EXHIBIT 99.3
[LOGO OF AMERICAN EXPRESS COMPANY]
2007
FIRST 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") FIRST QUARTER EARNINGS RELEASE.
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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 PAGES 62-63
IN THE COMPANY'S 2006 ANNUAL REPORT TO SHAREHOLDERS AND IN ITS 2006
ANNUAL REPORT ON FORM 10-K, AND OTHER REPORTS, ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
HIGHLIGHTS
FINANCIAL RESULTS
o First quarter diluted EPS from continuing operations of $0.88 increased
26% versus $0.70 last year. Revenues net of interest expense rose 10%.
For the trailing 12 months, return on equity (ROE) was 37%.
- 1Q `07 Income from continuing operations included:
-- An $80MM ($50MM after-tax) gain in connection with the initial
adoption of a new accounting standard, SFAS No. 155, that
requires the Company to record changes in the fair value of its
retained subordinated interest in securitized loans (or
interest-only strip) in the income statement. These changes in
fair value were previously recorded in shareholders' equity;
-- A $63MM ($39MM after-tax) gain relating to amendments to the
Company's U.S. pension plans, effective July 1, 2007, that
reduced accumulated pension obligations to plan participants;
and
-- A $60MM pre-tax and after-tax charge related to a reserve
established for regulatory and legal exposure at American
Express Bank International ("AEBI"), a subsidiary of American
Express Bank Ltd.
- 1Q '06 Income from continuing operations included:
-- A $112MM ($73MM after-tax) charge related to a higher redemption rate
estimate within the U.S. Membership Rewards reserve;
-- A $72MM ($47MM after-tax) reduction in cardmember lending finance
revenues and securitization income related to higher than anticipated
cardmember completion of consumer debt repayment programs and certain
associated payment waivers;
-- An $88MM ($40MM after-tax) gain related to the completion of the sale
of our stake in Egyptian American Bank ("EAB"); and
-- Higher provisions for credit losses in Taiwan due primarily to the
impact of industry-wide credit issues within the market, which
were more than offset by the favorable impact from lower early credit
write offs related to the October 2005 bankruptcy legislation in
the U.S., and lower than expected costs related to Hurricane
Katrina that had been provided for in 2005.
- 1Q '07 and 1Q '06 Income from continuing operations included $32MM
($21MM after-tax) and $25MM ($16MM after-tax), respectively, of
reengineering costs related to restructuring efforts primarily in our
technology activities, as well as within our Travelers Cheque,
corporate travel and other businesses.
- On September 30, 2005, the Company completed the distribution of all
the outstanding shares of Ameriprise Financial, Inc. (formerly
American Express Financial Advisors) to its shareholders. In Q3 '05
the Company also sold its Tax and Business Services ("TBS") business
and in 2Q '06 completed the sale of its international banking
operations in Brazil to Banco Bradesco S.A. The operating results,
gain or loss on the sales, and assets and liabilities related to
businesses spun-off and sold are included in discontinued operations
in the Consolidated Financial Statements.
-- 1Q '07 results reflected $8MM of expense from discontinued
operations, primarily related to the TBS business, versus $3MM of
expense last year.
-- Including discontinued operations, diluted EPS on a net income basis
of $0.87 increased 26% versus last year.
BUSINESS METRICS
o Compared with the first quarter of 2006:
- Worldwide billed business of $146.2B increased 15% on continued
strong growth within both the proprietary and network businesses. A
comparatively weaker U.S. dollar resulted in a 2% benefit within the
reported worldwide growth rate;
- Worldwide total cards in force of 79.9MM increased 10%, up 7.4MM from
last year and 1.9MM during 1Q `07, as proprietary and network card
growth remained strong;
- Worldwide average spending per proprietary basic card in force
increased 8% versus last year despite the suppressing effect of
substantial card additions over the past few years;
- Worldwide lending balances of $42.3B on an owned basis increased 29%;
on a managed basis, worldwide lending balances of $63.2B were up
18%; and
- Underlying card credit quality continued to be well controlled and
reserve coverage ratios remained strong.
CAPITAL RETURNED TO SHAREHOLDERS
o Including share repurchases and dividends, during 1Q '07 we returned 89%
of capital generated to shareholders. On a cumulative basis, since 1994,
we have returned 69% of capital generated.
- SHARE REPURCHASES: During 1Q '07, 16MM shares were repurchased versus
18MM shares in 4Q '06 and in 1Q '06. Since the inception of repurchase
programs in December 1994, 622MM shares have been acquired under
cumulative Board authorizations to repurchase up to 770MM shares,
including purchases made under agreements with third parties.
-1-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
HIGHLIGHTS
Millions of Shares
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- ACTUAL SHARE ACTIVITY: 1Q '07 4Q '06 1Q '06
------ ------ ------
Shares outstanding - beginning of period 1,199 1,204 1,241
Repurchase of common shares (16) (18) (18)
Employee benefit plans, compensation and other 5 13 10
------- ------- -------
Shares outstanding - end of period 1,188 1,199 1,233
===== ===== =====
ADDITIONAL ITEMS OF NOTE
o Marketing, promotion, rewards and cardmember services costs decreased 4%
versus 1Q '06, reflecting the 1Q '06 charge to the U.S. Membership Rewards
reserve and lower marketing and promotion costs in 1Q '07, which were
partially offset by higher volume-related rewards costs. Marketing
expenses reflect reduced levels of spending related to various
product-specific advertising, creative development and market research
initiatives, in addition to a reallocation of select acquisition
investments to lower cost channels. The higher rewards costs continued to
reflect volume growth, a higher redemption rate, and strong cardmember
loyalty program participation.
o Total provisions for losses and benefits increased 30% versus 1Q '06,
reflecting growth in business volumes and the loan portfolio and
increased write-off and delinquency rates within the lending portfolio,
which have been gradually rising after the unusually low rates that
followed the enactment of the October 2005 U.S. bankruptcy legislation.
These were partially offset by lower Taiwan-related provisions, a
reduction in merchant-related reserves, and improved results from charge
card-related collection activities.
o The Company's reengineering initiatives delivered in excess of $250MM of
additional benefits this quarter, including significant carry-over
benefits from certain initiatives begun in prior periods. Revenue-related
reengineering activities continue to drive a significant portion of the
total benefits, representing more than 30% of the benefits delivered in
1Q '07.
o The 3% increase in human resources expense in 1Q '07 reflects the impact
of merit increases and larger incentive, benefit and severance-related
costs, partially offset by the $63MM pension-related gain, and a cash
payment received in connection with the departure of our former CFO.
- Compared with last year, the total employee count of 66,000 decreased
by 700 employees or 1%; compared with last quarter, the employee
count increased by 600 employees or 1%.
o Pursuant to the completion of discussions with the U.S. Securities and
Exchange Commission (SEC) referenced in the Company's Form 10-K for the
year ended December 31, 2006, the Company has made certain modifications
to its reportable operating segment disclosures. The Travelers Cheque and
Prepaid Services ("TCPS") business, previously included in the U.S. Card
Services ("USCS") segment, and international banking businesses,
previously included in the International Card & Global Commercial
Services ("ICGCS") segment, are now included in the Corporate & Other
segment. The discussion and financial data included herein reflect these
modifications.
o SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments -- an
amendment of FASB Statements (SFAS) No. 133 and 140", ends the temporary
exemption of beneficial interests in securitized assets from the
bifurcation requirements of SFAS No. 133. SFAS No. 155 requires fair
value re-measurement of any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation. This
primarily affects the Company's accounting for its interest-only strips,
where the changes in fair value were previously recorded in other
comprehensive (loss) income in shareholders' equity. After adoption of
SFAS No. 155 on January 1, 2007, as the interest-only strip is subject to
a re-measurement event, the Company now records fair value measurement
for the instrument, which requires changes in its fair value to be
recognized in earnings rather than in other comprehensive (loss) income.
SFAS No. 155 applies to all financial instruments acquired or issued
after December 31, 2006. As previously discussed, the Company recorded an
$80MM ($50MM after-tax) gain in connection with the required adoption.
Any future changes in the fair value of the interest-only strip will be
reflected in the Company's net income.
o FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes
-- an interpretation of FASB Statement No. 109" (FIN 48), is an
interpretation that clarifies the accounting for uncertain tax positions
recognized in an enterprise's financial statements in accordance with
FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 prescribes
a recognition threshold and measurement attribute for the financial
statement recognition and measurement of benefits associated with tax
positions taken or expected to be taken in a tax return. For any amount
of those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by the relevant
taxing authority based on the technical merits of the position. The
measurement of the benefit recognized is based on the Company's best
judgment as to the most likely outcome on settlement of the tax position.
FIN 48 is applicable to all tax positions as of January 1, 2007. The
initial effect of adoption, which was a $127MM charge as of January 1,
2007, is reflected as a cumulative effect adjustment to income taxes
payable (in other liabilities) and retained earnings.
REVISED STATEMENTS OF INCOME PRESENTATION
o As described in the Form 8-K filed with the SEC on March 30, 2007,
beginning with the first quarter of 2007, the Company revised the
presentation of its Consolidated Statements of Income. The revised
Consolidated Statements of Income include the separate presentation of
certain interest income and interest expense amounts which previously had
been reported on a net basis as well as the separate presentation of the
provisions for losses and benefits from expenses. While these revisions
impact the presentation of revenues and expenses in the Company's
Consolidated Statements of Income, they have no impact on the Company's
previously reported consolidated pretax income, income taxes, net income,
total assets, total liabilities, or total shareholders' equity.
-2-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
HIGHLIGHTS
o The revised consolidated presentation includes the following:
- Gross cardmember lending finance charge revenue is presented in the
line entitled "Cardmember lending finance revenue" within the
new "Interest income" section of the Consolidated Statements of
Income, and the related gross interest expense is presented in the
line entitled "Cardmember lending" within the new "Interest expense"
section of the Consolidated Statements of Income. These amounts were
previously presented on a net basis as "Cardmember lending finance
charge revenue, net of interest" within the "Net revenues" section;
- Gross investment and other interest income is presented in the lines
entitled "International banking" or "Other" within the new "Interest
income" section, and gross interest expense related to international
banking is presented in "International banking" within the new
"Interest expense" section. These amounts were previously presented
on a net basis as "Other investment and interest income, net of
interest" within the "Net revenues" section;
- Other interest expense is presented in the line entitled "Charge card
and other" within the new "Interest expense" section, and certain
other interest income is presented in the line entitled "Other"
within the new "Interest income" section. These amounts were
previously reported on a net basis in "Interest" within the
"Expenses" section;
- "Provisions for losses and benefits" is presented in a new separate
section. These amounts were previously reported in the "Provisions
for losses and benefits" lines within the "Expenses" section; and
- Certain other amounts were revised to conform to the method of
presentation or calculation that will be used in 2007.
o Corresponding revisions to the Selected Income Statement Data
presentation regarding the Company's reportable operating segments were
also made.
o "Total revenues" and "Revenues net of interest expense" are presented
separately within the revised Consolidated Statements of Income
presentation. "Revenues net of interest expense" is now the measure for
the Company's long-term revenue growth rate target. This target (of at
least 8 percent growth on average and over time) has not been changed as
a result of the revisions to the presentation of the Consolidated
Statements of Income.
o The changes in the presentation of the Company's Consolidated Statements
of Income were made in connection with the previously mentioned
discussions that the Company had with the staff of the SEC related to a
review of the Company's Form 10-K for the year ended December 31, 2005.
o Separately, the Company revised the method of reporting certain credit
statistics related to the charge card business to better align these
metrics with the way the Company manages credit risk as well as to align
such credit statistics with the method used for reporting the Company's
lending activities. Historically, the credit statistics for the charge
card business have been presented using the portion of the account
balance that was 90 days past due or more. However, the Company's
practices for managing credit risk and establishing reserves for
uncollectible amounts consider the entire amounts of customer accounts
for those accounts which have any portion that is past due by 90 days or
more, and thus certain statistics have been revised to reflect this.
Finally, the calculation of net finance revenue divided by average
loans for both consolidated reporting and the ICGCS segment has been
corrected for a computational error. This correction has a minimal impact
on the historic trends for this statistical information. For more detail
relating to the changes and a presentation of revised historical
financials and statistics, please see the Company's Form 8-K, filed with
the SEC March 30, 2007.
EXPANDED PRODUCTS AND SERVICES
o On April 9, 2007, the Company launched a new marketing campaign with the
theme "Are You a Cardmember?" The new campaign showcases the value of
American Express membership and its array of special benefits and
services, focusing on travel, access, and community.
o During the quarter, American Express continued to invest in growth
opportunities through expanded products and services.
In our proprietary business we:
- Launched Flight Finder and Room Finder, two innovative online tools
for booking award travel. Flight Finder and Room Finder enable
Charge Cardmembers enrolled in Membership Rewards(R) to easily
search award inventory, transfer points directly into a frequent
flyer or frequent guest account, and book flights or hotel stays in
a single online transaction.
- Enhanced the OPEN from American Express(R) Business Platinum Card(R)
and the Platinum Card(R), with the expansion of certain travel and
business benefits, including: complimentary domestic companion
airfare; web content and special offers; the launch of the Platinum
Office Program which provides various workplace solutions and office
services; the expansion of the hotels and destinations in the Fine
Hotels & Resorts Program; increased baggage insurance; and the
expansion of coverage for the Premium Global Assist(R) hotline.
Additionally, we announced an annual fee increase on both cards, in
order to support their high level of benefits and services as well
as reflect their value.
- Added Delta Air Lines to the existing 18 partners in our
International Airline Program (IAP), which is exclusively available
to Platinum Card and Centurion Card members and which allows them to
receive complimentary companion tickets on qualifying international
flights with the purchase of a first or business class ticket,
depending on the carrier.
- Added richer benefits to the Delta SkyMiles Cards, for both consumer
and small business cardmembers, including opportunities to earn
additional bonus miles and receive companion certificates upon
renewal with no blackout dates and no minimum fare restrictions.
- Expanded our merchant rollout of ExpressPay from American Express
through agreements with Tully's Coffee Corporation, a leading
specialty coffee retailer with stores in Washington, Oregon,
California, Idaho and Arizona, as well as with ShopRite, who will
accept the product at over 200 of its supermarket locations in New
Jersey, New York, Connecticut, Pennsylvania and Delaware.
-3-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
HIGHLIGHTS
- Unveiled S2S(SM) eInvoice&Pay, the first fully integrated Electronic
Invoice Presentment and Payment (EIPP) solution, allowing companies
to process 100% of their invoices and issue payments to suppliers
from a single online portal managed by American Express.
- Announced an agreement under which Citibank is selling the American
Express(R) Gift Card in more than 980 Citibank retail Financial
Centers nationwide. This is American Express' first Gift Card
distribution agreement with a national bank.
- Added two travel agencies in Ohio and Texas to the American Express
Travel U.S. Representative Network, which provides a wide range of
travel and financial services to travelers and American Express
Cardmembers.
In our Global Network Services ("GNS") business we:
- Signed an agreement with Banco Itau, one of the leading banks in
Brazil with the largest base of high net worth customers, to issue
and market the 'Blue Box' line of cards on the American Express
network.
- Signed an agreement with Tarjeta Naranja, a leader in the Argentine
credit card market, to issue American Express-branded cards, both in
pesos and U.S. dollar denominations, which will be accepted and
processed on the American Express network.
- Launched a new partnership with Alpha Bank to issue American Express
products and acquire merchants in Macedonia.
- Launched the SunMiles American Express Card, a new airline co-brand
card issued by the Bank of Cyprus and Cyprus Airways.
-4-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP BASIS)
(millions)
Quarters Ended Percentage
March 31, Inc/(Dec)
-------------------------- ------------
2007 2006
---- ----
Revenues
Discount revenue $3,355 $2,969 13%
Net card fees 484 520 (7)
Travel commissions and fees 437 418 5
Other commissions and fees 622 639 (3)
Securitization income, net 457 386 18
Other 415 396 5
Total 5,770 5,328 8
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Interest income:
Cardmember lending finance revenue 1,368 947 44
International banking 264 257 3
Other 229 188 22
------ ------
Total 1,861 1,392 34
------ ------
Total Revenues 7,631 6,720 14
----- -----
Interest expense:
Cardmember lending 385 246 57
International banking 126 88 43
Charge card and other 452 333 36
------ ------
Total 963 667 44
------ ------
Revenues net of interest expense 6,668 6,053 10
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 1,464 1,522 (4)
Human resources 1,280 1,240 3
Professional services 629 561 12
Occupancy and equipment 370 346 7
Communications 116 113 3
Other 349 278 26
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Total 4,208 4,060 4
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Provisions for losses and benefits:
Charge card 209 209 -
Cardmember lending 574 321 79
International banking and other (including investment
certificates) 83 138 (40)
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Total 866 668 30
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Pretax income from continuing operations 1,594 1,325 20
Income tax provision 529 449 18
------ ------
Income from continuing operations 1,065 876 22
Loss from discontinued operations, net of tax (8) (3) #
------ ------
Net income $1,057 $873 21
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EPS-Basic
Income from continuing operations $0.90 $0.71 27
====== ======
Loss from discontinued operations $(0.01) - #
====== ======
Net Income $0.89 $0.71 25
====== ======
EPS-Diluted
Income from continuing operations $0.88 $0.70 26
Loss from discontinued operations ($0.01) ($0.01) -
======= =======
Net Income $0.87 $0.69 26
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Average Shares
Basic 1,187 1,232 (4)
Diluted 1,210 1,258 (4)
====== ======
Note: Amounts herein reflect certain revisions as noted on pages
2-3 and in the Company's Form 8-K, filed with the SEC March 30,
2007. # Denotes variance of more than 100%.
-5-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
CONSOLIDATED
o CONSOLIDATED REVENUES NET OF INTEREST EXPENSE: Consolidated revenues net
of interest expense increased 10%, reflecting increases versus last year
of 16% within USCS, 3% within ICGCS and 17% within Global Network &
Merchant Services ("GNMS"). Revenues net of interest expense increased
due to higher interest income, greater discount revenues, increased
securitization income, net, greater travel commissions and fees and
higher other revenues, partially offset by increased interest expense,
lower net card fee revenue and lower other commissions and fees.
Translation of foreign currency benefited the revenues net of interest
growth rate by 1%.
o CONSOLIDATED EXPENSES: Consolidated expenses increased 4%, reflecting an
increase of 10% within GNMS, a flat expense level within ICGCS, and a 1%
decline in USCS. Expense growth reflected higher other expenses, greater
professional services expenses, higher human resources expense and
increased occupancy and equipment costs, partially offset by lower
marketing, promotion, rewards and cardmember services costs. Translation
of foreign currency contributed 1% to the expense growth rate.
o CONSOLIDATED PROVISIONS FOR LOSSES AND BENEFITS: Consolidated provisions
for losses and benefits increased 30% versus last year, reflecting an 89%
increase in USCS, a 19% decrease in ICGCS, and a $29MM decrease in GNMS.
Provisions rose primarily due to an increase in the cardmember lending
provision, partially offset by a reduction in the international banking
and other provision. Charge card provisions were unchanged. Translation
of foreign currency contributed 2% to the provision growth rate.
o PRE-TAX MARGIN: Was 23.9% in 1Q '07 compared with 17.8% in 4Q '06 and
21.9% in 1Q '06.
o EFFECTIVE TAX RATE: Was 33% in 1Q '07 versus 24% in 4Q '06 and 34% in 1Q
'06. The 4Q '06 rate reflected $52MM of tax benefits principally related
to certain foreign losses and the finalization of state tax returns.
o DISCOUNT REVENUE: A 15% increase in billed business, partially offset by
the relatively faster GNS billed business growth and higher cash-back
rewards costs, yielded a 13% increase in discount revenue.
- The average discount rate* was 2.58% in 1Q '07 and in 1Q '06 compared
to 2.55% in 4Q '06. The increase versus 4Q '06 reflects the
seasonally higher retail spend levels during the fourth quarter. As
indicated in prior quarters, selective repricing initiatives,
continued 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
March 31, Inc/(Dec)
---------------------------------- -------------
2007 2006
---- ----
Card billed business* (billions):
United States $105.4 $92.9 13%
Outside the United States 40.8 34.3 19
-------- --------
Total $146.2 $127.2 15
====== ======
Total cards in force (millions):
United States 49.3 44.0 12
Outside the United States 30.6 28.5 7
-------- --------
Total 79.9 72.5 10
======== ========
Basic cards in force (millions):
United States 38.1 33.7 13
Outside the United States 26.0 23.6 10
-------- --------
Total 64.1 57.3 12
======== ========
Average basic cardmember spending**
United States $3,036 $2,909 4
Outside the United States $2,285 $1,967 16
Total $2,817 $2,612 8
* For additional information about billed business and discount
rate calculations, please refer to the First Quarter 2007
Earnings Release, American Express Company Selected Statistical
Information pages.
** Proprietary card activity only.
-6-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
CONSOLIDATED
- - WORLDWIDE BILLED BUSINESS: The 15% increase in worldwide billed
business reflected a 13% increase in USCS, a 12% increase in ICGCS,
and a 59% increase in GNS partner volume. The table below summarizes
selected billed business related statistics for 1Q '07:
Percentage
Increase
Assuming No
Changes in
Percentage Foreign
Increase Exchange Rates
------------- ------------------
WORLDWIDE*
Billed Business 15% 13%
Average spending per proprietary basic card 8 7
Basic cards-in-force 12
U.S.*
Billed Business 13
Average spending per proprietary basic card 4
Basic cards-in-force 13
Proprietary consumer card billed business** 12
Proprietary small business billed business** 15
Proprietary Corporate Services billed business*** 11
OUTSIDE THE U.S.*
Billed Business 19 13
Average spending per proprietary basic card 16 10
Basic cards-in-force 10
Proprietary consumer and small business billed
business*** 10 4
Proprietary Corporate Services billed business*** 18 11
* Captions not designated as "proprietary" include
both proprietary and GNS data.
** Included in USCS.
*** Included in ICGCS.
-- U.S. non-T&E-related volume categories (which represented
approximately 66% of 1Q '07 U.S. billed business) grew 15%, while
T&E volumes rose 9%.
-- U.S. airline-related volume, which represented approximately 10%
of total U.S. volumes during the quarter, increased 6% due to a 5%
increase in transactions and a 1% higher average airline charge.
-- Worldwide airline volumes, which represented approximately 13% of
total volumes during the quarter, increased 10% on 5% growth in
transactions and a 5% increase in the average airline charge.
-- Assuming no changes in foreign exchange rates: Total billed
business outside the U.S. reflected double-digit proprietary
growth in Europe and Canada, high single-digit growth in Asia
Pacific, and a decline in Latin America. Excluding the impact of
the 2Q '06 sale in Brazil and the 3Q '06 sales in Malaysia and
Indonesia, Latin America and Asia also exhibited double-digit
proprietary growth. Excluding the impact of all three sales, total
proprietary growth outside the U.S. was 11%.
- - TOTAL CARDS IN FORCE: Rose 10% worldwide due to an increase of 8% in
USCS, a 3% decline in ICGCS and a 45% increase in GNS. Continued
strong card acquisitions within both proprietary and GNS activities,
as well as continued solid average customer retention levels, drove
these results. The sale of our card activities in Brazil in 2Q '06,
and Malaysia and Indonesia in 3Q '06, resulted in the transfer of
1.5MM cards from ICGCS to GNMS, suppressing ICGCS' and increasing
GNMS' respective growth rates.
-- 1.2MM and 700K net cards were added during the quarter in the U.S.
and the non-U.S. businesses, respectively.
o NET CARD FEES: Decreased 7% as the benefit of card growth was offset by
the reclassification of certain card acquisition-related costs, beginning
July 1, 2006, from other operating expense to a reduction in net card
fees. This reclassification had no effect on net income and is not
included in the average fee per card calculation. The average annual fee
per proprietary card in force was $35 in 1Q '07 and 4Q '06 versus $34 in
1Q '06.
o TRAVEL COMMISSIONS AND FEES: Increased 5% reflecting an 8% increase in
travel sales.
o OTHER COMMISSIONS AND FEES: Decreased 3% as higher card-related
assessment and service fees and higher conversion revenues were more than
offset by the 2Q '06 sale in Brazil and a reclassification in 2Q '06 and
3Q '06 of certain third-party merchant-related revenues from Other
Commissions and Fees to Discount Revenue.
o SECURITIZATION INCOME, NET: Increased 18% as the impact of the adoption
of SFAS No. 155, a higher portfolio yield, and the negative impact in 1Q
'06 of higher than anticipated cardmember completion of consumer debt
repayment programs were partially offset by an increase in write offs and
greater interest expense, due to a higher coupon rate paid to certificate
holders, as well as a lower average balance of securitized loans.
Securitization income, net represents the non-credit provision components
of the gains from securitization activities within the USCS segment, fair
value changes and impairment charges, if any, of the related
interest-only strip, excess spread related to securitized loans, net
finance revenue on retained interests in securitized loans, and servicing
income, net of related discounts or fees.
-7-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
CONSOLIDATED
- - Components of Securitization Income, Net:
Quarters Ended Percentage
March 31, Inc/(Dec)
----------------------------------- -------------
2007 2006
----- -----
(millions)
Excess spread* $339 $269 26%
Servicing fees 102 106 (4)
Gains on sales from securitizations** 16 11 45
---- ----
Total securitization income $457 $386 18
==== ====
* Excess spread is the net positive cash flow from interest and fee
collections allocated to the investor's interests after deducting
the interest paid on investor certificates, credit losses,
contractual servicing fees and other expenses. Also included is the
previously mentioned $80MM gain in 1Q '07 related to the
re-measurement of the interest-only strip asset and a $29MM
reduction in 1Q '06 related to higher than anticipated cardmember
completion of consumer debt repayment programs.
** Excludes $35MM and $(20)MM in 2007 and $35MM and $(43)MM in 2006
of impact from cardmember loan sales and maturities, respectively,
reflected in credit provision.
- - The average balance of Cardmember lending securitizations was $20.4B in 1Q
'07, compared with $21.3B in 1Q '06.
o OTHER REVENUES: Increased 5% primarily due to higher network
partner-related fees and insurance-related revenues.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 44% due to 31% growth in
average worldwide lending balances on an owned basis and a higher
portfolio yield, which reflects increased finance charge rates and a
lower proportion of the U.S. portfolio on promotional rates. The increase
also reflects the $43MM negative impact in 1Q '06 of higher than
anticipated cardmember completion of consumer debt repayment programs.
o INTERNATIONAL BANKING INTEREST INCOME: Increased 3% reflecting higher
volumes and interest rates.
o OTHER INTEREST INCOME: Increased 22% primarily due to the recognition of
interest income associated with the Company's loan to Delta Air Lines that
was placed back on accrual status.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 57% reflecting increased
loan balances and a higher cost of funds.
o INTERNATIONAL BANKING INTEREST EXPENSE: Increased 43% reflecting higher
volumes and interest rates.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Increased 36% reflecting a higher
cost of funds and increased receivable balances.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
4%, primarily due to the previously discussed 1Q '06 charge to the
Membership Rewards reserve and lower marketing and promotion costs, which
were partially offset by higher volume-related rewards costs.
o HUMAN RESOURCES EXPENSE: Increased 3% due to merit increases and larger
incentive, benefit and severance-related costs, partially offset by the
$63MM pension-related gain and the cash payment received in connection
with the departure of our former CFO, discussed previously.
o PROFESSIONAL SERVICES EXPENSE: Rose 12%, primarily reflecting higher
technology service fees.
o OCCUPANCY AND EQUIPMENT EXPENSE: Rose 7% due to costs associated with
higher business and service-related volumes.
o COMMUNICATIONS EXPENSE: Increased 3%.
o OTHER EXPENSE: Increased 26%, however, excluding the charge related to
the regulatory and legal reserve established for AEBI, the
reclassification of certain card-acquisition costs to card fee revenue
beginning July 1, 2006, and the gain on the sale of our stake in EAB in
1Q '06, underlying expenses were flat.
-8-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
CONSOLIDATED
o CHARGE CARD PROVISION FOR LOSSES AND BENEFITS: Remained flat, as higher
volumes were offset by improved results from collection activities.
- WORLDWIDE CHARGE CARD:*
-- The loss ratio declined versus last quarter, but increased
compared to last year. Past due rates declined versus last year,
but rose versus last quarter.
3/07 12/06 3/06
-------------- ------------- -------------
Net loss ratio as a % of charge volume 0.23% 0.26% 0.19%
90 days past due as a % of receivables 2.9% 2.8% 3.1%
3/07 12/06 3/06
------------- ------------- -------------
Total Receivables (billions) $36.5 $37.4 $33.2
Reserves (millions) $979 $981 $978
% of receivables 2.7% 2.6% 2.9%
% of 90 day past due accounts 93% 95% 97%
*There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card
portfolio are on an "Owned Basis." Note: Amounts herein reflect
certain revisions as noted on pages 2-3 and in the Company's
Form 8-K, filed with the SEC March 30, 2007.
o CARDMEMBER LENDING PROVISION FOR LOSSES AND BENEFITS: Increased 79% due
to increased loan volumes and higher write-off and delinquency rates,
which have been rising after the unusually low rates that followed the
October 2005 change in the U.S. bankruptcy legislation partially offset by
lower provisions in Taiwan.
- WORLDWIDE LENDING:*
-- Both the write-off rate and the past due rate increased versus
last year and last quarter, reflecting the waning benefit since
1Q `06 of the October 2005 bankruptcy legislation.
3/07 12/06 3/06
-------------- ------------- -------------
Net write-off rate 4.1% 4.0% 3.3%
30 days past due as a % of loans 3.0% 2.7% 2.6%
3/07 12/06 3/06
------------- -------------- -------------
Total Loans (billions) $42.3 $43.3 $32.7
Reserves (millions) $1,271 $1,171 $1,053
% of total loans 3.0% 2.7% 3.2%
% of 30 days past due accounts 100% 98% 123%
* All lending statistics are presented here on a GAAP or "Owned
Basis". "Managed Basis" credit quality statistics are available
in the First Quarter 2007 Earnings Release on the American
Express Company Consolidated Selected Statistical Information
pages. Credit trends are generally consistent under both
reporting methods.
o INTERNATIONAL BANKING AND OTHER PROVISION FOR LOSSES AND BENEFITS:
Decreased 40% primarily due to a reduction in merchant-related reserves
attributable to our relationship with Delta Air Lines and lower provisions
related to Taiwan.
-9-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 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". 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 calculates total adjusted assets as of
the end of any fiscal quarter 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 March 31, 2007, the Company's tangible
common equity was $9B and its total adjusted assets were $147B. As of March
31, 2007, the consolidated assets, as reflected on the Company's balance
sheet, were $126B.
CORPORATE & OTHER
Net expense was $50MM in 1Q '07 compared with net income of $35MM in 4Q '06
and $40MM in 1Q '06. The 1Q '07 expense includes the previously mentioned $60MM
charge for a reserve established for regulatory and legal exposure at AEBI,
$4MM ($3MM after-tax) of reengineering costs, in addition to the previously
mentioned benefit reflecting the payment associated with the departure of our
former CFO. The 4Q '06 income included a $68MM ($42MM after-tax) gain related
to the rebalancing of our Travelers Cheque and Gift Card investment portfolio,
as well as $9MM ($6MM after-tax) of reengineering costs. The 1Q '06 income
included an $88MM ($40MM after-tax) gain related to the completion of the sale
of our stake in EAB, in addition to $7MM ($4MM after-tax) of reengineering
expenses.
-10-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------------------------- -----------------
(millions) 2007 2006
---- ----
Revenues
Discount revenue, net card fees and other $2,414 $2,194 10%
Cardmember lending finance revenue 1,055 674 57
Securitization income, net 457 386 18
------ ------
Total revenues 3,926 3,254 21
Interest expense:
Cardmember lending 313 194 61
Charge card and other 249 162 54
------ ------
Revenues net of interest expense 3,364 2,898 16
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 944 1,020 (7)
Human resources and other operating expenses 808 749 8
------ ------
Total 1,752 1,769 (1)
------ ------
Provisions for losses 581 307 89
------ ------
Pretax segment income 1,031 822 25
Income tax provision 387 295 31
------ ------
Segment income $644 $527 22
====== ======
Note: Amounts herein reflect certain revisions, including the movement of
the TCPS business results to the Corporate & Other segment, as noted on
pages 2-3 and in the Company's Form 8-K, filed with the SEC March 30, 2007.
STATISTICAL INFORMATION Quarters Ended Percentage
March 31, Inc/(Dec)
---------------------------------- -----------------
2007 2006
---- ----
Card billed business (billions) $85.2 $75.3 13%
Total cards in force (millions) 41.5 38.3 8
Basic cards in force (millions) 30.7 28.4 8
Average basic cardmember spending* (dollars) $2,801 $2,690 4
Segment capital (billions) $4.5 $4.6 (2)
Return on segment capital** 50.2% 41.8%
* Proprietary cards only.
** Computed on a trailing 12-month basis using segment income and equity
capital allocated to segments based upon specific business operational
needs, risk measures and regulatory
capital requirements.
- BILLED BUSINESS: The 13% increase in USCS billed business reflects a
4% increase in average spending per proprietary basic card and 8%
growth in basic cards in force.
-- Within the U.S. consumer business, billed business grew 12%; small
business volumes rose 15%.
- TOTAL CARDS IN FORCE: Increased by 3.2MM, or 8%, versus last year on
continued strong card acquisition activity and retention levels.
P&L DISCUSSION:
o NET INCOME: Increased 22% as revenues net of interest expense rose 16%,
expenses decreased 1%, and provisions for losses increased 89%.
- 1Q '07 results included:
-- An $80MM ($50MM after-tax) gain relating to the initial adoption of
SFAS No. 155, previously discussed; and
-- A $36MM ($22MM after-tax) gain relating to amendments to the Company's
U.S. pension plans, previously discussed.
- 1Q '06 results included:
-- A $106MM ($69MM after-tax) charge related to a higher redemption rate
estimate within the U.S. Membership Rewards reserve;
-- A $72MM ($47MM after-tax) reduction in cardmember lending
finance revenue and securitization income related to higher than
anticipated cardmember completion of consumer debt repayment
programs and certain associated payment waivers; and
-- A favorable impact from lower early credit write-offs related to
the October 2005 bankruptcy legislation in the U.S., and lower
than expected costs related to Hurricane Katrina that had been
provided for in 2005.
-11-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
U.S. CARD SERVICES
- 1Q '07 included $14MM ($9MM after-tax) of reengineering costs,
related principally to technology and other business activities.
There were no reengineering costs in 1Q '06.
- PRE-TAX MARGIN: Was 30.6% in 1Q '07 versus 21.6% in 4Q '06 and 28.4%
in 1Q '06.
- EFFECTIVE TAX RATE: Was 38% in 1Q '07 compared to 35% in 4Q '06 and
36% in 1Q '06.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 10%,
largely due to higher billed business volumes, higher travel commissions
and fees and greater other revenues, partially offset by lower card fees
and other commissions and fees.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 57% due to 38% growth in
average owned lending balances and a higher portfolio yield, in addition
to the negative impact in 1Q '06 of higher than anticipated completion of
consumer debt repayment programs.
o SECURITIZATION INCOME, NET: Increased 18% as the impact of the adoption
of SFAS No.155, a higher portfolio yield, and the negative impact in 1Q
'06 of higher than anticipated cardmember completion of consumer debt
repayment programs were partially offset by an increase in write offs and
greater interest expense, due to a higher coupon rate paid to certificate
holders, as well as a lower average balance of securitized loans.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 61% on higher loan balances
and a higher cost of funds.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Increased 54% due to higher
funding costs and a greater receivables balance.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
7%, primarily due to the previously mentioned 1Q '06 adjustment to the
Membership Rewards reserve and lower marketing and promotion costs, which
were partially offset by higher volume-related rewards costs.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 8% due to higher
human resources costs, professional services expenses and generally
higher volume-related costs, which were partially offset by the
pension-related gain discussed earlier and the 3Q '06 reclassification to
revenues of certain card acquisition-related costs.
o PROVISIONS FOR LOSSES: Increased 89% as the impact of strong volume and
loan growth and increased write offs and delinquency rates within the
lending portfolio, which have been gradually rising after the unusually
low rates following the enactment of the October 2005 U.S. bankruptcy
legislation, were partially offset by improved collections activities in
the charge card business.
- CHARGE CARD: *
-- The loss ratio increased from last year but decreased from last
quarter. The past due rate decreased versus last year, but
increased versus last quarter.
3/07 12/06 3/06
------------- ------------ ------------
Total Receivables (billions) $19.0 $20.6 $17.2
Net loss ratio as a % of charge volume 0.25% 0.32% 0.20%
90 days past due as a % of total 3.8% 3.3% 4.0%
Note: Amounts herein reflect certain revisions as noted on
pages 2-3 and in the Company's Form 8-K, filed with the SEC
March 30, 2007.
- CARDMEMBER LENDING: **
-- The write-off rate and past due rate both increased versus last
year and last quarter, reflecting the waning benefit of the
October 2005 bankruptcy legislation.
3/07 12/06 3/06
----------- ------------- -----------
Total Loans (billions) $33.0 $33.6 $24.3
Net write-off rate 3.7% 3.5% 2.6%
30 days past due as a % of loans 2.9% 2.7% 2.4%
* 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 13-14 for "Managed Basis" Cardmember
lending information.
-12-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 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 net card fees and other, cardmember lending
finance revenue, cardmember lending interest expense and credit provision. 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 accurate picture 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 credit provision 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 credit
provision (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 are reflected in securitization income, net, and
fees and commissions. The Company also recognizes cardmember lending finance
revenue 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 credit
provision.
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:
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------------------- -----------------
(millions) 2007 2006
---- ----
o DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $2,414 $2,194 10%
Securitization adjustments 87 48 81
------ ------
Managed discount revenue, net card fees and other $2,501 $2,242 12
====== ======
o CARDMEMBER LENDING FINANCE REVENUE:
Reported for the period (GAAP) $1,055 $674 57
Securitization adjustments 757 733 3
------ ------
Managed finance revenue $1,812 $1,407 29
====== ======
o SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $457 $386 18
Securitization adjustments (457) (386) 18
------ ------
Managed securitization income, net $ - $ - -
====== ======
o CARDMEMBER LENDING INTEREST EXPENSE:
Reported for the period (GAAP) $313 $194 61
Securitization adjustments 273 247 11
------ ------
Managed cardmember lending interest expense $586 $441 33
====== ======
o PROVISIONS FOR LOSSES:
Reported for the period (GAAP) $581 $307 89
Securitization adjustments 205 126 63
------ ------
Managed provisions for losses $786 $ 433 82
====== ======
Note: Amounts herein reflect certain revisions as noted on
pages 2-3 and in the Company's Form 8-K, filed with the SEC
March 30, 2007.
-13-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
U.S. CARD SERVICES
MANAGED P&L DISCUSSION
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 12%,
largely due to higher billed business volumes, greater other commissions
and fees, higher travel commissions and fees and other higher revenues,
partially offset by lower card fees.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 29% due to 18% growth in
average managed lending balances and a higher portfolio yield, in
addition to the negative impact in 1Q '06 of higher than anticipated
completion of consumer debt repayment programs.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 33% on 18% growth in average
managed lending balances and a higher cost of funds.
o PROVISIONS FOR LOSSES: Increased 82% due to strong volume and loan growth
and increased write offs and delinquency rates within the lending
portfolio, which have been gradually rising after the unusually low rates
following the enactment of the October 2005 U.S. bankruptcy legislation.
- CARDMEMBER LENDING: *
-- The write-off rate and past due rate both increased versus last
year and last quarter, reflecting the waning benefit of the
October 2005 bankruptcy legislation.
3/07 12/06 3/06
----------- ------------- ------------
Total Loans (billions) $53.9 $53.8 $45.1
Net write-off rate 3.7% 3.3% 2.6%
30 days past due as a % of loans 2.8% 2.6% 2.4%
* 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" as presented
on page 12.
-14-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------------------------- -----------------
(millions) 2007 2006
---- ----
Revenues
Discount revenue, net card fees and other $1,964 $1,885 4%
Cardmember lending finance revenue 310 271 14
Total revenues 2,274 2,156 5
Interest expense:
Cardmember lending 109 90 21
Charge card and other 169 132 28
Revenues net of interest expense 1,996 1,934 3
Expenses
Marketing, promotion, rewards and cardmember services 365 340 7
Human resources and other operating expenses 1,116 1,142 (2)
Total 1,481 1,482 -
Provisions for losses 220 270 (19)
Pretax segment income 295 182 62
Income tax provision 60 39 54
Segment income $235 $143 64
Note: Amounts herein reflect certain revisions, including the movement of
international banking businesses to the Corporate & Other segment, as noted
on pages 2-3 and in the Company's Form 8-K, filed with the SEC March 30,
2007.
STATISTICAL INFORMATION Quarters Ended Percentage
March 31, Inc/(Dec)
---------------------------------- -----------------
2007 2006
---- ----
Card billed business (billions) $50.5 $45.2 12%
Total cards in force (millions) 22.4 23.2 (3)
Basic cards in force (millions) 17.9 18.4 (3)
Average basic cardmember spending* (dollars) $2,832 $2,494 14
Segment capital (billions) $4.1 $3.9 5
Return on segment capital** 22.6% 20.3%
* Proprietary cards only.
** Computed on a trailing 12-month basis using segment income and equity
capital allocated to segments based upon specific business operational needs,
risk measures and regulatory capital requirements.
- BILLED BUSINESS: The 12% increase in billed business reflects a 14%
increase in average spending per proprietary basic card and a 3%
decrease in basic cards in force.
-- Adjusting for the impacts of foreign exchange translation and
last year's sales of our operations in Brazil, Malaysia and
Indonesia, billed business and spending per proprietary basic
card in force increased 11% and 7%, respectively, and all of
AXP's major geographic regions experienced double digit growth.
- International consumer and small business spending rose 9%; global
corporate spending rose 13%.
- TOTAL CARDS IN FORCE: Decreased 3% versus last year. Excluding the
impact of 1.3MM proprietary cards in Brazil and 0.2MM proprietary
cards in Indonesia and Malaysia transferred to GNMS in 2Q '06 and 3Q
'06, respectively, cards in force rose 3%.
P&L DISCUSSION
o NET INCOME: Increased 64% versus last year as revenues net of interest
expense increased 3%, expenses were flat, and provisions for losses
decreased 19%.
- 1Q'07 included a $21MM ($13MM after-tax) gain related to amendments to
the Company's U.S. pension plans as previously discussed.
- 1Q '06 included:
-- A $6MM ($4MM after-tax) charge related to a higher redemption rate
estimate within the U.S. Membership Rewards reserve; and
-- A higher provision for credit losses in Taiwan due primarily to the
impact of industry-wide credit issues within this market.
-15-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
- 1Q '07 included $12MM ($8MM after-tax) and 1Q'06 included $18MM
($12MM after-tax) of reengineering costs, related principally to
ongoing restructuring activities in the corporate travel business,
international operations and technology activities.
- PRE-TAX MARGIN: Was 14.8% in 1Q '07 and 12.0% in 4Q '06, versus 9.4% in
1Q '06.
- EFFECTIVE TAX RATE: Was 20% in 1Q '07 versus 12% in 4Q '06 and 21% in
1Q '06. The lower 4Q'06 tax rate reflects benefits principally
related to the recognition of certain foreign losses.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: The increase of 4%
versus 1Q '06 was driven primarily by the higher level of card spending
and greater travel commissions and fees, and other revenues partially
offset by decreased card-related fees due to the reclassification of
certain card-related acquisition costs effective July 1, 2006, as well as
a decline in other commissions and assessments. Growth was also suppressed
by the impact of the sales last year of card-related operations in Brazil,
Malaysia and Indonesia.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 14% on 12% growth in average
lending balances.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 21% on higher loan balances
and a higher cost of funds.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Increased 28% on higher volumes
and a greater cost of funds.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
7%, reflecting greater volume-related rewards costs partially offset by a
reduction in marketing and promotion costs.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Decreased 2% due to greater
human resources expenses which were more than offset by the previously
discussed pension-related gain, the reclassification to revenues of
certain card acquisition-related costs, and the impact of the 2Q'06 and
3Q'06 sales of card operations in Brazil, Malaysia and Indonesia.
o PROVISIONS FOR LOSSES: Decreased 19% from a year ago, which included the
negative impact of industry-wide credit issues in Taiwan, partially
offset by spending and loan volume-driven increases.
- CHARGE CARD: *
-- The loss ratio rose versus last year and last quarter. The past due
rate decreased versus last year and last quarter.
3/07 12/06 3/06
------------ ----------- -----------
Total Receivables (billions) $17.1 $16.3 $15.6
Net loss ratio as a % of charge volume 0.20% 0.19% 0.17%
90 days past due as a % of total 1.9% 2.1% 2.0%
Note: Amounts herein reflect certain revisions as noted on
pages 2-3 and in the Company's Form 8-K, filed with the SEC
March 30, 2007.
- CARDMEMBER LENDING:*
-- The write-off rate rose versus last year but remained flat
versus last quarter. The past due rate declined from last year
but increased compared to last quarter.
3/07 12/06 3/06
----------- ----------- -----------
Cardmember Loans (billions) $9.3 $9.7 $8.4
Net write-off rate 5.7% 5.7% 5.5%
30 days past due as a % of loans 3.1% 2.9% 3.2%
* 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 international
lending portfolio are on an "Owned Basis".
-16-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2007 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------------------- ------------
(millions) 2007 2006
---- ----
Revenues
Discount revenue, fees and other $800 $685 17%
Interest expense:
Cardmember lending (28) (20) 40
Other (49) (43) 14
---- ----
Revenues net of interest expense 877 748 17
Expenses
Marketing and promotion 129 135 (4)
Human resources and other operating expenses 393 341 15
---- ----
Total 522 476 10
---- ----
Provisions for losses (19) 10 #
---- ----
Pretax segment income 374 262 43
Income tax provision 138 96 44
---- ----
Segment income $236 $166 42
==== ====
Note: Amounts herein reflect certain revisions as noted on pages 2-3 and in
the Company's Form 8-K, filed with the SEC March 30, 2007.
# Denotes variance of more than 100%.
STATISTICAL INFORMATION Quarters Ended Percentage
March 31, Inc/(Dec)
------------------------------- -----------
2007 2006
---- ----
Global card billed business*(billions) $146.2 $127.2 15%
Segment capital (millions) $989 $1,341 (26)
Return on segment capital** 69.2 51.7%
Global Network Services:***
Card billed business (billions) $10.5 $6.6 59
Total cards in force (millions) 16.0 11.0 45
* Includes activities related to proprietary cards (including cash advances),
cards issued under network partnership agreements, and certain insurance
fees charged on proprietary cards.
** Computed on a trailing 12-month basis using segment income and equity
capital allocated to segments based upon specific business operational
needs, risk measures and regulatory capital requirements.
*** 1Q '07 Card billed business and total cards in force include $1.4B of
billed business associated with the transfer of 1.3MM proprietary cards in
Brazil in 2Q '06 and 0.2MM proprietary cards in Malaysia and Indonesia
during 3Q '06 from ICGCS to GNS. Excluding these transfers, billed business
grew 38% and cards in force grew 32%.
P&L DISCUSSION
o NET INCOME: Increased 42% on 17% growth in revenues net of interest
expense and a decrease in provisions for losses, partially offset by a
10% increase in total expenses. 1Q '07 included a $5MM ($3MM after-tax)
gain related to amendments made to the U.S. pension plans discussed
earlier and $2MM ($1MM after-tax) of reengineering costs.
- - PRE-TAX MARGIN: Was 42.6% in 1Q '07 versus 32.4% in 4Q '06 and 35.0% in
1Q '06.
- - EFFECTIVE TAX RATE: Was 37% in 1Q '07 versus 32% in 4Q '06 and 37% in 1Q '06.
o DISCOUNT REVENUE, FEES AND OTHER REVENUE: Increased 17%, reflecting
growth in merchant-related fees, primarily from the 15% increase in
global card billed business, as well as higher network partner-related
revenues. The increase also reflects the completion in 2Q '06 and 3Q '06
of independent operator agreements in Brazil, Malaysia and Indonesia.
o CARDMEMBER LENDING INTEREST EXPENSE: The expense credit increased 40% due
to a larger volume-related interest credit related to internal transfer
pricing which recognizes the merchant services' accounts payable-related
funding benefit.
o OTHER INTEREST EXPENSE: The expense credit increased 14% due to a larger
volume-related interest credit related to internal transfer pricing which
recognizes the merchant services' accounts payable-related funding
benefit.
-17-
o MARKETING AND PROMOTION EXPENSES: Decreased 4%, reflecting a reduction in
brand-related advertising costs versus last year.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 15% reflecting
higher volumes, greater salary and incentive costs, higher professional
services expenses, and higher technology costs which were offset by the
pension-related gain previously discussed and lower occupancy and
equipment expenses.
o PROVISIONS FOR LOSSES: Decreased due to a reduction in merchant-related
reserves, primarily attributable to our relationship with Delta Air
Lines.
-18-
INFORMATION RELATED TO FORWARD LOOKING STATEMENTS
THIS DOCUMENT 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 MEET ITS ROE TARGET RANGE OF 33 TO 36
PERCENT ON AVERAGE AND OVER TIME, WHICH WILL DEPEND IN PART ON FACTORS SUCH AS
THE COMPANY'S ABILITY TO GENERATE SUFFICIENT REVENUE GROWTH AND ACHIEVE
SUFFICIENT MARGINS, FLUCTUATIONS IN THE CAPITAL REQUIRED TO SUPPORT ITS
BUSINESSES, THE MIX OF THE COMPANY'S FINANCINGS, AND FLUCTUATIONS IN THE LEVEL
OF THE COMPANY'S SHAREHOLDERS' EQUITY DUE TO SHARE REPURCHASES, DIVIDENDS,
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME AND ACCOUNTING CHANGES,
AMONG OTHER THINGS; THE COMPANY'S ABILITY TO GROW ITS BUSINESS AND MEET OR
EXCEED ITS RETURN ON SHAREHOLDERS' EQUITY TARGET BY REINVESTING APPROXIMATELY
35 PERCENT OF ANNUALLY-GENERATED CAPITAL, AND RETURNING APPROXIMATELY 65
PERCENT 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 CREDIT AND CHARGE CARD PRODUCTS 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, 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 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;
FLUCTUATIONS IN INTEREST RATES, WHICH IMPACT THE COMPANY'S BORROWING COSTS AND
RETURN ON LENDING PRODUCTS; THE CONTINUATION OF FAVORABLE TRENDS, INCLUDING
INCREASED TRAVEL AND ENTERTAINMENT SPENDING, AND THE OVERALL LEVEL OF CONSUMER
CONFIDENCE; 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 COMPANY'S ABILITY TO REINVEST THE BENEFITS
ARISING FROM SUCH REENGINEERING ACTIONS IN ITS BUSINESSES; 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, CONSOLIDATIONS OR SIMILAR EVENTS 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; RISKS ASSOCIATED WITH THE
COMPANY'S AGREEMENTS WITH DELTA AIR LINES TO PREPAY A REMAINING BALANCE OF
APPROXIMATELY $115 MILLION FOR THE FUTURE PURCHASES OF DELTA SKYMILES REWARDS
POINTS; FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES; 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; 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; 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, 2006, AND
ITS OTHER REPORTS FILED WITH THE SEC.
-19-