EXHIBIT 99.1
News Release News Release News Release News Release
[LOGO OF AMERICAN EXPRESS]
Contacts: Frank Vaccaro Michael J. O'Neill
212-640-3327 212-640-5951
frank.vaccaro@aexp.com mike.o'neill@aexp.com
FOR IMMEDIATE RELEASE
- -------------------------------------------------------------------------------
AMERICAN EXPRESS REPORTS RECORD QUARTERLY EARNINGS
AND REVENUES
Second Quarter Growth Rates Top Long-Term Targets
Results Reflect Strong Growth in
Cardmember Spending and Excellent Credit Quality
(Dollars in millions, except per share amounts)
Quarters Ended Percentage Six Months Ended Percentage
June 30, Inc/(Dec) June 30, Inc/(Dec)
-------- --------- -------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Revenues $ 8,002 $ 7,232 11% $ 15,575 $ 14,142 10%
Income Before Accounting Change $ 1,013 $ 876 16% $ 1,959 $ 1,741 13%
Net Income $ 1,013 $ 876 16% $ 1,959 $ 1,670* 17%
Earnings Per Common Share - Basic:
Income Before Accounting Change $ 0.82 $ 0.69 19% $ 1.59 $ 1.37 16%
Net Income $ 0.82 $ 0.69 19% $ 1.59 $ 1.31* 21%
Earnings Per Common Share - Diluted:
Income Before Accounting Change $ 0.81 $ 0.68 19% $ 1.56 $ 1.34 16%
Net Income $ 0.81 $ 0.68 19% $ 1.56 $ 1.29* 21%
Average Common Shares Outstanding
Basic 1,231 1,263 (3%) 1,235 1,270 (3%)
Diluted 1,254 1,288 (3%) 1,259 1,296 (3%)
Return on Average Total Shareholders'
Equity** 23.1% 21.2% - 23.1% 21.2% -
- ----------------------------------------------------------------------------------------------------------------------------------
* Reflects a $109 million non-cash pre-tax charge ($71 million after-tax), or
$0.06 on a basic per share basis and $0.05 on a diluted per share basis,
relating to the January 1, 2004 adoption of Statement of Position 03-1,
"Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts" (SOP 03-1).
** Computed on a trailing 12-month basis using total Shareholders' Equity as
included in the Consolidated Financial Statements prepared in accordance with
U.S. generally accepted accounting principles (GAAP).
2
New York - July 25, 2005 - AMERICAN EXPRESS COMPANY today reported
record net income of $1.0 billion for the second quarter, up 16 percent from
$876 million a year ago. Diluted earnings per share (EPS) rose to $0.81, up 19
percent from $0.68 a year ago.
The company's return on equity was 23.1 percent.
Consolidated revenues rose 11 percent to $8.0 billion, up from $7.2
billion a year ago. This growth reflects record cardmember spending, increased
cards-in-force, a rise in cardmember lending balances and higher levels of
invested assets.
Consolidated expenses totaled $6.7 billion, up 12 percent from $6.0
billion a year ago. This increase primarily reflects higher expenses for human
resources, as well as for marketing, promotion, rewards and cardmember
services. Expenses for the 2005 quarter also included costs associated with
the planned spin-off of the company's financial services unit.
"Strong momentum in our card business and excellent credit quality
drove another quarter of record earnings," said Kenneth I. Chenault, Chairman
and Chief Executive Officer. "Cardmember spending rose sharply among
consumers, small businesses and corporate clients. The volume growth was
excellent throughout our card-issuing business and from our bank network
partners. This growth in all of our key customer segments produced overall
business volumes that once again outpaced our major competitors.
"Our investments in new products, rewards and services helped us to
generate double-digit growth in average spending per cardmember and add 1.2
million cards in the last three months. The pipeline of new products and
service enhancements continues to be excellent and is helping to differentiate
American Express as the network of choice for high-spending cardmembers.
"Overall results for the quarter demonstrated the competitive
advantages and broad-based strength of the businesses that will comprise the
company following the spin-off of American Express Financial Advisors. We
remain on track with plans for the spin-off, which we expect will occur at the
end of the third quarter of 2005."
3
SECOND QUARTER 2005 RESULTS
Second quarter revenues reflected 11 percent growth at Travel Related
Services (TRS), 10 percent growth at American Express Financial Advisors
(AEFA) and a slight increase at American Express Bank (AEB). More
specifically:
o Discount revenue rose 16 percent, resulting from an 18 percent
increase in cardmember spending on American Express cards.
o Management and distribution fees increased 12 percent, reflecting
higher levels of assets under management and higher fees earned on
wrap accounts.
o Net finance charge revenue increased 14 percent, principally driven
by growth in average cardmember loan balances and higher net interest
yields.
Second quarter expenses reflected increases of 12 percent at TRS, 17
percent at AEFA and a slight increase at AEB. More specifically, the overall
increase reflected:
o A 15 percent increase in human resources expenses driven by severance
costs associated with the restructuring of certain operations, higher
management incentives including the impact of an additional year of
incremental stock-based compensation expenses, merit increases and
increased employee benefits costs.
o An 18 percent increase in marketing, promotion, rewards and cardmember
services expenses, primarily due to an 18 percent increase at TRS.
Certain tax and insurance benefits provided the flexibility this
quarter to accelerate reengineering initiatives and investments in the
business. Second quarter results included the following items:
4
o A tax benefit of approximately $90 million resulting from a Federal
tax audit.
o A $115 million benefit ($75 million after-tax) related to the
settlement of an insurance claim associated with September 11, 2001.
o $102 million ($66 million after-tax) of reengineering costs
principally related to restructuring costs within the International
Payments business, the Corporate Travel business and the Finance and
Technologies functions.
o $59 million of costs ($38 million after-tax) related to the spin-off of
American Express Financial Advisors.
o Costs associated with various securities industry legal and regulatory
matters of $35 million ($23 million after-tax).
TRAVEL RELATED SERVICES (TRS) reported record second quarter net
income of $808 million, up 10 percent from $732 million a year ago.
THE FOLLOWING DISCUSSION OF SECOND QUARTER RESULTS PRESENTS TRS
SEGMENT RESULTS ON A "MANAGED BASIS," AS IF THERE HAD BEEN NO CARDMEMBER
LENDING SECURITIZATION TRANSACTIONS. THIS IS THE BASIS USED BY MANAGEMENT TO
EVALUATE OPERATIONS AND IS CONSISTENT WITH INDUSTRY PRACTICE. FOR FURTHER
INFORMATION ABOUT MANAGED BASIS AND RECONCILIATION OF GAAP AND MANAGED TRS
INFORMATION, SEE THE "MANAGED BASIS" SECTION BELOW. THE AEFA, AEB AND
CORPORATE AND OTHER SECTIONS BELOW ARE PRESENTED ON A GAAP BASIS.
Total net revenues for the second quarter increased 11 percent from a
year ago to $6.2 billion, reflecting continued strong growth in spending and
borrowing on American Express Cards.
Record cardmember spending contributed to a 16 percent increase in
discount revenue. This increase was driven by 13 percent growth in spending
per basic cardmember, the continued benefits of rewards programs and the net
addition of 4.8 million cards-in-force. Spending on cards issued by the
company's network partners increased more than 35% from a year ago.
5
The benefits of overall higher cardmember spending were partially offset by a
slightly lower average discount rate that reflected, in part, the continuing
change in the mix of business toward the retail and everyday spending
categories.
Net finance charge revenue increased 10 percent, primarily reflecting
6 percent growth in average worldwide lending balances and higher net interest
yields. Other commissions and fees increased 9 percent due to greater
card-related volumes. Net card fees rose 7 percent, primarily as a result of 8
percent growth in cards-in-force. Travel commissions and fees also increased 7
percent, reflecting 8 percent growth in travel sales.
Total expenses increased 12 percent. Marketing, promotion, rewards
and cardmember services expenses increased 18 percent.
Human resources expenses increased 13 percent, largely due to
severance costs, higher management incentives, including an additional year of
incremental stock-based compensation expenses, merit increases and increased
employee benefits costs.
Credit quality remained strong in both the charge card and lending
portfolios. The total provision for losses increased 7 percent driven by a 23
percent volume-driven increase in the charge card provision and an increase in
other provision related to insurance and travel reserves. The increase was
partially offset by a 6 percent decrease in the lending provision. Reserve
coverage ratios remained strong, reflecting excellent credit performance and
the company's view of the economic environment.
Charge card interest expense increased 20 percent as a result of
higher average receivable balances and increased funding costs. Professional
services expense increased 10 percent, primarily due to increased technology
costs that were driven by higher business and service-related volumes.
Occupancy and equipment expenses increased 9 percent, primarily due to higher
rent expense and amortization of software costs.
6
AMERICAN EXPRESS FINANCIAL ADVISORS (AEFA) reported second quarter
net income of $140 million, down 19 percent from $174 million a year ago.
Results for the current quarter included $54 million ($35 million after-tax)
of the previously mentioned costs related to the spin-off of AEFA. Total
revenues increased 10 percent.
Net investment income increased 6 percent from year-ago levels,
reflecting higher levels of invested assets and net investment gains of $57
million pre-tax principally resulting from the sale of AEFA's interest in a
structured investment. AEFA had net investment gains of $30 million pre-tax in
the second quarter of 2004. Investment management and service fees increased
10 percent, reflecting higher levels of assets under management due to higher
average equity values and net asset inflows. Distribution fees increased 15
percent, benefiting from higher fees earned on wrap accounts.
Property-casualty insurance premiums rose 18 percent from last year,
reflecting a 16 percent increase in the average number of policies in-force
generated, most notably, from the Costco relationship. Other revenues
increased 18 percent, benefiting from higher fees earned on financial planning
and advice services.
Total expenses increased 17 percent as a result of higher human
resources costs, provisions for losses and benefits, and other operating
expenses.
Total human resources expenses rose 24 percent from year-ago levels,
primarily due to AEFA spin-off related costs, higher field force compensation
driven by greater product sales and higher performance-related incentives at
Threadneedle.
Provisions for losses and benefits increased 12 percent, largely due
to higher interest crediting rates and volume growth on certificate products.
Other operating expenses increased 24 percent, primarily reflecting
spin-off related costs. The increase also reflects $35 million in costs
related to various securities industry legal and regulatory matters, which
compares with $32 million in such costs in the second quarter of 2004.
7
AMERICAN EXPRESS BANK (AEB) reported second quarter net income of $61
million, up 121 percent over the year-ago period, primarily reflecting
approximately $33 million of the tax benefit mentioned previously. Pre-tax
income was up 7 percent over the year-ago period. The results reflected higher
commissions and fees in Private Banking and the Financial Institutions Group,
a gain on the sale of AEB's Egypt branch and corporate loan recoveries. These
items more than offset the negative impact of higher interest rates and
increased human resources and reengineering costs.
CORPORATE AND OTHER reported second quarter net income of $4 million,
compared with net expenses of $58 million a year ago. The results reflect $49
million of the previously mentioned tax benefit resulting from a Federal tax
audit and a $21 million benefit from the previously mentioned settlement of an
insurance claim, partially offset by $5 million of AEFA spin-off related
costs.
***
8
MANAGED BASIS - TRS
Managed basis means the presentation assumes there have been no
securitization transactions, i.e. all securitized cardmember loans and related
income effects are reflected as if they were in the company's balance sheet
and income statements, respectively. The company presents TRS information on a
managed basis because that is the way the company's management views and
manages the business. Management believes that a full picture of trends in the
company's cardmember lending business can only be derived by evaluating the
performance of both securitized and non-securitized cardmember loans.
Asset securitization is just one of several ways for the company to
fund cardmember loans. Use of a managed basis presentation, including
non-securitized and securitized cardmember loans, presents a more accurate
picture of the key dynamics of the cardmember lending business, avoiding
distortions due to the mix of funding sources at any particular point in time.
For example, irrespective of the funding mix, it is important for
management and investors to see metrics, such as changes in delinquencies and
write-off rates, for the entire cardmember lending portfolio because 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 and changes in market share, which are all significant metrics in
evaluating the company's performance and which can only be properly assessed
when all non-securitized and securitized cardmember loans are viewed together
on a managed basis.
The Consolidated Section of this press release and attachments
provide the GAAP presentation for items described on a managed basis.
***
9
The following table reconciles the GAAP-basis TRS income statements
to the managed-basis information.
Travel Related Services
Selected Financial Information
Effect of Securitizations
Securitization
(preliminary, millions) GAAP Basis Effect Managed Basis
--------------------------------- ---------------------------------------------------
Percentage Percentage
Quarters Ended June 30, 2005 2004 Inc/(Dec) 2005 2004 2005 2004 Inc/(Dec)
--------------------------------- ---------------------------------------------------
Net revenues:
Discount revenue $ 2,941 $ 2,529 16%
Lending:
Finance charge revenue 839 697 21 $ 618 $ 489 $ 1,457 $ 1,186 23%
Interest expense 202 136 49 164 61 366 197 87
---------------------- ----------------------------------------
Net finance charge revenue 637 561 14 454 428 1,091 989 10
Net card fees 506 472 7
Travel commissions and fees 502 468 7
Other commissions and fees 602 551 9 51 50 653 601 9
Travelers Cheque investment income 94 95 (1)
Securitization income, net 296 282 5 (296) (282) - - -
Other revenues 396 420 (5)
---------------------- ----------------------------------------
Total net revenues 5,974 5,378 11 209 196 6,183 5,574 11
---------------------- ----------------------------------------
Expenses:
Marketing, promotion, rewards and
cardmember services 1,440 1,225 18 (1) (6) 1,439 1,219 18
Provision for losses and claims:
Charge card 234 189 23
Lending 275 314 (12) 210 205 485 519 (6)
Other 72 33 #
---------------------- ----------------------------------------
Total 581 536 8 210 205 791 741 7
Charge card interest expense 211 175 20
Human resources 1,224 1,081 13
Other operating expenses:
Professional services 538 488 10
Occupancy and equipment 342 313 9
Communications 110 114 (3)
Other 360 367 (2) - (3) 360 364 (1)
---------------------- ----------------------------------------
Total 1,350 1,282 5 - (3) 1,350 1,279 6
---------------------- ----------------------------------------
Total expenses 4,806 4,299 12 $ 209 $ 196 $ 5,015 $ 4,495 12
---------------------- ----------------------------------------
Pre-tax income 1,168 1,079 8
Income tax provision 360 347 4
----------------------
Net income $ 808 $ 732 10
======================
#-Denotes a variance of more than 100 percent.
American Express Company (www.americanexpress.com), founded in
1850, is a global travel, financial and network services provider.
***
10
Note: The 2005 Second Quarter Earnings Press Release and
Supplement, as well as CFO Gary Crittenden's presentation from the investor
conference call referred to below, will be available today on the American
Express web site at http://ir.americanexpress.com. An investor conference call
to discuss second quarter earnings results, operating performance and other
topics that may be raised during the discussion will be held at 5:00 p.m. (ET)
today. Live audio of the conference call will be accessible to the general
public on the American Express web site at http://ir.americanexpress.com. A
replay of the conference call also will be available today at the same web
site address.
***
THIS RELEASE INCLUDES FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT
TO RISKS AND UNCERTAINTIES. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE,"
"OPTIMISTIC," "INTEND," "PLAN," "AIM," "WILL," "MAY," "SHOULD," "COULD,"
"WOULD," "LIKELY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH
THEY ARE MADE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED
TO, THE FOLLOWING: THE COMPANY'S ABILITY TO COMPLETE THE PLANNED SPIN-OFF OF
ITS AEFA BUSINESS UNIT, WHICH IS SUBJECT TO FINAL APPROVAL BY THE COMPANY'S
BOARD OF DIRECTORS, THE RECEIPT OF NECESSARY REGULATORY APPROVALS AND A
FAVORABLE TAX OPINION FROM COUNSEL, AND IN CONNECTION WITH THE PROPOSED
SPIN-OFF, THE COMPANY'S ABILITY TO CAPITALIZE AEFA CONSISTENT WITH RATING
AGENCY REQUIREMENTS AND TO MANAGE TRANSITION COSTS AND IMPLEMENT EFFECTIVE
TRANSITION ARRANGEMENTS WITH AEFA ON A POST-COMPLETION BASIS; THE COMPANY'S
ABILITY TO GROW ITS BUSINESS AND MEET OR EXCEED ITS RETURN ON SHAREHOLDERS'
EQUITY TARGET BY REINVESTING APPROXIMATELY 35% OF ANNUALLY-GENERATED CAPITAL,
AND RETURNING APPROXIMATELY 65% OF SUCH CAPITAL TO SHAREHOLDERS, OVER TIME,
WHICH WILL DEPEND ON THE COMPANY'S ABILITY TO MANAGE ITS CAPITAL NEEDS AND THE
EFFECT OF BUSINESS MIX, ACQUISITIONS AND RATING AGENCY REQUIREMENTS; CONSUMER
AND BUSINESS SPENDING ON THE COMPANY'S TRAVEL RELATED SERVICES PRODUCTS,
PARTICULARLY CREDIT AND CHARGE CARDS AND TRAVELERS CHEQUES AND OTHER PREPAID
PRODUCTS AND GROWTH IN CARD LENDING BALANCES, WHICH DEPEND IN PART ON 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, 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 (GNS) BUSINESS; THE COMPANY'S ABILITY TO INTRODUCE NEW
PRODUCTS, REWARD PROGRAM ENHANCEMENTS AND SERVICE ENHANCEMENTS ON A TIMELY
BASIS DURING THE LATTER HALF OF 2005 AND THE FIRST HALF OF 2006; THE SUCCESS
OF THE GNS BUSINESS IN PARTNERING WITH BANKS IN THE UNITED STATES, WHICH WILL
DEPEND IN PART ON THE EXTENT TO WHICH
11
SUCH BUSINESS FURTHER ENHANCES THE COMPANY'S BRAND, ALLOWS THE COMPANY TO
LEVERAGE ITS SIGNIFICANT PROCESSING SCALE, EXPANDS MERCHANT COVERAGE OF THE
NETWORK, PROVIDES U.S. GNS BANK PARTNERS 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 CONTINUATION
OF FAVORABLE TRENDS, INCLUDING INCREASED TRAVEL AND ENTERTAINMENT SPENDING AND
THE OVERALL LEVEL OF CONSUMER CONFIDENCE; SUCCESSFULLY CROSS-SELLING, TRAVEL,
CARD AND OTHER PRODUCTS AND SERVICES TO THE COMPANY'S CUSTOMER BASE, BOTH IN
THE UNITED STATES AND ABROAD; THE COMPANY'S ABILITY TO GENERATE SUFFICIENT
REVENUES FOR EXPANDED INVESTMENT SPENDING, AND THE ABILITY TO CAPITALIZE ON SUCH
INVESTMENTS TO IMPROVE BUSINESS METRICS; THE COSTS AND INTEGRATION OF
ACQUISITIONS; 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 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 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; THE COMPANY'S
ABILITY TO MANAGE CREDIT RISK RELATED TO CONSUMER DEBT, BUSINESS LOANS,
MERCHANT BANKRUPTCIES AND OTHER CREDIT TRENDS AND THE RATE OF BANKRUPTCIES,
WHICH CAN AFFECT SPENDING ON CARD PRODUCTS, DEBT PAYMENTS BY INDIVIDUAL AND
CORPORATE CUSTOMERS AND BUSINESSES THAT ACCEPT THE COMPANY'S CARD PRODUCTS AND
RETURNS ON THE COMPANY'S INVESTMENT PORTFOLIOS; BANKRUPTCIES, RESTRUCTURINGS
OR SIMILAR EVENTS AFFECTING THE AIRLINE OR ANY OTHER INDUSTRY REPRESENTING A
SIGNIFICANT PORTION OF TRS' BILLED BUSINESS, INCLUDING ANY POTENTIAL NEGATIVE
EFFECT ON PARTICULAR CARD PRODUCTS AND SERVICES AND BILLED BUSINESS GENERALLY
THAT COULD RESULT FROM THE ACTUAL OR PERCEIVED WEAKNESS OF KEY BUSINESS
PARTNERS IN SUCH INDUSTRIES; 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; RISKS ASSOCIATED
WITH THE COMPANY'S AGREEMENTS WITH DELTA AIR LINES TO PREPAY $500 MILLION FOR
THE FUTURE PURCHASES OF DELTA SKYMILES REWARDS POINTS AND TO LOAN UP TO $75
MILLION TO DELTA; AEFA'S ABILITY TO IMPROVE INVESTMENT PERFORMANCE, INCLUDING
ATTRACTING AND RETAINING HIGH-QUALITY PERSONNEL, AND REDUCE OUTFLOWS OF
INVESTED FUNDS; AEFA'S ABILITY TO DEVELOP AND INTRODUCE NEW AND ATTRACTIVE
PRODUCTS TO CLIENTS IN A TIMELY MANNER AND EFFECTIVELY MANAGE THE ECONOMICS IN
SELLING A GROWING VOLUME OF NON-PROPRIETARY MUTUAL FUNDS AND OTHER RETAIL
FINANCIAL PRODUCTS TO CLIENTS; FLUCTUATION IN THE EQUITY AND FIXED INCOME
MARKETS, WHICH CAN AFFECT THE AMOUNT AND TYPES OF INVESTMENT PRODUCTS SOLD BY
AEFA, THE MARKET VALUE OF ITS MANAGED ASSETS, AND MANAGEMENT, DISTRIBUTION AND
OTHER FEES RECEIVED BASED ON THE VALUE OF THOSE ASSETS; AEFA'S ABILITY TO
RECOVER DEFERRED ACQUISITION COSTS (DAC), AS WELL AS THE TIMING OF SUCH DAC
AMORTIZATION, IN CONNECTION WITH THE SALE OF ANNUITY, INSURANCE AND CERTAIN
MUTUAL FUND PRODUCTS, AND THE LEVEL OF GUARANTEED MINIMUM DEATH BENEFITS PAID
TO CLIENTS; CHANGES IN ASSUMPTIONS RELATING TO DAC, WHICH COULD IMPACT THE
AMOUNT OF DAC AMORTIZATION; CHANGES IN FEDERAL SECURITIES LAWS AFFECTING THE
MUTUAL FUND INDUSTRY, INCLUDING POSSIBLE ENFORCEMENT PROCEEDINGS AND THE
ADOPTION OF RULES AND REGULATIONS DESIGNED TO PREVENT TRADING ABUSES, RESTRICT
OR ELIMINATE CERTAIN TYPES OF FEES, CHANGE MUTUAL
12
FUND GOVERNANCE AND MANDATE ADDITIONAL DISCLOSURES, AND THE ABILITY TO MAKE THE
REQUIRED INVESTMENT TO UPGRADE COMPLIANCE SYSTEMS AND PROCEDURES IN RESPONSE TO
THESE CHANGES; AEFA'S ABILITY TO AVOID DETERIORATION IN ITS HIGH-YIELD PORTFOLIO
IN ORDER TO MITIGATE LOSSES IN ITS INVESTMENT PORTFOLIO; FLUCTUATIONS IN FOREIGN
CURRENCY EXCHANGE RATES; FLUCTUATIONS IN INTEREST RATES, WHICH IMPACT THE
COMPANY'S BORROWING COSTS, RETURN ON LENDING PRODUCTS AND SPREADS IN THE
INSURANCE, ANNUITY AND INVESTMENT CERTIFICATE PRODUCTS; 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 TRS' LENDING SECURITIZATIONS;
THE POTENTIAL NEGATIVE EFFECT ON THE COMPANY'S BUSINESSES AND INFRASTRUCTURE,
INCLUDING INFORMATION TECHNOLOGY, OF TERRORIST ATTACKS, DISASTERS OR OTHER
CATASTROPHIC EVENTS IN THE FUTURE; 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, INCLUDING
CHANGES IN TAX LAWS OR REGULATIONS THAT COULD RESULT IN THE ELIMINATION OF
CERTAIN TAX BENEFITS; OUTCOMES AND COSTS ASSOCIATED WITH LITIGATION AND
COMPLIANCE AND REGULATORY MATTERS; DEFICIENCIES AND INADEQUACIES IN THE
COMPANY'S INTERNAL CONTROL OVER FINANCIAL REPORTING, WHICH COULD RESULT IN
INACCURATE OR INCOMPLETE FINANCIAL REPORTING; 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, 2004, AND ITS OTHER REPORTS FILED WITH
THE SEC.
***
13
<Page>
All information in the following tables is presented on a basis prepared in
accordance with U.S. generally accepted accounting principles (GAAP), unless
otherwise indicated.
(Preliminary)
American Express Company
Condensed Consolidated Statements of Income
(Millions)
<Table>
<Caption>
Quarters Ended Six Months Ended
June 30, June 30,
--------------------- Percentage --------------------- Percentage
2005 2004 Inc/(Dec) 2005 2004 Inc/(Dec)
--------- --------- ---------- --------- --------- ----------
Revenues
Discount revenue $ 2,941 $ 2,529 16.3% $ 5,613 $ 4,897 14.6%
Net investment income 822 785 4.7 1,625 1,526 6.5
Management and distribution fees 814 724 12.3 1,612 1,503 7.2
Cardmember lending net finance charge revenue 637 561 13.7 1,229 1,102 11.5
Net card fees 506 472 7.0 1,004 944 6.3
Travel commissions and fees 502 468 7.1 924 885 4.3
Other commissions and fees 611 565 8.2 1,188 1,094 8.6
Insurance and annuity revenues 403 378 6.8 800 742 7.9
Securitization income, net 296 282 4.8 612 512 19.4
Other 470 468 0.7 968 937 3.4
--------- --------- --------- ---------
Total revenues 8,002 7,232 10.6 15,575 14,142 10.1
--------- --------- --------- ---------
Expenses
Human resources 2,092 1,813 15.4 4,085 3,592 13.7
Marketing, promotion, rewards
and cardmember services 1,471 1,250 17.7 2,829 2,297 23.2
Provision for losses and benefits 1,177 1,080 9.1 2,277 2,102 8.4
Interest 251 210 19.7 470 413 13.8
Other operating expenses 1,692 1,613 4.7 3,220 3,224 (0.1)
--------- --------- --------- ---------
Total expenses 6,683 5,966 12.0 12,881 11,628 10.8
--------- --------- --------- ---------
Pretax income before accounting change 1,319 1,266 4.2 2,694 2,514 7.1
Income tax provision 306 390 (21.6) 735 773 (5.1)
--------- --------- --------- ---------
Income before accounting change 1,013 876 15.7 1,959 1,741 12.6
Cumulative effect of accounting change, net of tax - - - - (71)(A) -
--------- --------- --------- ---------
Net income $ 1,013 $ 876 15.7 $ 1,959 $ 1,670 17.3
========= ========= ========= =========
</Table>
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax)
related to the January 1, 2004 adoption of SOP 03-1.
14
<Page>
(Preliminary)
American Express Company
Condensed Consolidated Balance Sheets
(Billions)
<Table>
<Caption>
June 30, December 31,
2005 2004
--------- ------------
Assets
Cash and cash equivalents $ 9 $ 10
Accounts receivable 35 35
Investments 61 61
Loans 37 35
Separate account assets 37 36
Other assets 17 16
--------- ------------
Total assets $ 196 $ 193
========= ============
Liabilities and Shareholders' Equity
Separate account liabilities $ 37 $ 36
Short-term debt 13 14
Long-term debt 30 33
Other liabilities 99 94
--------- ------------
Total liabilities 179 177
--------- ------------
Shareholders' Equity 17 16
--------- ------------
Total liabilities and shareholders' equity $ 196 $ 193
========= ============
</Table>
15
<Page>
(Preliminary)
American Express Company
Financial Summary
(Millions)
<Table>
<Caption>
Quarters Ended Six Months Ended
June 30, June 30,
--------------------- Percentage --------------------- Percentage
2005 2004 Inc/(Dec) 2005 2004 Inc/(Dec)
--------- --------- ---------- --------- --------- ----------
Revenues
Travel Related Services $ 5,974 $ 5,378 11.1% $ 11,556 $ 10,428 10.8%
American Express Financial Advisors 1,908 1,737 9.8 3,769 3,465 8.8
American Express Bank 208 203 2.1 415 413 0.4
--------- --------- --------- ---------
8,090 7,318 10.5 15,740 14,306 10.0
Corporate and other,
including adjustments and eliminations (88) (86) (1.4) (165) (164) (0.5)
--------- --------- --------- ---------
CONSOLIDATED REVENUES $ 8,002 $ 7,232 10.6 $ 15,575 $ 14,142 10.1
========= ========= ========= =========
Pretax Income (Loss) Before Accounting Change
Travel Related Services $ 1,168 $ 1,079 8.2 $ 2,340 $ 2,052 14.0
American Express Financial Advisors 177 264 (32.8) 412 581 (29.0)
American Express Bank 45 42 6.9 91 90 1.3
--------- --------- --------- ---------
1,390 1,385 0.4 2,843 2,723 4.4
Corporate and other (71) (119) 39.8 (149) (209) 28.4
--------- --------- --------- ---------
PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,319 $ 1,266 4.2 $ 2,694 $ 2,514 7.1
========= ========= ========= =========
Net Income (Loss)
Travel Related Services $ 808 $ 732 10.4 $ 1,609 $ 1,397 15.2
American Express Financial Advisors 140 174 (19.4) 306 331(A) (7.6)
American Express Bank 61 28 # 91 58 57.9
--------- --------- --------- ---------
1,009 934 8.1 2,006 1,786 12.3
Corporate and other 4 (58) # (47) (116) 59.6
--------- --------- --------- ---------
NET INCOME $ 1,013 $ 876 15.7 $ 1,959 $ 1,670(A) 17.3
========= ========= ========= =========
</Table>
# - Denotes a variance of more than 100%.
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax)
related to the January 1, 2004 adoption of SOP 03-1.
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<Page>
(Preliminary)
American Express Company
Financial Summary (continued)
<Table>
<Caption>
Quarters Ended Six Months Ended
June 30, June 30,
----------------------- Percentage ----------------------- Percentage
2005 2004 Inc/(Dec) 2005 2004 Inc/(Dec)
---------- ---------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE
BASIC
Income before accounting change $ 0.82 $ 0.69 18.8% $ 1.59 $ 1.37 16.1%
Net income $ 0.82 $ 0.69 18.8% $ 1.59 $ 1.31(A) 21.4%
========== ========== ========== ==========
Average common shares outstanding (millions) 1,231 1,263 (2.5)% 1,235 1,270 (2.8)%
========== ========== ========== ==========
DILUTED
Income before accounting change $ 0.81 $ 0.68 19.1% $ 1.56 $ 1.34 16.4%
Net income $ 0.81 $ 0.68 19.1% $ 1.56 $ 1.29(A) 20.9%
========== ========== ========== ==========
Average common shares outstanding (millions) 1,254 1,288 (2.6)% 1,259 1,296 (2.9)%
========== ========== ========== ==========
Cash dividends declared per common share $ 0.12 $ 0.10 20.0% $ 0.24 $ 0.20 20.0%
========== ========== ========== ==========
</Table>
Selected Statistical Information
<Table>
<Caption>
Quarters Ended Six Months Ended
June 30, June 30,
----------------------- Percentage ----------------------- Percentage
2005 2004 Inc/(Dec) 2005 2004 Inc/(Dec)
---------- ---------- ---------- ---------- ---------- ----------
Return on average total shareholders' equity (B) 23.1% 21.2% - 23.1% 21.2% -
Common shares outstanding (millions) 1,240 1,267 (2.1)% 1,240 1,267 (2.1)%
Book value per common share $ 13.84 $ 11.96 15.7% $ 13.84 $ 11.96 15.7%
Shareholders' equity (billions) $ 17.2 $ 15.2 13.2% $ 17.2 $ 15.2 13.2%
</Table>
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax), or
$0.06 on a basic per share basis and $0.05 on a diluted per share basis,
related to the January 1, 2004 adoption of SOP 03-1.
(B) Computed on a trailing 12-month basis using total shareholders' equity as
included in the Consolidated Financial Statements prepared in accordance
with GAAP.
17