staffing levels
---------
* Includes all deposits outstanding through the Company's brokered retail
CD and sweep programs, in addition to its Personal Savings direct deposit
program.
- 4 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
and compensation expenses (expected benefit of $700MM in 2009), reducing
certain operating costs (expected benefit of $125MM in 2009) and scaling
back investment spending (expected benefit of $1B in 2009). The Company
began the execution and implementation of these initiatives in 4Q '08,
and as such, recorded a 4Q '08 restructuring charge of $404MM ($262MM
after-tax) in continuing operations, primarily associated with severance
and other costs related to the elimination of approximately 7,000
positions.
On May 18, 2009, the Company announced another phase of reengineering
initiatives which were expected to produce incremental cost benefits of
approximately $0.8B in 2009. These initiatives include: reducing staffing
levels and compensation expenses, (expected benefit of $175MM in 2009),
scaling back investment spending on marketing and business development
(expected benefit of $500MM in 2009) and cutting certain professional
services, travel and general overhead expenses (expected benefit of
$125MM in 2009). The Company began to implement these initiatives in 2Q
'09, and as such, recorded a 2Q '09 net reengineering charge of $182MM
($118MM after-tax) in continuing operations, primarily associated with
severance and other costs related to the elimination of approximately
4,000 positions. Cumulatively through these reengineering initiatives,
the Company expects to eliminate approximately 11,000 positions, which
accounted for approximately 17% of its global workforce as of September
30, 2008.
As the Company has previously indicated, provision benefits related to
better than initially forecasted credit trends during 2009 are being
utilized to selectively increase spending on marketing and other business
initiatives during the second half of the year, and, therefore, will
partially reduce the initial expected total 2009 reengineering benefit of
$1.5B related to reduced investment spending.
Separately, 3Q '09 and 3Q '08 income from continuing operations included
$12MM ($9MM after-tax) and $11MM ($7MM after-tax) of net reengineering
costs, respectively, across the Company's reportable operating segments.
- INDUSTRIAL AND COMMERCIAL BANK OF CHINA ("ICBC") SALE: On April 28, 2009,
the Company announced that it divested 50% of its investment in ICBC, or
638MM of ICBC's Class H shares, through a private sale and realized a
$211MM ($135MM after-tax) gain from the sale, which was reported in the
"other revenues" line within the Corporate & Other segment in 2Q '09. The
Company had previously acquired its interest in 2006 and, per its
agreement with ICBC, was not permitted to sell any portion of this
investment prior to the date of the actual sale. The agreement allows for
the Company to divest its stake in two 50% increments, with the remaining
shares eligible for sale after October 20, 2009. However, on October 19,
2009, the Company announced that while it will reevaluate its
shareholding from time to time depending on market conditions, it has no
current plans to sell its shares.
- MASTER TRUST: On May 22, 2009, the Company announced its plans to take
certain actions which would benefit the outstanding investor certificates
of the American Express Credit Account Master Trust ("Master Trust") and
the related American Express Credit Account Secured Note Trusts (the
"Note Trusts"). These actions consisted of the issuance of two new series
of asset-backed securities totaling $1.5B, which provide additional
credit enhancement to all existing outstanding series, and the exercise
of a discount option with respect to new principal receivables arising in
the Master Trust. In addition to improving the levels of credit
enhancement for existing series of securities issued by the Master Trust
and the Note Trusts, these actions increased the yield (or trust excess
spread rate) on assets in the Master Trust by 400-600 basis points
beginning with the July monthly reporting period.
The Master Trust modifications had no impact on the Company's
Consolidated Income Statement. Within the 2Q '09 Consolidated Balance
Sheet, $1.5B of owned cardmember loans less associated reserves have been
transferred to retained subordinated securities within investment
securities. As a result of the modifications, the Master Trust's assets
are now included within risk-weighted assets for regulatory capital
purposes.
Separately, on August 20, 2009, approximately $3B of loans generated from
cardmember accounts were newly designated for addition to the Master
Trust from the owned portfolio.
- VISA AND MASTERCARD LITIGATION SETTLEMENTS: In November of 2004, the
Company filed suit against Visa Inc., Visa USA and Visa International
(collectively "Visa"), MasterCard Inc. ("MasterCard") and certain of
their member banks to seek monetary damages for the lost business
opportunity that resulted from the illegal conspiracy to boycott American
Express from partnering with U.S. credit card issuing banks. The Company
reached agreements with Visa on November 7, 2007 and with MasterCard on
June 25, 2008. All defendants were removed and the case was dismissed.
Under the terms of the settlement agreements, the Company will receive
aggregate maximum payments of up to $2.25B from Visa and $1.8B from
MasterCard. The settlement with Visa is comprised of an initial payment
of $1.13B ($700MM after-tax) that was recorded in 4Q '07 and received in
March 2008, and quarterly payments of up to $70MM ($43MM after-tax) for
four years from 1Q '08 through 4Q '11. The settlement with MasterCard is
comprised of quarterly payments of up to $150MM ($93MM after-tax) for
three years from 3Q '08 through 2Q '11. The Company recognized $70MM from
Visa for each of the past seven quarters and $150MM from MasterCard for
each of the past five quarters pursuant to these agreements.
The installment payments from both parties are subject to the Company
achieving certain quarterly performance criteria in the Global Network
Services ("GNS") business within the U.S., which the Company believes it
is positioned to meet. Payments earned through September 2009 have been
recorded as a reduction to the "other, net" expense line within the
Corporate & Other segment.
- 5 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- ACQUISITION OF CPS: On March 28, 2008, the Company completed its purchase
of CPS for $1.1B in cash and the repayment of $1.2B in CPS debt. The
purchase included card relationships with GE, as well as more than 300
large corporate clients, which cumulatively generated over $14B in global
purchase volume in 2007. As of March 31, 2009, the GE commercial card
relationships that have agreed to become GCS clients have migrated to the
AXP network as the Company issues commercial cards to their employees.
Therefore, the cards issued and spending related to these relationships
are now recorded as "cards-in-force" and "billed business", and the
associated receivables are reflected in the "cardmember receivables"
line. In addition, where applicable, CPS revenues and expenses that were
previously reported in "other revenues" and "other, net expense" are now
reported in the relevant revenue and expense line items.
- AEB AND AEIDC: On September 18, 2007, the Company announced that it
entered into an agreement to sell AEB, its international banking
subsidiary, and AEIDC, a subsidiary that issues investment certificates
to AEB's customers, to Standard Chartered. On February 29, 2008, Standard
Chartered completed its purchase of the AEB portion of this transaction.
In 2Q '08, the Company and Standard Chartered agreed on the final
purchase price of $796MM, equaling the final net asset value of the
businesses that were sold plus $300MM. In 3Q '09, the AEIDC portion of
the transaction was completed for total consideration of $1MM. Therefore,
for all periods presented, the AEB and AEIDC results, assets and
liabilities are reported within Discontinued Operations on the Company's
Consolidated Financial Statements.
EXPANDED PRODUCTS AND SERVICES
- During the quarter, American Express continued to invest in growth
opportunities through expanded products and services.
In our proprietary issuing and network businesses we:
- Renewed our strategic co-branded partnership with British Airways,
including three consumer co-brand cards, a corporate co-brand card and
a merchant acceptance agreement, as well as extended our Membership
Rewards(R) agreement into the U.S. for the first time.
- Entered into a strategic partnership with SAS Scandinavian Airlines to
issue the SAS American Express Corporate Card to companies in Sweden,
Norway and Denmark, and the SAS EuroBonus American Express Card to
consumers in Sweden, as well as provide cardmembers the ability to
leverage the benefits of both Membership Rewards as well as the SAS
frequent flyer program, EuroBonus.
- Enhanced our Membership Rewards(R) program with the introduction of
various new rewards options designed to provide cardmembers with a
broader range of rewards options as well as greater utility.
Specifically, these included: providing Cardmembers the ability to
designate their points as payment for "everyday charges" within their
online statement; the launch of the Membership Rewards Specials
program featuring specials for popular reward options, including for
electronics and travel products and services; and the addition of a
number of new partners, such as including Chili's Grill & Bar and
Zappos.com, which give Cardmembers a broader range of opportunities to
redeem points with casual dining restaurants and retailers.
- Unveiled OPEN Forum 2.0, an online resource and networking site for
small business owners, including Connectodex(SM), a tool for American
Express OPEN Cardmembers to navigate a virtual rolodex of credentialed
businesses, market their business, find vendors and build
relationships.
- American Express Business Travel launched various products and
services focused on helping companies manage their travel investments.
These included: 1) a new meetings management offering through
Maxvantage, a strategic alliance between American Express Business
Travel and Maritz Travel, that helps companies gain visibility over
their entire meetings spending; 2) virtual meetings eXpert, which will
help companies access virtual meeting and telepresence technologies;
and 3) eXpert insights, which identifies creative, cost-saving
strategies within T&E programs and offers best practices for
implementation. In addition, two of its services has recently been
awarded U.S. patents; Hotel Rate TRAX, an automated auditing tool to
help identify and capture savings resulting from inaccurately loaded
hotel rates and Ticket TRAX which notifies travelers when eligible
unused airline tickets are available and can be applied to new
reservations.
- Eliminated monthly fees on all existing American Express(R) Gift
Cards, as well as those headed to market, making American Express the
only major issuer of universal, or "general purpose," gift cards to
eliminate all fees after purchase.
- Additionally, announced a new, expanded relationship with Simon
Property Group that makes American Express the primary provider of
Simon gift cards. Simon Property Group is the largest mall owner in
the U.S. and a pioneer of universal gift cards.
- Announced the sale of 12 travel service offices to ALTOUR, a member of
the American Express U.S. Representative Travel Network, and retained
those offices within that network through the ALTOUR relationship.
- Launched Destination Family, a program which provides money-saving
benefits and offers specifically tailored to family travelers,
exclusively available to American Express Cardmembers when booking
travel through American Express Travel.
- Continued to sponsor events designed to provide cardmembers with
unique access and experiences, including serving as the Official Card
of the 2009 U.S. Open and connecting cardmembers with fashion
designers and industry experts during New York City's Mercedes-Benz
Fashion Week.
- Launched the "Don't Take Chances, Take Charge" marketing campaign
which highlights the benefits of the American Express Charge Card. The
campaign is part of an ongoing effort to educate consumers about the
Charge Card and illustrates how it can help customers, particularly
during difficult economic times when consumers are looking to spend
less, save more and get the most value for their money.
- 6 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- With NBC Universal, launched the "Shine A Light" program, which
spotlights small business owners and the role they play in driving
economic recovery. Nationwide, the public will nominate and vote
online for the small business story which most inspires them based on
innovation, community spirit and customer service.
In the GNS business we:
- Announced three new card partnerships in the Asia-Pacific region. The
first was with ANZ, one of the top four banks in Australia and a
leading bank in New Zealand and the South Pacific, to issue the ANZ
Frequent Flyer American Express(R) Credit Card. The second was with
Commonwealth Bank, which operates the largest financial services
distribution network in Australia, to launch the Commonweath Bank
Awards American Express(R) Card. The third was with United Overseas
Bank Limited (UOB), one of the leading credit card issuers in
Singapore, to launch the UOB PRVI American Express(R) Card.
- Supported GNS partners in launching a wide range of new products and
services. These include: the launch of several new cards, including
The Centurion Card(R) with Garanti Bank (Turkey) and the Keio MUFG
Gold American Express(R) Card with Mitsubishi UFJ NICOS (Japan); the
launch of a loyalty program for Platinum Clients with our partner
Credomatic (Costa Rica); offering of American Express Cards in Bank of
Valetta retail branches (Malta); and with American Express Saudi
Arabia Limited, the launch of a U.S. online shopping service.
- On September 1, 2009, J.D. Power and Associates released its annual
nationwide credit card satisfaction study and ranked American Express
highest in overall satisfaction among 21 of the largest card issuers in
the U.S., for the third consecutive year.
- 7 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP basis)
(Millions, except per share amounts) Quarters Ended Percentage
September 30, Inc/(Dec)
------------------------ ----------
2009 2008
---------- ----------
Revenues
Non-interest revenues
Discount revenue $ 3,373 $ 3,848 (12)%
Net card fees 538 541 (1)
Travel commissions and fees 383 499 (23)
Other commissions and fees 448 573 (22)
Securitization income, net 71 200 (65)
Other 449 553 (19)
---------- ----------
Total non-interest revenues 5,262 6,214 (15)
---------- ----------
Interest income
Interest and fees on loans 1,059 1,560 (32)
Interest and dividends on investment securities 229 200 15
Deposits with banks and other 9 74 (88)
---------- ----------
Total interest income 1,297 1,834 (29)
---------- ----------
Interest expense
Deposits 109 109 -
Short-term borrowings 2 114 (98)
Long-term debt and other 432 661 (35)
---------- ----------
Total interest expense 543 884 (39)
---------- ----------
Net interest income 754 950 (21)
---------- ----------
Total revenues net of interest expense 6,016 7,164 (16)
---------- ----------
Provisions for losses
Charge card 143 351 (59)
Cardmember lending 989 958 3
Other 46 50 (8)
---------- ----------
Total provisions for losses 1,178 1,359 (13)
---------- ----------
Total revenues net of interest expense after provisions for losses 4,838 5,805 (17)
---------- ----------
Expenses
Marketing and promotion 504 649 (22)
Cardmember rewards 983 1,132 (13)
Cardmember services 132 148 (11)
Salaries and employee benefits 1,261 1,465 (14)
Professional services 575 608 (5)
Occupancy and equipment 374 398 (6)
Communications 105 118 (11)
Other, net (14) 209 #
---------- ----------
Total 3,920 4,727 (17)
---------- ----------
Pretax income from continuing operations 918 1,078 (15)
Income tax provision 276 217 27
---------- ----------
Income from continuing operations 642 861 (25)
Loss from discontinued operations, net of tax (2) (46) (96)
---------- ----------
Net income $ 640 $ 815 (21)
========== ==========
Income from continuing operations attributable to common shareholders* $ 634 $ 856 (26)
========== ==========
Net income attributable to common shareholders* $ 632 $ 810 (22)
========== ==========
Earnings Per Common Share-Basic
Income from continuing operations attributable to common shareholders $ 0.54 $ 0.74 (27)
Loss from discontinued operations - (0.04) #
---------- ----------
Net Income attributable to common shareholders $ 0.54 $ 0.70 (23)
========== ==========
Earnings Per Common Share-Diluted
Income from continuing operations attributable to common shareholders $ 0.54 $ 0.74 (27)
Loss from discontinued operations (0.01) (0.04) (75)
---------- ----------
Net Income attributable to common shareholders $ 0.53 $ 0.70 (24)
========== ==========
Average Shares Outstanding
Basic 1,178 1,154 2
========== ==========
Diluted 1,181 1,158 2
========== ==========
# Denotes a variance of more than 100%.
* Represents income from continuing operations or net income, as
applicable, less earnings allocated to participating share
awards and other items of $8MM and $5MM for 3Q '09 and 3Q '08,
respectively.
- 8 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE: Consolidated total
revenues net of interest expense decreased 16%, reflecting decreases
versus last year of 16% in USCS, 7% in International Card Services
("ICS"), 17% in GCS and 10% in Global Network & Merchant Services
("GNMS"). Total revenues net of interest expense decreased due to lower
discount revenues, lower total interest income, reduced securitization
income, net, lower other commissions and fees, reduced travel commissions
and fees, decreased other revenues and slightly lower net card fees,
partially offset by lower total interest expense. Translation of foreign
currency resulted in an approximately 2% greater decline in the reported
revenues net of interest expense growth rate.
- CONSOLIDATED PROVISIONS FOR LOSSES: Consolidated provisions for losses
decreased 13% versus last year, reflecting decreases of 10% in USCS, 21%
in ICS, 33% in GCS and 3% in GNMS. The provision decreased primarily due
to the impact of lower owned loan and receivable balances and improved
charge card credit indicators, partially offset by a higher cardmember
lending reserve level. Translation of foreign currency reduced the
reported consolidated provisions for losses growth rate by approximately
2%.
- CONSOLIDATED EXPENSES: Consolidated expenses decreased 17%, reflecting
decreases of 11% in USCS, 16% in ICS, 17% in GCS and 11% in GNMS. The
total expense decline reflected decreased other, net expenses, reduced
salaries and employee benefits expenses, lower cardmember rewards
expenses, decreased marketing and promotion expenses, lower professional
services expenses, reduced occupancy and equipment expenses, lower
cardmember services expenses and decreased communications expenses.
Translation of foreign currency resulted in an approximately 2% greater
decline in the reported consolidated expenses growth rate.
- PRETAX MARGIN: Was 15.3% of total revenues net of interest expense in 3Q
'09 compared with 15.0% in 3Q '08.
- EFFECTIVE TAX RATE: Was 30% in 3Q '09 versus 20% in 3Q '08. The 3Q '09
tax rate reflects higher tax expense during the quarter primarily due to
an increase in the Company's estimated annual effective tax rate. The 3Q
'08 rate reflects the impact of a benefit related to a reduction during
the quarter of the estimated annual effective tax rate.
- DISCOUNT REVENUE: Decreased 12% on an 11% decrease in billed business.
The greater revenue versus billed business decline primarily reflects the
relatively faster growth in billed business related to GNS, where we
share discount revenue with our card issuing partners.
- The average discount rate* was 2.54% in 3Q '09 versus 2.55% in 2Q
'09 and 2.56% in 3Q '08. As indicated in prior quarters, selective
repricing initiatives, changes in the mix of business and
volume-related pricing discounts will likely result in some erosion
of the average discount rate over time.
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ------------
2009 2008
---------- ----------
Card billed business* (billions):
United States $ 106.5 $ 120.3 (11)%
Outside the United States 50.1 55.2 (9)
---------- ----------
Total $ 156.6 $ 175.5 (11)
========== ==========
Total cards-in-force (millions):
United States 49.4 54.3 (9)
Outside the United States 39.0 37.8 3
---------- ----------
Total 88.4 92.1 (4)
========== ==========
Basic cards-in-force (millions):
United States 38.6 42.3 (9)
Outside the United States 34.3 32.8 5
---------- ----------
Total 72.9 75.1 (3)
========== ==========
Average basic cardmember spending**
United States $ 3,050 $ 3,167 (4)
Outside the United States $ 2,524 $ 2,752 (8)
Total $ 2,898 $ 3,049 (5)
* For additional information about billed business and discount
rate calculations, please refer to the Third Quarter 2009
Earnings Release, American Express Company Selected Statistical
Information pages.
** Proprietary card activity only.
- 9 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- WORLDWIDE BILLED BUSINESS: The 11% decrease in worldwide billed business
reflected decreases of 13% in USCS, 12% in ICS and 14% in GCS,
respectively, partially offset by a 2% increase in GNS. The table below
summarizes selected billed business related statistics for 3Q '09:
Percentage
Increase/(Decrease)
Assuming No
Percentage Changes in Foreign
Increase/(Decrease) Exchange Rates
------------------- ------------------
Worldwide*
Total billed business (11)% (9)%
Proprietary billed business (12) (11)
GNS 2 7
Average spending per proprietary basic card (5) (3)
Basic cards-in-force (3)
U.S.*
Billed business (11)
Average spending per proprietary basic card (4)
Basic cards-in-force (9)
Proprietary consumer card billed business** (12)
Proprietary small business billed business** (15)
Proprietary Corporate Services billed business+ (10)
Outside the U.S.*
Billed business (9) (3)
Average spending per proprietary basic card (8) (2)
Basic cards-in-force 5
Proprietary consumer and small business billed business++ (12) (6)
Proprietary Corporate Services billed business+ (19) (13)
*Captions not designated as "proprietary" include both
proprietary and GNS data. **Included in USCS. +Included in GCS.
++Included in ICS.
-- U.S. non-T&E-related volume categories (which represented
approximately 71% of total U.S. billed business) declined 10%,
while T&E volumes declined 14%.
-- U.S. airline-related volume, which represented approximately 9%
of total U.S. volumes during the quarter, decreased 18% due to
a 22% decrease in the average airline charge partially offset
by a 6% increase in airline transactions.
-- Worldwide airline volumes, which represented approximately 10%
of total volumes during the quarter, decreased 21% due to a 22%
decrease in the average airline charge partially offset by a 2%
increase in airline transactions.
-- Assuming no changes in foreign exchange rates: Total billed
business outside the U.S. reflected mid-single-digit volume
increases in Latin America, a slight increase in Asia Pacific
and high-single-digit declines in Canada and Europe.
- TOTAL CARDS-IN-FORCE: Declined 4% worldwide due to decreases of 11%
in USCS and 7% in ICS, partially offset by increases of 1% in GCS
and 10% in GNS. The declines in USCS and ICS reflect the
cancellation of approximately 3.3MM inactive cards during 2009
within these segments. The increase in GCS was driven by the
migration of CPS cards to the American Express network in 1Q '09.
-- During the quarter, total cards-in-force decreased by 400K in
the U.S., but increased by 300K outside the U.S. despite the
cancellation of approximately 150K inactive cards within ICS.
- NET CARD FEES: Decreased 1% as the decline in total proprietary
cards-in-force more than offset a 9% increase in the average fee per
card.
- TRAVEL COMMISSIONS AND FEES: Decreased 23%, primarily reflecting a 29%
decrease in worldwide travel sales, partly offset by a higher sales
commission rate.
- OTHER COMMISSIONS AND FEES: Decreased 22%, driven primarily by lower
delinquency fees reflecting decreased owned loan balances and the impacts
of various customer assistance programs, in addition to reduced
spending-related foreign currency conversion revenues.
- SECURITIZATION INCOME, NET: Decreased 65% to $71MM, primarily due to
lower excess spread, net, driven by increased write-offs and lower
interest and fee income on cardmember loans, partially offset by the 3Q
'08 charge to the fair value of the I/O Strip and lower interest expense
due to lower rates paid on variable-rate investor certificates.
Securitization income, net represents the non-credit provision components
of the gains/(losses) from securitization activities within the USCS
segment, fair value changes of the related I/O Strip and excess spread
related to securitized loans and servicing income, net of related
discounts or fees.
- 10 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- Components of Securitization Income, Net:
(millions) Quarters Ended Percentage
September 30, Inc/(Dec)
----------------- ------------
2009 2008
------- -------
Excess spread, net* $ (67) $ 84 #
Servicing fees 142 141 1
Loss on securitizations** (4) (25) (84)
------- -------
Total securitization income, net $ 71 $ 200 (65)
======= =======
# Denotes a variance of more than 100%.
* Excess spread, net is the net cash flow from interest and fee
collections allocated to the investors' interests after deducting
the interest paid on investor certificates, credit losses,
contractual servicing fees, other expenses and changes in the fair
value of the I/O Strip. **Excludes $119MM and ($252MM) of impact
from cardmember loan sales and maturities in 3Q '09 and $189MM and
($38MM) of impact from cardmember loan sales and maturities in 3Q
'08, which are reflected in provisions for losses for each
respective period.
- The average balance of cardmember lending securitizations was $28.4B
in 3Q '09 compared with $28.1B in 3Q '08.
- OTHER REVENUES: Decreased 19%, primarily reflecting decreased revenues
from the CPS acquisition versus 3Q '08 due to the migration of clients to
the AXP network as well as lower publishing revenues.
- TOTAL INTEREST INCOME: Decreased 29%.
- INTEREST AND FEES ON LOANS: Decreased 32%, due to a 32% decline in
the average owned loan balance, reduced market interest rates and
the impact of various customer assistance programs, partially offset
by the benefits of certain repricing initiatives.
- INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES: Increased 15%,
primarily reflecting increased investment levels partially offset by
reduced investment yields.
- DEPOSITS WITH BANKS AND OTHER: Was $9MM versus $74MM in 3Q '08,
primarily due to a reduced yield and a lower balance of deposits in
other banks.
- TOTAL INTEREST EXPENSE: Decreased 39%.
- DEPOSITS: Was unchanged versus last year, as the significant
increase in balances was offset by a lower cost of funds.
- SHORT-TERM BORROWINGS: Decreased 98%, due to significantly lower
short-term debt levels and a lower cost of funds.
- LONG-TERM DEBT AND OTHER: Decreased 35%, primarily reflecting a
lower cost of funds driven by reduced market rates on
variably-priced debt, as well as a lower average balance of
long-term debt outstanding.
- CHARGE CARD PROVISION FOR LOSSES: Decreased 59%, driven by improved
credit indicators and lower receivable levels.
- WORLDWIDE CHARGE CARD:*
-- The write-off rates were mixed versus last year and last
quarter. Past due rates were lower versus last year and last
quarter.
9/09 6/09 9/08
-------- -------- ---------
USCS Net write-off rate+ 3.2% 5.2% 3.4%
ICS Net loss ratio as a % of charge volume 0.37% 0.36% 0.25%
GCS Net loss ratio as a % of charge volume 0.23% 0.22% 0.15%
USCS 30 days past due as a % of total+ 2.2% 2.6% 3.3%
ICS 90 days past due as a % of total 2.5% 3.0% 2.7%
GCS 90 days past due as a % of total 1.5% 1.9% 1.8%
Worldwide Receivables (billions) $ 32.1 $ 31.4 $ 37.6
Reserves (millions) + $ 599 $ 714 $ 1,134
% of receivables+ 1.9% 2.3% 3.0%
*There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card
portfolio are on an "Owned Basis." +In the fourth quarter of
2008, the Company revised the time period in which past due
cardmember receivables in USCS are written off to 180 days past
due, consistent with applicable regulatory guidance.
Previously, receivables were written off when 360 days past
due.
- CARDMEMBER LENDING PROVISION FOR LOSSES: Increased 3%, primarily
reflecting a higher cardmember reserve level, partially offset by a lower
owned loan balance.
- 11 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
- WORLDWIDE LENDING:*
-- Net write-off and past due rates increased versus last year but
decreased versus last quarter. The write-off and past due rates
during 2009 reflect the impact of various customer assistance
programs.
9/09 6/09 9/08
-------- -------- ---------
Net write-off rate 9.1% 9.6% 5.8%
30 days past due as a % of loans 4.0% 4.3% 3.7%
Total Loans (billions) $ 31.5 $ 32.5 $ 45.7
Reserves (millions) $ 3,359 $ 3,219 $ 2,640
% of total loans 10.7% 9.9% 5.8%
% of 30 days past due accounts 264% 230% 154%
* All lending statistics are presented here on a GAAP or "Owned
Basis". "Managed Basis" credit quality statistics are available in
the Third Quarter 2009 Earnings Release, American Express Company
Consolidated Selected Statistical Information pages.
- OTHER PROVISION FOR LOSSES: Decreased $4MM versus last year.
- MARKETING AND PROMOTION EXPENSES: Decreased 22% versus last year due to
the relatively lower discretionary spending level resulting from the
Company's ongoing reengineering activities. Expenses rose 43%, or $152MM,
versus 2Q '09, reflecting the increased spending resulting from the
provision benefits related to better than initially forecasted 3Q '09
credit performance.
- CARDMEMBER REWARDS EXPENSE: Decreased 13%, primarily reflecting lower
overall rewards-related spending volumes, and the benefit of a revised,
more restrictive redemption policy related to 30 day past due accounts,
partially offset by higher redemption costs.
- CARDMEMBER SERVICES EXPENSES: Decreased 11%.
- SALARIES AND EMPLOYEE BENEFITS EXPENSE: Decreased 14%, primarily
reflecting lower employee levels and related costs due to the Company's
ongoing reengineering initiatives, partially offset by costs related to
employee compensation program-related changes.
- PROFESSIONAL SERVICES EXPENSE: Decreased 5%, reflecting lower
technology-related and legal costs, partially offset by higher credit and
collection expenses.
- OCCUPANCY AND EQUIPMENT EXPENSE: Decreased 6%, on lower
technology-related expenses.
- COMMUNICATIONS EXPENSE: Decreased 11%, driven by lower volume-related
costs.
- OTHER, NET EXPENSE: Was a $14MM credit versus $209MM expense last year,
reflecting the $180MM benefit in 3Q '09 related to the accounting for a
net investment in the Company's consolidated foreign subsidiaries as
further discussed on page 4, as well as lower travel and entertainment
and other expenses due to the Company's ongoing reengineering activities.
- 12 -
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
CONSOLIDATED
SUPPLEMENTAL INFORMATION - TANGIBLE COMMON EQUITY AND TOTAL ADJUSTED ASSETS
During the third quarter of 2006, the Company issued $750MM of 6.80%
Subordinated Debentures due 2036 ("Subordinated Debentures"), which are
automatically extendable until 2066 unless certain events occur prior to that
date. In connection with the Subordinated Debentures, the Company has
undertaken to disclose on a quarterly basis the amount of its "tangible common
equity" and "total adjusted assets", as defined in the Subordinated
Debentures. The Company's consolidated "tangible common equity" amount as of
the end of any fiscal quarter means the total shareholders' equity, excluding
preferred stock, of the Company as reflected on its consolidated balance sheet
prepared in accordance with GAAP as of such fiscal quarter end minus (i)
intangible assets and goodwill and (ii) deferred acquisition costs, as
determined in accordance with GAAP and reflected in such consolidated balance
sheet. The Company's "total adjusted assets" as of the end of any fiscal
quarter is calculated as the sum of (i) total consolidated assets as reflected
on the Company's balance sheet minus (ii) non-securitized Cardmember lending
receivables (without deduction for reserves), which are set forth on the
Company's balance sheet, plus (iii) managed (i.e., securitized and
non-securitized) worldwide Cardmember lending receivables as reported by the
Company for such fiscal quarter. As of September 30, 2009, the Company's
"tangible common equity" was $11B and its "total adjusted assets" as defined
in the Subordinated Debentures, were $150B. As of September 30, 2009, the
consolidated assets as reflected on the Company's balance sheet were $120B.
CORPORATE & OTHER SEGMENT
- Net income was $50MM in 3Q '09 compared with $171MM in 2Q '09 and $158MM
in 3Q '08.
- 3Q '09 included:
-- $113MM of after-tax benefits related to the accounting for a
net investment in consolidated foreign subsidiaries as further
discussed on page 4;
-- $93MM and $43MM of after-tax income related to the MasterCard
and Visa litigation settlements, respectively;
-- $41MM of tax expense primarily due to an increase in the
Company's estimated annual effective tax rate;
-- Higher interest expense related to the cost of carrying
increased debt and liquidity levels;
-- Costs related to employee compensation program-related changes;
and
-- $10MM of after-tax expense related to the Company's ongoing
reengineering initiatives.
- 2Q '09 included:
-- $135MM of after-tax income related to the ICBC sale;
-- $93MM and $43MM of after-tax income related to the MasterCard
and Visa litigation settlements, respectively;
-- $35MM of after-tax expense related to the Company's ongoing
reengineering initiatives; and
-- Higher interest expense related to the cost of carrying
increased levels of liquidity.
- 3Q '08 included:
-- $93MM and $43MM of after-tax income related to the MasterCard
and Visa litigation settlements, respectively;
-- $56MM in tax benefits primarily due to a decrease in the
Company's estimated annual effective tax rate; and
-- $4MM of after-tax expense related to the Company's ongoing
reengineering initiatives.
13
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
(millions) 2009 2008
-------- --------
Revenues
Discount revenue, net card fees and other $ 2,267 $ 2,597 (13)%
Securitization income, net 71 200 (65)
Interest income 772 1,190 (35)
Interest expense 207 528 (61)
-------- --------
Net interest income 565 662 (15)
-------- --------
Total revenues net of interest expense 2,903 3,459 (16)
-------- --------
Provisions for losses 850 941 (10)
-------- --------
Total revenues net of interest expense after provisions for losses 2,053 2,518 (18)
-------- --------
Expenses
Marketing, promotion, rewards and cardmember services 1,050 1,245 (16)
Salaries and employee benefits and other operating expenses 864 909 (5)
-------- --------
Total 1,914 2,154 (11)
-------- --------
Pretax segment income 139 364 (62)
Income tax provision 30 120 (75)
-------- --------
Segment income $ 109 $ 244 (55)
======== ========
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
2009 2008
-------- --------
Card billed business (billions) $ 85.2 $ 97.9 (13)%
Total cards-in-force (millions) 39.8 44.7 (11)
Basic cards-in-force (millions) 29.7 33.4 (11)
Average basic cardmember spending* (dollars) $ 2,851 $ 2,950 (3)
Segment capital (millions)** $ 5,837 $ 5,069 15
Return on average segment capital** (1.0)% 17.0%
Return on average tangible segment capital** (1.1)% 17.7%
*Proprietary cards only. **Segment capital includes an allocation attributable
to goodwill and other intangibles. Please refer to Appendix II of the Third
Quarter 2009 Earnings Release for the components of ROSC and ROTSC.
- BILLED BUSINESS: The 13% decrease in billed business reflects the
lower average spending per proprietary basic cards-in-force and the
reduced basic cards-in-force level.
-- Within the U.S. consumer business, billed business decreased
12%; small business volumes declined by 15%.
- TOTAL CARDS-IN-FORCE: Decreased by 4.9MM, or 11%, versus last year,
reflecting the effects of certain credit-related actions, including
the cancellation of a total of approximately 2.7MM inactive cards
during 2009, as well as reduced card acquisition activities in
recent quarters.
P&L DISCUSSION:
- SEGMENT INCOME: Decreased 55% to $109MM, as total revenues net of
interest expense declined 16%, provisions for losses decreased 10% and
expenses declined by 11%.
- 3Q '09 included $2MM ($1MM after-tax) of adjustments related to the
Company's ongoing reengineering initiatives.
- 3Q '08 included the $100MM ($62MM after-tax) charge to the fair
market value of the I/O Strip.
- PRETAX MARGIN: Was 4.8% in 3Q '09 compared with 10.5% in 3Q '08.
- EFFECTIVE TAX RATE: Was 22% in 3Q '09 compared with 33% in 3Q '08.
The rates in both quarters reflect benefits related to the
resolution of certain prior years' tax items.
- DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 13%, due to lower
billed business volumes, reduced other commissions and fees, decreased
net card fees, lower travel commissions and fees and slightly lower other
revenues.
14
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
- SECURITIZATION INCOME, NET: Decreased 65% to $71MM, primarily due to
lower excess spread, net, driven by increased write-offs and lower
interest and fee income on cardmember loans, partially offset by the 3Q
'08 charge to the fair value of the I/O Strip and lower interest expense
due to lower rates paid on variable-rate investor certificates.
- INTEREST INCOME: Decreased 35%, due to a decline of 36% in the average
owned lending balance and a lower portfolio yield, driven by reduced
market interest rates and the impact of various customer assistance
programs, and the movement of liquidity-related investment income to the
Corporate & Other segment. These items were partially offset by the
benefits of certain repricing initiatives.
- INTEREST EXPENSE: Decreased 61%, due to a lower market interest
rate-driven cost of funds and reduced average owned cardmember lending
and receivable and liquidity investment balances.
- PROVISIONS FOR LOSSES: Decreased 10%, principally due to lower loan and
receivable balances and decreased write-offs in the charge portfolio,
partially offset by a higher cardmember lending reserve level.
- CHARGE CARD: *
-- The net write-off and past due rates decreased versus last year
and last quarter.
9/09 6/09 9/08
-------- -------- --------
Total Receivables (billions) $ 15.9 $ 15.9 $ 18.8
Net write-off rate 3.2% 5.2% 3.4%
30 days past due as a % of total 2.2% 2.6% 3.3%
- CARDMEMBER LENDING: **
-- The net write-off and past due rates increased versus last year
but decreased versus last quarter. The write-off and past due
rates during 2009 reflect the impact of various customer
assistance programs.
9/09 6/09 9/08
-------- -------- --------
Total Loans (billions) $ 22.7 $ 23.6 $ 34.6
Net write-off rate 9.8% 10.3% 6.1%
30 days past due as a % of total 4.2% 4.4% 3.9%
* There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card
portfolio are on an "Owned Basis."
** Owned basis. See pages 16-17 for "Managed Basis" Cardmember
lending information.
- MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
16%, due to reduced marketing and promotion expenses and lower rewards
costs.
- SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
5%, partially due to benefits from ongoing reengineering activities.
15
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
MANAGED BASIS
For USCS, the managed basis presentation assumes that there have been no
off-balance sheet securitization transactions, i.e., all securitized
cardmember loans and related income effects are reflected as if they were in
the Company's balance sheets and income statements, respectively. For the
managed basis presentation, revenue and expenses related to securitized
cardmember loans are reflected in other commissions and fees (included in
discount revenue, net card fees and other), interest income, interest expense
and provisions for losses. On a managed basis, there is no securitization
income, net, as the managed basis presentation assumes no securitization
transactions have occurred.
The Company presents USCS 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. Management also believes that use of a
managed basis presentation presents a more comprehensive portrayal of the key
dynamics of the cardmember lending business. Irrespective of the on- and
off-balance sheet funding mix, it is important for management and investors to
see metrics for the entire cardmember lending portfolio because they are 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 in
order to evaluate market share. These metrics are significant in evaluating
the Company's performance and can only be properly assessed when all
non-securitized and securitized cardmember loans are viewed together on a
managed basis. The Company does not currently securitize international loans.
On a GAAP basis, revenue and expenses from securitized cardmember loans are
reflected in the Company's income statements in securitization income, net,
fees and commissions, and provisions for losses for cardmember lending. At the
time of a securitization transaction, the securitized cardmember loans are
removed from the Company's balance sheet, and the resulting gain on sale is
reflected in securitization income, net as well as an impact to provision for
losses (credit reserves are no longer recorded for the cardmember loans once
sold). Over the life of a securitization transaction, the Company recognizes
servicing fees and other net revenues (referred to as "excess spread") related
to the interests sold to investors (i.e. the investors' interests). These
amounts, in addition to changes in the fair value of the interest-only strips,
are reflected in securitization income, net, and fees and commissions. The
Company also recognizes total interest income over the life of the
securitization transaction related to the interest it retains (i.e. the
seller's interest). At the maturity of a securitization transaction,
cardmember loans on the balance sheet increase, and the impact of the
incremental required loss reserves is recorded in provisions for losses.
As presented, in aggregate over the life of a securitization transaction, the
pretax income impact to the Company is the same whether or not the Company had
securitized cardmember loans or funded these loans through other financing
activities (assuming the same financing costs). The income statement
classifications, however, of specific items will differ.
The following information reconciles the GAAP basis presentation for certain
USCS income statement line items to the managed basis presentation, where
different:
(millions) Quarters Ended Percentage
September 30, Inc/(Dec)
--------------------- ------------
2009 2008
-------- --------
- DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $ 2,267 $ 2,597 (13)%
Securitization adjustments 82 122 (33)
-------- --------
Managed discount revenue, net card fees and other $ 2,349 $ 2,719 (14)
======== ========
- INTEREST INCOME:
Reported for the period (GAAP) $ 772 $ 1,190 (35)
Securitization adjustments 714 883 (19)
-------- --------
Managed interest income $ 1,486 $ 2,073 (28)
======== ========
- SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $ 71 $ 200 (65)
Securitization adjustments (71) (200) (65)
-------- --------
Managed securitization income, net $ - $ - -
======== ========
- INTEREST EXPENSE:
Reported for the period (GAAP) $ 207 $ 528 (61)
Securitization adjustments 58 196 (70)
-------- --------
Managed interest expense $ 265 $ 724 (63)
======== ========
- PROVISIONS FOR LOSSES:
Reported for the period (GAAP) $ 850 $ 941 (10)
Securitization adjustments 529 629 (16)
-------- --------
Managed provisions for losses $ 1,379 $ 1,570 (12)
======== ========
16
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
MANAGED P&L DISCUSSION
- DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 14%, due to lower
billed business volumes, reduced other commissions and fees, decreased
net card fees, lower travel commissions and fees and slightly lower other
revenues.
- INTEREST INCOME: Decreased 28%, due to a decline of 18% in the average
managed lending balance and a lower portfolio yield, driven by reduced
market interest rates and the impact of various customer assistance
programs, and the movement of the liquidity-related investment income to
the Corporate & Other segment. These items were partially offset by the
benefits of certain repricing initiatives.
- INTEREST EXPENSE: Decreased 63%, due to a lower market interest
rate-driven cost of funds and lower average managed cardmember lending
and receivable and liquidity investment balances.
- PROVISIONS FOR LOSSES: Decreased 12%, principally due to lower loan and
receivable balances and lower write-offs in the charge portfolio,
partially offset by higher net write-offs versus last year in the lending
portfolio.
- CARDMEMBER LENDING: *
-- Net write-off and past due rates increased versus last year but
decreased versus last quarter. The write-off and past due rates
during 2009 both reflect the impact of various customer
assistance programs.
9/09 6/09 9/08
-------- -------- --------
Total Loans (billions) $ 51.9 $ 54.0 $ 64.3
Net write-off rate 8.9% 10.0% 5.9%
30 days past due as a % of total 4.1% 4.4% 3.9%
*Managed basis. There are no off-balance sheet Charge Card
securitizations. Therefore, all credit quality statistics for
the Charge Card portfolio are on an "Owned Basis."
17
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
INTERNATIONAL CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
(millions) 2009 2008
-------- --------
Revenues
Discount revenue, net card fees and other $ 866 $ 965 (10)%
-------- --------
Interest income 392 523 (25)
Interest expense 110 256 (57)
-------- --------
Net interest income 282 267 6
-------- --------
Total revenues net of interest expense 1,148 1,232 (7)
-------- --------
Provisions for losses 250 316 (21)
-------- --------
Total revenues net of interest expense after provisions for losses 898 916 (2)
-------- --------
Expenses
Marketing, promotion, rewards and cardmember services 302 388 (22)
Salaries and employee benefits and other operating expenses 469 527 (11)
-------- --------
Total 771 915 (16)
-------- --------
Pretax segment income 127 1 #
Income tax benefit - (66) #
-------- --------
Segment income $ 127 $ 67 90
======== ========
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
2009 2008
-------- --------
Card billed business (billions) $ 24.2 $ 27.5 (12)%
Total cards-in-force (millions) 15.2 16.4 (7)
Basic cards-in-force (millions) 10.6 11.5 (8)
Average basic cardmember spending* (dollars) $ 2,273 $ 2,393 (5)
Segment capital (millions)** $ 2,265 $ 2,257 -
Return on average segment capital** 12.4% 11.8%
Return on average tangible segment capital** 16.7% 15.9%
*Proprietary cards only. **Segment capital includes an allocation attributable
to goodwill and other intangibles. Please refer to Appendix II of the Third
Quarter 2009 Earnings Release for the components of ROSC and ROTSC.
- BILLED BUSINESS: The 12% decrease in billed business reflects a 5%
decrease in average spending per proprietary basic cards-in-force
and a 8% decrease in basic cards-in-force.
-- Adjusting for the impacts of foreign exchange translation,
billed business decreased 6% and average spending per
proprietary basic cards-in-force increased 1%. Volume
comparisons within the major geographic regions ranged from a
low-single-digit increase in Latin America to high-single-digit
decreases in Canada, Asia Pacific and Europe.
- TOTAL CARDS-IN-FORCE: Decreased by 1.2MM, or 7%, versus last year,
reflecting reduced card acquisition activities and the effects of
certain credit-related actions, including the cancellation of a
total of approximately 550K inactive accounts during 2009.
P&L DISCUSSION
- SEGMENT INCOME: Increased 90% to $127MM, as total revenues net of
interest expense decreased 7%, provisions for losses decreased 21% and
expenses decreased by 16%. Both the revenue and expense declines were
inflated by the translation impact of foreign currency.
- 3Q '09 and 3Q '08 included $1MM ($1MM after-tax) and $1MM ($0MM
after-tax) of adjustments, respectively, related to the Company's
ongoing reengineering initiatives.
- PRETAX MARGIN: Was 11.1% in 3Q '09 compared with 0.1% in 3Q '08.
- EFFECTIVE TAX RATE: The tax rate was not meaningful in 3Q '09 and 3Q
'08. The rates in both periods reflect the impact of recurring tax
benefits on varying pretax income. As indicated in previous
quarters, this segment reflects the favorable impact of the
consolidated tax benefit related to its ongoing funding activities
outside the U.S., which is allocated to ICS under the Company's
internal tax allocation process and is likely to continue going
forward.
18
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
INTERNATIONAL CARD SERVICES
- DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 10%, driven
primarily by the lower level of card spending, decreased other
commissions and fees, lower other revenues and reduced travel commissions
and fees, partially offset by an increase in net card fees.
- INTEREST INCOME: Decreased 25% on a 22% reduction in average loans and
lower interest on bank and other deposits, partially offset by a higher
cardmember loan portfolio yield.
- INTEREST EXPENSE: Decreased 57% on lower average loan and receivable
balances, as well as a decreased cost of funds.
- PROVISIONS FOR LOSSES: Decreased 21%, primarily due to benefits of lower
loan and receivable balances.
- CHARGE CARD: *
-- The loss ratio increased versus last year and last quarter. The
past due rate decreased versus last year and last quarter.
9/09 6/09 9/08
-------- -------- --------
Total Receivables (billions) $ 5.6 $ 5.4 $ 6.1
Net loss ratio as a % of charge volume 0.37% 0.36% 0.25%
90 days past due as a % of total 2.5% 3.0% 2.7%
- CARDMEMBER LENDING: *
-- The net write-off and past due rates increased versus last year
but decreased versus last quarter.
9/09 6/09 9/08
-------- -------- --------
Cardmember Loans (billions) $ 8.8 $ 8.9 $ 11.1
Net write-off rate 7.1% 7.5% 5.1%
30 days past due as a % of total 3.7% 4.0% 3.3%
* There are no off-balance sheet charge card and currently no
off-balance sheet international lending securitizations.
Therefore, all credit quality statistics for the charge card
and lending portfolio are on an "Owned Basis."
- MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
22%, reflecting reduced marketing and promotion expenses and lower
rewards costs.
- SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
11%, primarily due to the benefits from the Company's ongoing
reengineering initiatives.
19
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
(millions) 2009 2008
-------- --------
Revenues
Discount revenue, net card fees and other $ 1,017 $ 1,291 (21)%
-------- --------
Interest income 8 43 (81)
Interest expense 28 134 (79)
-------- --------
Net interest income (20) (91) (78)
-------- --------
Total revenues net of interest expense 997 1,200 (17)
-------- --------
Provisions for losses 40 60 (33)
-------- --------
Total revenues net of interest expense after provisions for losses 957 1,140 (16)
-------- --------
Expenses
Marketing, promotion, rewards and cardmember services 81 113 (28)
Salaries and employee benefits and other operating expenses 706 836 (16)
-------- --------
Total 787 949 (17)
-------- --------
Pretax segment income 170 191 (11)
Income tax provision 54 57 (5)
-------- --------
Segment income $ 116 $ 134 (13)
======== ========
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
2009 2008
-------- --------
Card billed business (billions) $ 27.9 $ 32.3 (14)%
Total cards-in-force (millions) 7.1 7.0 1
Basic cards-in-force (millions) 7.1 7.0 1
Average basic cardmember spending* (dollars) $ 3,907 $ 4,611 (15)
Segment capital (millions)** $ 3,424 $ 3,564 (4)
Return on average segment capital** 7.7% 21.2%
Return on average tangible segment capital** 17.4% 43.9%
*Proprietary cards only. **Segment capital includes an allocation attributable
to goodwill and other intangibles. Please refer to Appendix II of the Third
Quarter 2009 Earnings Release for the components of ROSC and ROTSC.
- BILLED BUSINESS: The 14% decrease in billed business reflects a 15%
decline in average spending per proprietary basic cards-in-force
partially offset by a 1% increase in basic cards-in-force.
-- Adjusting for the impacts of foreign exchange translation:
Billed business and average spending per proprietary basic
cards-in-force decreased 11% and 13%, respectively. Volume
decreases of 10% within the U.S. compared to results within
other major geographic regions ranging from double-digit
declines in Asia Pacific, Europe and Canada to a
high-single-digit increase in Latin America.
- TOTAL CARDS-IN-FORCE: Increased by 100K, or 1%, versus last year,
driven by the migration of CPS cards onto the AXP network, partially
offset by the impact of the global recession on corporate client
employee and card levels.
P&L DISCUSSION
- SEGMENT INCOME: Decreased 13% to $116MM as total revenues net of interest
expense decreased 17%, provisions for losses decreased by 33% and
expenses declined by 17%. Both the revenue and expense declines were
inflated by the translation impact of foreign currency.
- 3Q '08 included $1MM ($0MM after-tax) of costs related to the
Company's ongoing reengineering initiatives.
- PRETAX MARGIN: Was 17.1% in 3Q '09 compared with 15.9% in 3Q '08.
- EFFECTIVE TAX RATE: Was 32% in 3Q '09 compared with 30% in 3Q '08.
- DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 21%, driven
primarily by lower travel commissions and fees, the reduced level of card
spending, decreased other revenues and reduced other commissions and
fees.
- INTEREST INCOME: Decreased 81%, driven by lower rates within
deposit-related income.
20
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
GLOBAL COMMERCIAL SERVICES
- INTEREST EXPENSE: Decreased 79%, primarily due to a lower cost of funds.
- PROVISIONS FOR LOSSES: Decreased 33%, driven by lower receivable balances
and improving past due levels.
- CHARGE CARD: *
-- The loss ratio increased versus last year and last quarter. The
past due rate decreased versus last year and last quarter.
9/09 6/09 9/08
-------- -------- --------
Total Receivables (billions) $ 10.4 $ 9.9 $ 12.5
Net loss ratio as a % of charge volume 0.23% 0.22% 0.15%
90 days past due as a % of total 1.5% 1.9% 1.8%
* There are no off-balance sheet charge card securitizations.
Therefore, all credit quality statistics for the charge card
portfolio are on an "Owned Basis."
- MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
28%, primarily reflecting lower rewards costs.
- SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
16%, reflecting the benefits from the Company's ongoing reengineering
initiatives.
21
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2009 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
(millions) 2009 2008
-------- --------
Revenues
Discount revenue, fees and other $ 945 $ 1,015 (7)%
-------- --------
Interest income 1 2 (50)
Interest expense (17) (54) (69)
-------- --------
Net interest income 18 56 (68)
-------- --------
Total revenues net of interest expense 963 1,071 (10)
-------- --------
Provisions for losses 33 34 (3)
-------- --------
Total revenues net of interest expense after provisions for losses 930 1,037 (10)
-------- --------
Expenses
Marketing and promotion 157 150 5
Salaries and employee benefits and other operating expenses 415 490 (15)
-------- --------
Total 572 640 (11)
-------- --------
Pretax segment income 358 397 (10)
Income tax provision 118 139 (15)
-------- --------
Segment income $ 240 $ 258 (7)
======== ========
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
------------------- ------------
2009 2008
-------- --------
Global card billed business* (billions) $ 156.6 $ 175.5 (11)%
Segment capital (millions)** $ 1,803 $ 1,437 25
Return on average segment capital** 56.9% 82.4%
Return on average tangible segment capital** 58.1% 84.7%
GLOBAL NETWORK SERVICES:
Card billed business (billions) $ 18.6 $ 18.2 2
Total cards-in-force (millions) 26.3 24.0 10
*Includes activities related to proprietary cards (including cash advances),
cards issued under network partnership agreements, and certain insurance fees
charged on proprietary cards. **Segment capital includes an allocation
attributable to goodwill and other intangibles. Please refer to Appendix II of
the Third Quarter 2009 Earnings Release for the components of ROSC and ROTSC.
P&L DISCUSSION
- SEGMENT INCOME: Decreased 7% to $240MM, as total revenues net of interest
expense declined 10%, provisions for losses were decreased by $1MM and
expenses decreased by 11%. Both the revenue and expense declines were
inflated by the translation impact of foreign currency.
- 3Q '09 and 3Q '08 included $1MM ($1MM after-tax) and $4MM ($3MM
after-tax), respectively, of costs related to the Company's ongoing
reengineering initiatives.
- PRETAX MARGIN: Was 37.2% in 3Q '09 compared with 37.1% in 3Q '08.
- EFFECTIVE TAX RATE: Was 33% in 3Q '09 compared with 35% in 3Q '08.
- DISCOUNT REVENUE, FEES AND OTHER REVENUE: Decreased 7%, primarily
reflecting a decline in merchant-related revenues, driven by the 11%
decrease in global card billed business.
- INTEREST INCOME: Decreased $1MM.
- INTEREST EXPENSE: The expense credit decreased 69% due to lower volumes
and a lower rate-driven interest credit related to internal transfer
pricing which recognizes the merchant services' accounts payable-related
funding benefit.
- PROVISIONS FOR LOSSES: Decreased $1MM.
- MARKETING AND PROMOTION EXPENSES: Increased 5%, reflecting higher
brand-related marketing investments.
- SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
15%, primarily reflecting the benefits from the Company's ongoing
reengineering initiatives.
22
INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH ARE SUBJECT TO RISKS
AND UNCERTAINTIES. THE FORWARD-LOOKING STATEMENTS, WHICH ADDRESS THE COMPANY'S
EXPECTED BUSINESS AND FINANCIAL PERFORMANCE, AMONG OTHER MATTERS, CONTAIN
WORDS SUCH AS "BELIEVE," "EXPECT," "ANTICIPATE," "OPTIMISTIC," "INTEND,"
"PLAN," "AIM," "WILL," "MAY," "SHOULD," "COULD," "WOULD," "LIKELY," AND
SIMILAR EXPRESSIONS. 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 FOLLOWING: THE COMPANY'S ABILITY TO MANAGE CREDIT RISK RELATED TO
CONSUMER DEBT, BUSINESS LOANS, MERCHANTS AND OTHER CREDIT TRENDS, WHICH WILL
DEPEND IN PART ON (I) THE ECONOMIC ENVIRONMENT, INCLUDING, AMONG OTHER THINGS,
THE HOUSING MARKET, THE RATES OF BANKRUPTCIES AND UNEMPLOYMENT, WHICH CAN
AFFECT SPENDING ON CARD PRODUCTS, DEBT PAYMENTS BY INDIVIDUAL AND CORPORATE
CUSTOMERS AND BUSINESSES THAT ACCEPT THE COMPANY'S CARD PRODUCTS, (II) THE
EFFECTIVENESS OF THE COMPANY'S CREDIT MODELS AND (III) THE IMPACT OF RECENTLY
ENACTED STATUTES AND PROPOSED LEGISLATIVE INITIATIVES AFFECTING THE CREDIT
CARD BUSINESS, INCLUDING, WITHOUT LIMITATION, THE CREDIT CARD ACCOUNTABILITY
RESPONSIBILITY AND DISCLOSURE ACT OF 2009; THE IMPACT OF THE COMPANY'S EFFORTS
TO DEAL WITH DELINQUENT CARDMEMBERS IN THE CURRENT CHALLENGING ECONOMIC
ENVIRONMENT, WHICH MAY AFFECT PAYMENT PATTERNS OF CARDMEMBERS AND THE
PERCEPTION OF THE COMPANY'S SERVICES, PRODUCTS AND BRANDS; THE COMPANY'S
NEAR-TERM WRITE-OFF RATES, INCLUDING THOSE FOR THE FOURTH QUARTER OF 2009,
WHICH WILL DEPEND IN PART ON CHANGES IN THE LEVEL OF THE COMPANY'S LOAN
BALANCES, DELINQUENCY RATES OF CARDMEMBERS, UNEMPLOYMENT RATES AND THE VOLUME
OF BANKRUPTCIES; DIFFERENCES BETWEEN OWNED (I.E., GAAP) AND MANAGED WRITE-OFF
RATES, WHICH CAN BE IMPACTED BY FACTORS SUCH AS THE VARIOUS TYPES OF CUSTOMER
ACCOUNTS IN THE PORTFOLIOS OF THE COMPANY AND THE LENDING SECURITIZATION
TRUST; CONSUMER AND BUSINESS SPENDING ON THE COMPANY'S CREDIT AND CHARGE CARD
PRODUCTS AND TRAVELERS CHEQUES AND OTHER PREPAID PRODUCTS AND GROWTH IN CARD
LENDING BALANCES, WHICH DEPEND IN PART ON THE ECONOMIC ENVIRONMENT, AND THE
ABILITY TO ISSUE NEW AND ENHANCED CARD AND PREPAID PRODUCTS, SERVICES AND
REWARDS PROGRAMS, AND INCREASE REVENUES FROM SUCH PRODUCTS, ATTRACT NEW
CARDMEMBERS, REDUCE CARDMEMBER ATTRITION, CAPTURE A GREATER SHARE OF EXISTING
CARDMEMBERS' SPENDING, AND SUSTAIN PREMIUM DISCOUNT RATES ON ITS CARD PRODUCTS
IN LIGHT OF REGULATORY AND MARKET PRESSURES, INCREASE MERCHANT COVERAGE,
RETAIN CARDMEMBERS AFTER LOW INTRODUCTORY LENDING RATES HAVE EXPIRED, AND
EXPAND THE GLOBAL NETWORK SERVICES BUSINESS; THE WRITE-OFF AND DELINQUENCY
RATES IN THE MEDIUM- TO LONG-TERM OF CARDMEMBERS ADDED BY THE COMPANY DURING
THE PAST FEW YEARS, WHICH COULD IMPACT THEIR PROFITABILITY TO THE COMPANY; THE
COMPANY'S ABILITY TO EFFECTIVELY IMPLEMENT CHANGES IN THE PRICING OF CERTAIN
OF ITS PRODUCTS AND SERVICES; FLUCTUATIONS IN INTEREST RATES (INCLUDING
FLUCTUATIONS IN BENCHMARKS, SUCH AS LIBOR AND OTHER BENCHMARK RATES, AND
CREDIT SPREADS), WHICH IMPACT THE COMPANY'S BORROWING COSTS, RETURN ON LENDING
PRODUCTS AND THE VALUE OF THE COMPANY'S INVESTMENTS; THE ACTUAL AMOUNT TO BE
SPENT BY THE COMPANY ON MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES
BASED ON MANAGEMENT'S ASSESSMENT OF COMPETITIVE OPPORTUNITIES AND OTHER
FACTORS AFFECTING ITS JUDGMENT, AND DURING THE REMAINDER OF 2009, THE EXTENT
OF PROVISION BENEFIT, IF ANY, FROM LOWER THAN EXPECTED WRITE OFFS; THE ABILITY
TO CONTROL AND MANAGE OPERATING, INFRASTRUCTURE, ADVERTISING AND PROMOTION
EXPENSES AS BUSINESS EXPANDS OR CHANGES, INCLUDING THE ABILITY TO ACCURATELY
ESTIMATE THE PROVISION FOR THE COST OF THE MEMBERSHIP REWARDS PROGRAM;
FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES; THE COMPANY'S ABILITY TO GROW
ITS BUSINESS AND GENERATE EXCESS CAPITAL AND EARNINGS IN A MANNER AND AT
LEVELS THAT WILL ALLOW THE COMPANY TO RETURN A PORTION OF CAPITAL TO
SHAREHOLDERS, WHICH WILL DEPEND ON THE COMPANY'S ABILITY TO MANAGE ITS CAPITAL
NEEDS, AND THE EFFECT OF BUSINESS MIX, ACQUISITIONS AND RATING AGENCY AND
REGULATORY REQUIREMENTS, INCLUDING THOSE ARISING FROM THE COMPANY'S STATUS AS
A BANK HOLDING COMPANY; THE ABILITY OF THE COMPANY TO MEET ITS OBJECTIVES WITH
RESPECT TO THE GROWTH OF ITS BROKERED RETAIL CD PROGRAM, BROKERAGE SWEEP
ACCOUNT PROGRAM AND THE DIRECT DEPOSIT INITIATIVE; THE SUCCESS OF THE GLOBAL
NETWORK SERVICES BUSINESS IN PARTNERING WITH BANKS IN THE UNITED STATES, WHICH
WILL DEPEND IN PART ON THE EXTENT TO WHICH SUCH BUSINESS FURTHER ENHANCES THE
COMPANY'S BRAND, ALLOWS THE COMPANY TO LEVERAGE ITS SIGNIFICANT PROCESSING
SCALE, EXPANDS MERCHANT COVERAGE OF THE NETWORK, PROVIDES GLOBAL NETWORK
SERVICES' BANK PARTNERS IN THE UNITED STATES THE BENEFITS OF GREATER
CARDMEMBER LOYALTY AND HIGHER SPEND PER CUSTOMER, AND MERCHANT BENEFITS SUCH
AS GREATER TRANSACTION VOLUME AND ADDITIONAL HIGHER SPENDING CUSTOMERS; THE
ABILITY OF THE GLOBAL NETWORK SERVICES BUSINESS TO MEET THE PERFORMANCE
REQUIREMENTS CALLED FOR BY THE COMPANY'S SETTLEMENTS WITH MASTERCARD AND VISA;
TRENDS IN TRAVEL AND ENTERTAINMENT SPENDING AND THE OVERALL LEVEL OF CONSUMER
CONFIDENCE; THE UNCERTAINTIES ASSOCIATED WITH BUSINESS ACQUISITIONS,
INCLUDING, AMONG OTHERS, THE FAILURE TO REALIZE ANTICIPATED BUSINESS
RETENTION, GROWTH AND COST SAVINGS, AS WELL AS THE ABILITY TO EFFECTIVELY
INTEGRATE THE ACQUIRED BUSINESS INTO THE COMPANY'S EXISTING OPERATIONS; THE
SUCCESS, TIMELINESS AND FINANCIAL IMPACT (INCLUDING COSTS, COST SAVINGS, AND
OTHER BENEFITS, INCLUDING INCREASED REVENUES), AND BENEFICIAL EFFECT ON THE
COMPANY'S OPERATING EXPENSE TO REVENUE RATIO, BOTH IN THE SHORT-TERM
(INCLUDING DURING 2009) AND OVER TIME, 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 COMPANY'S ABILITY TO REINVEST THE BENEFITS ARISING FROM SUCH REENGINEERING
ACTIONS IN ITS BUSINESSES; BANKRUPTCIES, RESTRUCTURINGS, CONSOLIDATIONS OR
SIMILAR EVENTS (INCLUDING, AMONG OTHERS, THE DELTA AIR LINES/NORTHWEST
AIRLINES MERGER) AFFECTING THE AIRLINE OR ANY OTHER INDUSTRY REPRESENTING A
SIGNIFICANT PORTION OF THE COMPANY'S 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; 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; 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; THE
ABILITY OF THE COMPANY TO SATISFY ITS LIQUIDITY NEEDS AND EXECUTE ON ITS
FUNDING PLANS, WHICH WILL DEPEND ON, AMONG OTHER THINGS, THE COMPANY'S FUTURE
BUSINESS GROWTH, ITS CREDIT RATINGS, MARKET CAPACITY AND DEMAND FOR SECURITIES
OFFERED BY THE COMPANY, PERFORMANCE BY THE COMPANY'S COUNTERPARTIES UNDER ITS
BANK CREDIT FACILITIES AND OTHER LENDING FACILITIES, REGULATORY CHANGES,
INCLUDING CHANGES TO THE POLICIES, RULES AND REGULATIONS OF THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND THE FEDERAL RESERVE BANK OF SAN
FRANCISCO, THE COMPANY'S ABILITY TO SECURITIZE AND SELL RECEIVABLES AND THE
PERFORMANCE OF RECEIVABLES PREVIOUSLY SOLD IN SECURITIZATION TRANSACTIONS AND
THE COMPANY'S ABILITY TO MEET THE CRITERIA FOR PARTICIPATION IN CERTAIN
LIQUIDITY FACILITIES AND OTHER FUNDING PROGRAMS, INCLUDING THE COMMERCIAL
PAPER FUNDING FACILITY AND THE TEMPORARY LIQUIDITY GUARANTEE PROGRAM, BEING
MADE AVAILABLE THROUGH THE FEDERAL RESERVE BANK OF NEW YORK, THE FEDERAL
DEPOSIT INSURANCE CORPORATION AND OTHER FEDERAL DEPARTMENTS AND AGENCIES;
ACCURACY OF ESTIMATES FOR THE FAIR VALUE OF THE ASSETS IN THE COMPANY'S
INVESTMENT PORTFOLIO AND, IN PARTICULAR, THOSE INVESTMENTS THAT ARE NOT
READILY MARKETABLE, INCLUDING THE VALUATION OF THE INTEREST-ONLY STRIP
RELATING TO THE COMPANY'S LENDING SECURITIZATIONS AND THE ABILITY OF OUR
CHARGE CARD AND LENDING TRUSTS TO MAINTAIN EXCESS SPREADS AT LEVELS SUFFICIENT
TO AVOID MATERIAL SET-ASIDES OR EARLY AMORTIZATION OF OUR CHARGE CARD AND
LENDING SECURITIZATIONS, WHICH WILL DEPEND ON VARIOUS FACTORS SUCH AS INCOME
DERIVED FROM THE RELEVANT PORTFOLIOS AND THEIR RESPECTIVE CREDIT PERFORMANCES;
THE INCREASE IN EXCESS SPREAD RESULTING FROM THE DESIGNATION OF DISCOUNT
OPTION RECEIVABLES WITH RESPECT TO THE AMERICAN EXPRESS CREDIT ACCOUNT MASTER
TRUST, WHICH WILL DEPEND IN PART ON THE MONTHLY PRINCIPAL PAYMENT RATE POSTED
TO ACCOUNTS IN, AND THE CREDIT PERFORMANCE OF, THE SECURITIZED LENDING
PORTFOLIO; THE COMPANY'S ABILITY TO AVOID MATERIAL LOSSES ON ITS INVESTMENT
PORTFOLIO, INCLUDING ITS INVESTMENTS IN STATE AND MUNICIPAL OBLIGATIONS, THE
ISSUERS OF WHICH COULD BE ADVERSELY AFFECTED BY THE CHALLENGING ECONOMIC
ENVIRONMENT; THE COMPANY'S ABILITY TO INVEST IN TECHNOLOGY ADVANCES ACROSS ALL
AREAS OF ITS BUSINESS TO STAY ON THE LEADING EDGE OF TECHNOLOGIES APPLICABLE
TO THE PAYMENT INDUSTRY; THE COMPANY'S ABILITY TO ATTRACT AND RETAIN EXECUTIVE
MANAGEMENT AND OTHER KEY EMPLOYEES; THE COMPANY'S ABILITY TO PROTECT ITS
INTELLECTUAL PROPERTY RIGHTS (IP) AND AVOID INFRINGING THE IP OF OTHER
PARTIES; THE POTENTIAL NEGATIVE EFFECT ON THE COMPANY'S BUSINESSES AND
INFRASTRUCTURE, INCLUDING INFORMATION TECHNOLOGY, OF TERRORIST ATTACKS,
NATURAL DISASTERS OR OTHER CATASTROPHIC EVENTS IN THE FUTURE; 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 POTENTIAL IMPACT OF THE CREDIT CARD ACCOUNTABILITY
RESPONSIBILITY AND DISCLOSURE ACT OF 2009 AND REGULATIONS RECENTLY ADOPTED BY
FEDERAL BANK REGULATORS RELATING TO CERTAIN CREDIT AND CHARGE CARD PRACTICES,
INCLUDING, AMONG OTHERS, THE IMPOSITION BY CARD ISSUERS OF INTEREST RATE
INCREASES ON OUTSTANDING BALANCES AND THE ALLOCATION OF PAYMENTS IN RESPECT OF
OUTSTANDING BALANCES WITH DIFFERENT INTEREST RATES, WHICH COULD HAVE AN
ADVERSE IMPACT ON THE COMPANY'S NET INCOME; ACCOUNTING CHANGES, INCLUDING THE
FINANCIAL ACCOUNTING STANDARDS BOARD'S RECENT ADOPTION OF CHANGES TO THE
ACCOUNTING OF OFF-BALANCE SHEET ACTIVITIES OR OTHER POTENTIAL REGULATORY
INTERPRETATIONS IN THIS AREA, WHICH, WHEN EFFECTIVE, WILL RESULT IN THE
COMPANY'S HAVING TO CONSOLIDATE THE ASSETS AND LIABILITIES OF THE LENDING
SECURITIZATION TRUST, THEREBY REQUIRING THE COMPANY TO REESTABLISH LOSS
RESERVES, WHICH COULD REDUCE THE COMPANY'S REGULATORY CAPITAL RATIOS AND/OR
CHANGE THE PRESENTATION OF ITS FINANCIAL STATEMENTS; OUTCOMES AND COSTS
ASSOCIATED WITH LITIGATION AND COMPLIANCE AND REGULATORY MATTERS; AND
COMPETITIVE PRESSURES IN ALL OF THE COMPANY'S MAJOR BUSINESSES. 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, 2008, THE
COMPANY'S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31 AND
JUNE 30, 2009, AND THE COMPANY'S OTHER REPORTS FILED WITH THE SEC.
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