EXHIBIT 99.3
[LOGO OF AMERICAN EXPRESS COMPANY]
2007
SECOND 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") SECOND 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
SECOND QUARTER 2007 OVERVIEW
HIGHLIGHTS
FINANCIAL RESULTS
o Second quarter diluted EPS from continuing operations of $0.88 increased
13% versus $0.78 last year. Revenues net of interest expense rose 9%. For
the trailing 12 months, return on equity (ROE) was 38%.
- 2Q '07 Income from continuing operations included:
-- A $65MM tax benefit from the IRS related to the treatment of prior
years' card fee income, and in light of this benefit;
-- Increased marketing and promotion expenditures of $68MM ($42MM
after-tax) above the level planned for the quarter.
- 2Q '06 Income from continuing operations included:
-- A $144MM ($131MM after-tax) gain related to the completion of the
sale of our card and merchant-related operations in Brazil to
Banco Bradesco S.A.; and
-- A $62MM ($40MM after-tax) charge associated with certain adjustments
made to the Membership Rewards reserve model outside the U.S.
- 2Q '07 and 2Q '06 Income from continuing operations included $8MM
($5MM after-tax) and $53MM ($34MM after-tax), respectively, of
reengineering costs related to restructuring efforts primarily within
our corporate travel and prepaid services businesses in 2Q '07 and
our international card, corporate travel and finance areas in 2Q '06.
- 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 3Q '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.
-- 2Q '07 results reflected $5MM of expense from discontinued
operations, related to the previously sold TBS business, versus
$27MM of expense last year, primarily related to the 2Q `06 sale
of the Brazilian banking business.
-- Including discontinued operations, diluted EPS on a net income
basis of $0.88 increased 16% versus last year.
BUSINESS METRICS
o Compared with the second quarter of 2006:
- Worldwide billed business of $161.1B 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 82.2MM increased 10%, up 7.8MM from
last year and 2.3MM during 2Q '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 $48.3B on an owned basis increased 33%;
on a managed basis, worldwide lending balances of $68.6B were up
21%; 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 2Q '07 and the six
months to-date we returned 81% and 85%, respectively, of capital
generated to shareholders. On a cumulative basis, since 1994, we have
returned 70% of capital generated.
- SHARE REPURCHASES: During 2Q '07, 15MM shares were repurchased versus
16MM shares in 1Q '07 and 23MM shares in 2Q '06. Since the inception
of repurchase programs in December 1994, 636MM shares have been
acquired under cumulative Board authorizations to repurchase up to
770MM shares, including purchases made under agreements with third
parties.
Millions of Shares
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- ACTUAL SHARE ACTIVITY: 2Q '07 1Q '07 2Q '06
------ ------ ------
Shares outstanding - beginning of period 1,188 1,199 1,233
Repurchase of common shares (15) (16) (23)
Employee benefit plans, compensation and other 9 5 6
------ ------ ------
Shares outstanding - end of period 1,182 1,188 1, 216
====== ====== ======
-1-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
HIGHLIGHTS
ADDITIONAL ITEMS OF NOTE
o Marketing, promotion, rewards and cardmember services costs increased 9%
versus 2Q '06, reflecting the 2Q '06 charge related to the Membership
Rewards reserve model outside the U.S., which suppressed the reported
growth rate by approximately 5%, higher rewards costs in 2Q '07 and
increased marketing and promotion expenses. Marketing expenses continued
to reflect the reduced levels of spending discussed in 1Q `07 related to
various product-specific advertising, creative development and market
research initiatives; however, they also reflect a higher level of
spending in 2Q '07 on card acquisition, brand and loyalty oriented
programs. The higher rewards costs continued to reflect volume growth, a
higher redemption rate, and strong cardmember loyalty program
participation.
o Total interest expense increased 44%, reflecting increased debt funding
levels in support of growth in cardmember receivable and lending balances
and a higher effective cost of funds, particularly within our charge card
activities.
o Total provisions for losses and benefits increased 36% versus 2Q '06,
reflecting growth in business volumes and the loan portfolio, as well as
increased write-off and delinquency rates versus last year, that have
been gradually rising after the unusually low levels that followed the
enactment of the October 2005 U.S. bankruptcy legislation.
o The 4% increase in human resources expense in 2Q '07 reflects the impact
of merit increases and larger benefit and incentive costs, partially
offset by lower severance-related costs versus 2Q '06.
- Compared with last year, the total employee count of 66,600 increased
by 2,700 employees or 4%; compared with last quarter, the employee
count increased by 600 employees or 1%. The increase versus last year
primarily reflects employee additions related to customer service
volumes and initiatives and the acquisition of Harbor Payments, Inc.
in 4Q '06.
o In conjunction with Delta Air Line's ("Delta") decision to file for
protection under Chapter 11 of the Bankruptcy Code during 2005, the
Company lent funds to Delta as part of Delta's post-petition,
debtor-in-possession financing under the Bankruptcy Code. At March 31,
2007, the remaining principal balance was $115MM. During 2Q '07 Delta
received final approval of its reorganization plan and emerged from
bankruptcy on April 30, 2007, repaying the entire principal balance
outstanding.
o During the quarter, the Company announced several management changes
which reflect a reorganization of the Company into two distinct
customer-focused groups. Effective July 1, Al Kelly was promoted to
President of American Express Company, and is responsible for the Global
Consumer Group, and Ed Gilligan was promoted to Vice Chairman of American
Express Company, and is responsible for the Global Business-to-Business
Group. The Company is still reviewing the impact of these changes on its
reportable operating segment disclosures, and expects revisions to these
disclosures to be reflected within our 3Q '07 financial reports.
REVISED SEGMENT AND STATEMENTS OF INCOME PRESENTATION
o In 1Q '07, 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 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 In addition, as described in the Form 8-K filed with the SEC on March 30,
2007, beginning with 1Q `07, 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.
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.
-2-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
HIGHLIGHTS
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 also made in connection with the previously mentioned
discussions with the staff of the SEC.
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 During the quarter, American Express continued to invest in growth
opportunities through expanded products and services.
In our proprietary issuing and network business we:
- Announced the Express Rewards Mortgage(SM) program, where for the
first time in the credit card industry, Cardmembers will be able to
pay monthly home mortgage payments on their American Express(R) cards
through our partnerships with the American Home Mortgage Investment
Corp. and IndyMac Bank, FSB.
- Introduced new Membership Rewards(R) program levels aligned with
specific card products that better meet Cardmember lifestyle and
reward program usage needs. We also announced a number of innovations
across all levels of the Membership Rewards program, such as an
expanded list of redemption partners, and Points Advance(SM), which
allows Cardmembers to "advance" points against future points earned
at the time they choose to redeem points for a reward.
- Added an additional benefit on the TrueEarnings(SM) Business Card
from Costco and American Express, offering an annual gasoline rebate
of up to 5% at Costco Gasoline and stand-alone gas stations.
- Reopened My WishList, the Company's popular, limited e-tail site
which gives Cardmembers access to high demand consumer electronics,
fashion and home design products, as well as immersive travel and
lifestyle experiences.
- Developed and began marketing two new corporate purchasing solutions
as part of the expanding S2S(SM) (Source-to-Settle) product suite.
These include S2S(SM) Contract Audit & Recovery(SM), an analytic tool
providing firms with best practices to achieve negotiated contract
savings; and S2S(SM) CatalogPro(SM), an online solution integrated
into a firm's existing e-procurement software, which enhances the
product search experience and eases the ability to order from
preferred suppliers at negotiated rates.
- Launched the Platinum Office Program with OPEN from American
Express(R) and The Regus Group, the world's largest provider of
workplace solutions, to provide Business Platinum Card members access
to flexible office space, services and technology, generally only
available to much larger corporations.
- Partnered with InsureMyTrip(R).com, the leading on-line travel
insurance aggregator, to offer packages of Global Travel Shield(R), a
collection of comprehensive travel insurance products to U.S.
residents.
- Expanded our gift card product offering to include themed gift cards,
through our partnership with General Growth Properties, one of the
largest U.S.-based publicly traded real estate investment trusts
(REITs) with a portfolio of more than 200 regional shopping malls in
45 states. Additionally, we launched three new special occasion gift
cards focused on year-round gifting, for targeted use for dining,
wedding and entertainment occasions.
- Announced a global, multi-year agreement with Travelex, the world's
largest foreign exchange specialist, to offer American Express(R)
Travelers Cheques through its global agency network of large banks
and travel agencies, and directly to consumers through its over 700
retail locations.
- Signed three additional travel agencies in New Jersey and North
Carolina to the American Express Travel U.S. Representative Network.
- Launched Quick Exchange, powered by Worldspan's Rapid Reprice(R)
technology, to automate travel ticket repricing, reissuing and
refunding processes across the Company's U.S. corporate travel
reservation network, as well as for all the global distribution
system booking platforms used by its travel counselors.
-3-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
HIGHLIGHTS
- Partnered with Smithsonian Journeys, the educational travel program
of the Smithsonian Institution and the world's largest museum-based
travel program, to exclusively offer Smithsonian Journeys' cultural
and educational group trips to Cardmembers. This partnership marks
the first time that an outside travel company's agents can offer the
majority of these tours to their clients.
- Launched the "American Express Going Once" website, where for a limited
time, U.S. and U.K. Cardmembers had an opportunity to purchase from
more than 25 travel packages in a declining price auction, including a
luxury RV trip across America, an Antarctica adventure and a South
African safari.
- Announced an online initiative called The Members Project that
enables Cardmembers to submit, share and vote on project ideas for
making a positive impact in the world. This project is part of
American Express' new brand campaign, "Are You a Cardmember," which
highlights the value of being a Cardmember and part of the American
Express community.
- Announced plans with Consumer Action, a non-profit consumer advocacy
and education organization, to expand the jointly developed,
multilingual credit card education program, "Credit Cards: What You
Need to Know" educating consumers about how best to choose and use
credit cards.
In our Global Network Services ("GNS") business we:
- Launched a new partnership with Banco Privado in de Inversiones in
Argentina to issue American Express-branded Standard, Gold and
Platinum cards, which will be accepted and processed on the American
Express network.
- Launched in Fiji the Westpac American Express Credit Cards, the first
products as part of our exclusive partnership with Westpac Pacific
Banking, to issue American Express Cards and to acquire merchants on
the American Express global network in seven Pacific Island nations
(namely: P.N.G., Solomon Islands, Vanuatu, Samoa, Tonga, Fiji, and
the Cook Islands). Initially, there will be three cards offered: one
for business clients, one for the consumer market and a Westpac
American Express Gold Card for high net worth personal clients.
- With our partner Bank of America Corporation, announced the Bank of
America Accolades(TM) American Express(R) Card, the first premium
credit card designed exclusively for Bank of America's affluent,
wealthy and ultra-wealthy clients.
- With our partner Citigroup Inc., launched the CitiChairman(SM)
American Express(R) Card, designed to provide premium services and
benefits, rewards experiences to a unique group of people, including
Smith Barney and Citi Private Bank clients.
- With our partners, Baiduri Bank and Royal Brunei Airlines, launched
Brunei's first airline co-brand card, the Royal Brunei Airlines
American Express Card, which will be issued in Classic and Gold
versions and will be accepted on American Express' global merchant
network.
- With our partner, the Industrial and Commercial Bank of China Limited
(ICBC), launched the ICBC Staples Corporate American Express Card, the
first American Express branded co-brand corporate card in China, while
also further enhancing the partnership between Staples Inc. and
American Express by establishing Staples, Inc. as a strategic partner
in global eShop, American Express Global Network Services Asia
Pacific's online shopping platform.
-4-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP BASIS)
(Millions, except per share amounts) Quarters Ended Percentage
June 30, Inc/(Dec)
------------------------------- ----------------
2007 2006
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Revenues
Discount revenue $3,670 $3,292 11%
Net card fees 500 533 (6)
Travel commissions and fees 491 483 2
Other commissions and fees 681 642 6
Securitization income, net 332 372 (11)
Other 453 415 9
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Total 6,127 5,737 7
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Interest income:
Cardmember lending finance revenue 1,514 1,100 38
International banking 282 252 12
Other 276 196 41
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Total 2,072 1,548 34
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Total Revenues 8,199 7,285 13
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Interest expense:
Cardmember lending 431 277 56
International banking 135 93 45
Charge card and other 503 373 35
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Total 1,069 743 44
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Revenues net of interest expense 7,130 6,542 9
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Expenses
Marketing, promotion, rewards and
cardmember services 1,828 1,671 9
Human resources 1,331 1,276 4
Professional services 698 658 6
Occupancy and equipment 379 365 4
Communications 116 113 3
Other 345 287 20
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Total 4,697 4,370 7
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Provisions for losses and benefits:
Charge card 233 192 21
Cardmember lending 638 406 57
International banking and other (including
investment certificates) 122 132 (8)
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Total 993 730 36
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Pretax income from continuing operations 1,440 1,442 -
Income tax provision 378 470 (20)
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Income from continuing operations 1,062 972 9
Loss from discontinued operations, net of tax (5) (27) (81)
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Net income $1,057 $945 12
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EPS-Basic
Income from continuing operations $0.90 $0.80 13
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Loss from discontinued operations - ($0.02) #
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Net Income $0.90 $0.78 15
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EPS-Diluted
Income from continuing operations $0.88 $0.78 13
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Loss from discontinued operations - ($0.02) #
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Net Income $0.88 $0.76 16
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Average Shares Outstanding
Basic 1,179 1,217 (3)
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Diluted 1,203 1,242 (3)
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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
SECOND QUARTER 2007 OVERVIEW
CONSOLIDATED
o CONSOLIDATED REVENUES NET OF INTEREST EXPENSE: Consolidated revenues net
of interest expense increased 9%, reflecting increases versus last year
of 12% within USCS, 4% within ICGCS and 15% within Global Network &
Merchant Services ("GNMS"). Revenues net of interest expense increased
due to higher interest income, greater discount revenues, higher other
commission and fees, increased other revenues, and greater travel
commissions and fees, partially offset by increased interest expense,
decreased securitization income, net and lower net card fee revenue.
Translation of foreign currency benefited the revenues net of interest
expense growth rate by approximately 2%.
o CONSOLIDATED EXPENSES: Consolidated expenses increased 7%, reflecting an
increase of 11% within USCS, 5% within ICGCS, and 6% within GNMS. Expense
growth reflected higher marketing, promotion, rewards and cardmember
services expense, increased other expenses, greater human resources
expense, higher professional services expense, increased occupancy and
equipment costs and higher communication expenses. Translation of foreign
currency contributed approximately 2% to the expense growth rate.
o CONSOLIDATED PROVISIONS FOR LOSSES AND BENEFITS: Consolidated provisions
for losses and benefits increased 36% versus last year, reflecting an 85%
increase in USCS, a 36% decrease in GNMS and a 7% decrease in ICGCS.
Provisions rose primarily due to increases in the cardmember lending and
charge card provisions. Translation of foreign currency contributed
approximately 2% to the provision growth rate.
o PRE-TAX MARGIN: Was 20.2% in 2Q '07 compared with 23.9% in 1Q '07 and
22.0% in 2Q '06.
o EFFECTIVE TAX RATE: Was 26% in 2Q '07 versus 33% in both 1Q '07 and 2Q
'06. The 2Q '07 rate primarily reflects the $65MM IRS benefit, referenced
earlier. The 2Q '06 rate reflects a relatively low effective rate on the
Brazil gain, which was offset by higher tax expense due to uncertainty
regarding the Company's ability to obtain tax benefits for certain
expenses attributable to foreign subsidiaries.
o DISCOUNT REVENUE: Rose 11% on a 15% increase in billed business. The
slower revenue versus billed business growth reflects the relatively
faster growth in billed business related to GNS where we share discount
revenue with our card issuing partners, and higher cash-back rewards
costs.
- The average discount rate* was 2.57% in 2Q '07 and in 2Q '06 compared
to 2.58% in 1Q '07. 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
June 30, Inc/(Dec)
----------------------------- ------------
2007 2006
---- ----
Card billed business* (billions):
United States $115.7 $102.5 13%
Outside the United States 45.4 38.0 19
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Total $161.1 $140.5 15
======= =======
Total cards in force (millions):
United States 50.5 45.4 11
Outside the United States 31.7 29.0 9
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Total 82.2 74.4 10
======= =======
Basic cards in force (millions):
United States 39.2 34.8 13
Outside the United States 27.0 24.1 12
------- -------
Total 66.2 58.9 12
======= =======
Average basic cardmember spending**
United States $3,269 $3,134 4
Outside the United States $2,507 $2,137 17
Total $3,049 $2,821 8
* For additional information about billed business and discount
rate calculations, please refer to the Second Quarter 2007
Earnings Release, American Express Company Selected Statistical
Information pages.
** Proprietary card activity only.
-6-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
CONSOLIDATED
- - WORLDWIDE BILLED BUSINESS: The 15% increase in worldwide billed
business reflected a 13% increase in USCS, an 11% increase in ICGCS
and a 62% increase in GNS partner volume. The table below summarizes
selected billed business related statistics for 2Q '07:
Percentage Increase
Assuming No Changes
Percentage in Foreign Exchange
Increase Rates
------------------ ------------------------
WORLDWIDE*
Billed Business 15% 13%
Average spending per proprietary basic card 8 6
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*** 10
OUTSIDE THE U.S.*
Billed Business 19 13
Average spending per proprietary basic card 17 10
Basic cards-in-force 12
Proprietary consumer and small business billed business*** 9 3
Proprietary Corporate Services billed business*** 18 10
* 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 68% of 2Q '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 3% due to a 5%
increase in transactions offset by a 2% lower average airline
charge.
- Worldwide airline volumes, which represented approximately 12% of
total volumes during the quarter, increased 8% on 6% growth in
transactions and a 2% 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 Canada, high single-digit growth in Europe and Asia
Pacific and a decline in Latin America. Excluding the impact of
the Brazil sale, completed as of 6/30/06, and the 3Q'06 sales in
Malaysia and Indonesia, Latin America exhibited double-digit
proprietary growth while Asia Pacific increased at a high
single-digit rate. Excluding the impact of all three sales, total
proprietary growth outside the U.S. was 10%.
- - TOTAL CARDS IN FORCE: Rose 10% worldwide due to an increase of 8% in
USCS, a 1% increase in ICGCS and a 34% 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 Malaysia and
Indonesia in 3Q '06 resulted in the transfer of 200K cards from ICGCS
to GNMS, moderately suppressing ICGCS' and increasing GNMS'
respective growth rates.
-- 1.2MM and 1.1MM net cards were added during the quarter in the U.S.
and the non-U.S. businesses, respectively.
o NET CARD FEES: Decreased 6% 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 $36 in 2Q '07 versus $35 in 1Q '07 and
$34 in 2Q '06.
o TRAVEL COMMISSIONS AND FEES: Increased 2% reflecting a 9% increase in
travel sales.
o OTHER COMMISSIONS AND FEES: Increased 6% as higher card-related
conversion revenues and assessment and service fees were partially offset
by the 2Q '06 sale in Brazil and a reclassification in 3Q '06 of certain
third-party merchant-related revenues from Other Commissions and Fees to
Discount Revenue.
o SECURITIZATION INCOME, NET: Decreased 11% as an increase in write offs
and greater interest expense, due to a higher coupon rate paid to
certificate holders, was partially offset by a higher portfolio yield and
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 (I/O) 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
SECOND QUARTER 2007 OVERVIEW
CONSOLIDATED
- - Components of Securitization Income, Net:
Quarters Ended Percentage
June 30, Inc/(Dec)
----------------------- -------------
2007 2006
---- ----
(millions)
Excess spread* $218 $261 (16)%
Servicing fees 101 100 1
Gains on sales from securitizations** 13 11 18
---- ----
Total securitization income $332 $372 (11)
---- ----
* 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, other expenses, and the changes in the
fair value of the I/O strip in 2007.
** Excludes $32MM and $(46)MM in 2007 and $35MM and $(47)MM in 2006
of impact from cardmember loan sales and maturities, respectively,
reflected in the credit provision.
- - The average balance of Cardmember lending securitizations was $20.3B in 2Q
'07, compared with $20.1B in 2Q '06.
o OTHER REVENUES: Increased 9% primarily due to higher network
partner-related and merchant-related fees, and greater publishing and
insurance-related revenues.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 38% due to 30% growth in
average worldwide lending balances on an owned basis and a higher
portfolio yield.
o INTERNATIONAL BANKING INTEREST INCOME: Increased 12% reflecting higher
volumes and interest rates.
o OTHER INTEREST INCOME: Increased 41% primarily due to the recognition of
interest income associated with the repayment of the Company's loan to
Delta Air Lines, previously on non-accrual status.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 56% reflecting increased
loan balances and a higher cost of funds.
o INTERNATIONAL BANKING INTEREST EXPENSE: Increased 45% reflecting higher
volumes and interest rates.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Increased 35% reflecting a higher
cost of funds and increased receivable balances.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
9%, reflecting higher volume-related rewards costs and greater marketing
and promotion expenses, partially offset by the 2Q '06 charge related to
the Membership Rewards reserve model outside of the U.S.
o HUMAN RESOURCES EXPENSE: Increased 4% due to merit increases and larger
benefit and incentive costs, partially offset by lower severance-related
costs.
o PROFESSIONAL SERVICES EXPENSE: Rose 6%, primarily reflecting higher
technology-related costs and legal fees.
o OCCUPANCY AND EQUIPMENT EXPENSE: Rose 4% due to increased
technology-related costs.
o COMMUNICATIONS EXPENSE: Increased 3%.
o OTHER EXPENSE: Increased 20%, however, excluding the $144MM pre-tax gain
related to the completion of the sale of our operations in Brazil in 2Q
'06, as well as the reclassification of certain card-acquisition costs to
card fee revenue beginning July 1, 2006, underlying expenses were
relatively flat.
-8-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
CONSOLIDATED
CHARGE CARD PROVISION FOR LOSSES: Increased 21%, reflecting higher business
volumes and somewhat higher loss rates.
- - WORLDWIDE CHARGE CARD:*
-- The loss ratio increased versus last quarter, but remained flat
compared to last year. Past due rates declined versus last
quarter and last year.
6/07 3/07 6/06
------------------ ----------------- ------------------
Net loss ratio as a % of charge volume 0.24% 0.23% 0.24%
90 days past due as a % of receivables 2.7% 2.9% 2.8%
6/07 3/07 6/06
------------------ ----------------- -----------------
Total Receivables (billions) $38.4 $36.5 $34.7
Reserves (millions) $981 $979 $948
% of receivables 2.6% 2.7% 2.7%
% of 90 day past due accounts 95% 93% 98%
*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: Increased 57% due to increased
loan volumes and higher write-off and delinquency rates, which have been
gradually rising after the unusually low rates that followed the October
2005 change in the U.S. bankruptcy legislation.
- WORLDWIDE LENDING:*
-- The write-off rate was unchanged versus last quarter, but
increased versus last year. The past due rate increased versus
last year, but decreased versus last quarter.
6/07 3/07 6/06
------------------ ------------------ -----------------
Net write-off rate 4.1% 4.1% 3.8%
30 days past due as a % of loans 2.8% 3.0% 2.7%
6/07 3/07 6/06
------------------ ------------------ -----------------
Total Loans (billions) $48.3 $42.3 $36.3
Reserves (millions) $1,417 $1,271 $1,086
% of total loans 2.9% 3.0% 3.0%
% of 30 days past due accounts 106% 100% 113%
* All lending statistics are presented here on a GAAP or "Owned
Basis". "Managed Basis" credit quality statistics are available
in the Second 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 8% primarily due to lower certificate provisions and a
reduction in merchant-related reserves.
-9-
AMERICAN EXPRESS COMPANY
SECOND 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 June 30, 2007, the Company's tangible
common equity was $9B and its total adjusted assets were $155B. As of June 30,
2007, the consolidated assets, as reflected on the Company's balance sheet,
were $134B.
CORPORATE & OTHER
Net expense was $61MM in 2Q '07 compared with net expense of $50MM in 1Q '07
and $49MM in 2Q '06. The 2Q '07 expense includes costs related to regulatory
and legal exposures and $2MM ($1MM after-tax) of reengineering costs. The 1Q
'07 expense included a $60MM charge for a reserve established for regulatory
and legal exposure at American Express Bank International, a subsidiary of
American Express Bank Ltd., $4MM ($3MM after-tax) of reengineering costs, and
the benefit of a cash payment received in connection with the departure of our
former CFO. The 2Q '06 expense included $18MM ($11MM after-tax) of
reengineering costs.
-10-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
June 30, Inc/(Dec)
----------------------- --------------
(millions) 2007 2006
---- ----
Revenues
Discount revenue, net card fees and other $2,642 $2,388 11%
Cardmember lending finance revenue 1,179 814 45
Securitization income, net 332 372 (11)
------ ------
Total revenues 4,153 3,574 16
Interest expense:
Cardmember lending 363 215 69
Charge card and other 230 189 22
------ ------
Revenues net of interest expense 3,560 3,170 12
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 1,266 1,088 16
Human resources and other operating expenses 827 797 4
------ ------
Total 2,093 1,885 11
------ ------
Provisions for losses 640 346 85
------ ------
Pretax segment income 827 939 (12)
Income tax provision 247 345 (28)
------ ------
Segment income $580 $594 (2)
------ ------
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
June 30, Inc/(Dec)
-------------------- ------------
2007 2006
---- ----
Card billed business (billions) $94.6 $83.9 13%
Total cards in force (millions) 42.1 39.1 8
Basic cards in force (millions) 31.2 28.9 8
Average basic cardmember spending* (dollars) 4
$3,054 $2,925
Segment capital (billions) $4.5 $4.4 2
Return on segment capital** 49.9% 44.4%
* 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 3.0MM, or 8%, versus last year on
continued strong card acquisition activity and retention levels.
P&L DISCUSSION:
o NET INCOME: Decreased 2% as revenues net of interest expense rose 12%,
expenses increased 11% and provisions for losses increased 85%.
- 2Q '07 results reflect $56MM of the IRS benefit and $47MM ($29MM
after-tax) of the increased marketing and promotion spending in the
quarter, as referenced earlier.
- PRE-TAX MARGIN: Was 23.2% in 2Q '07 versus 30.6% in 1Q '07 and 29.6%
in 2Q '06.
- EFFECTIVE TAX RATE: Was 30% in 2Q '07 compared to 38% in 1Q '07 and
37% in 2Q '06. The lower tax rate in 2Q '07 reflects the IRS benefit,
referenced earlier.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 11%,
largely due to greater billed business volumes, higher travel revenues
and larger other commissions and fees, in addition to the recognition of
interest income associated with the repayment of the Company's loan to
Delta Air Lines.
-11-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
U.S. CARD SERVICES
o CARDMEMBER LENDING FINANCE REVENUE: Increased 45% due to 36% growth in
average owned lending balances and a higher portfolio yield.
o SECURITIZATION INCOME, NET: Decreased 11% as an increase in write offs
and greater interest expense, due to a higher coupon rate paid to
certificate holders, was partially offset by a higher portfolio yield and
average balance of securitized loans.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 69% on greater loan
balances and a higher cost of funds.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Increased 22% due to a higher
cost of funds and a larger receivable balance.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
16%, due to higher rewards costs and greater marketing and promotion
expenses.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 4% primarily due
to higher volume-related operating expenses, which were partially offset
by the impact of the reclassification to revenues of certain card
acquisition-related costs beginning in 3Q `06.
o PROVISIONS FOR LOSSES: Increased 85% reflecting the impact of strong
volume and loan growth and higher write off and delinquency rates, which
have been gradually rising after the unusually low rates following the
enactment of the October 2005 U.S. bankruptcy legislation.
- CHARGE CARD: *
-- The loss ratio increased versus last year and last quarter. The
past due rate increased versus last year, but decreased versus
last quarter.
6/07 3/07 6/06
------------------ ----------------- ----------------
Total Receivables (billions) $19.8 $19.0 $18.5
Net loss ratio as a % of charge volume 0.30% 0.25% 0.28%
90 days past due as a % of total 3.6% 3.8% 3.4%
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.
- CARDMEMBER LENDING: **
-- The write-off rate increased versus last year, but remained flat
versus last quarter. The past due rate increased versus last
year, but declined versus last quarter.
6/07 3/07 6/06
--------------- ----------------- ----------------
Total Loans (billions) $38.3 $33.0 $27.6
Net write-off rate 3.7% 3.7% 2.9%
30 days past due as a % of loans 2.7% 2.9% 2.5%
* 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 page 13-14 for "Managed Basis" Cardmember
lending information.
-12-
AMERICAN EXPRESS COMPANY
SECOND 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
June 30, Inc/(Dec)
------------------------------- ----------------
(millions) 2007 2006
---- ----
o DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $2,642 $2,388 11%
Securitization adjustments 80 44 82
------- -------
Managed discount revenue, net card fees and other $2,722 $2,432 12
======= =======
o CARDMEMBER LENDING FINANCE REVENUE:
Reported for the period (GAAP) $1,179 $814 45
Securitization adjustments 724 726 -
------- -------
Managed finance revenue $1,903 $1,540 24
======= =======
o SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $332 $372 (11)
Securitization adjustments (332) (372) (11)
------- -------
Managed securitization income, net $ - $ - -
======= =======
o CARDMEMBER LENDING INTEREST EXPENSE:
Reported for the period (GAAP) $363 $215 69
Securitization adjustments 274 257 7
------- -------
Managed cardmember lending interest expense $637 $472 35
======= =======
o PROVISIONS FOR LOSSES:
Reported for the period (GAAP) $640 $346 85
Securitization adjustments 177 127 39
------- -------
Managed provisions for losses $817 $473 73
======= =======
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
SECOND 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 and higher travel commissions and fees. In addition, the
increase reflects the recognition of interest income associated with the
repayment of the Company's loan to Delta Air Lines.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 24% due to 21% growth in
average managed lending balances and a higher portfolio yield.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 35% on 21% growth in average
managed lending balances and a higher cost of funds.
o PROVISIONS FOR LOSSES: Increased 73% due to strong volume and loan growth
and higher write-off and delinquency rates, 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 increased versus last year, but was flat
compared to last quarter. The past due rate increased versus
last year but was lower than last quarter.
6/07 3/07 6/06
--------------- ------------------ ----------------
Total Loans (billions) $58.6 $53.9 $47.8
Net write-off rate 3.7% 3.7% 2.9%
30 days past due as a % of loans 2.6% 2.8% 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
SECOND QUARTER 2007 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
June 30, Inc/(Dec)
---------------------------- -----------
(millions) 2007 2006
Revenues
Discount revenue, net card fees and other $2,149 $2,048 5%
Cardmember lending finance revenue 333 285 17
------- -------
Total revenues 2,482 2,333 6
Interest expense:
Cardmember lending 120 99 21
Charge card and other 203 151 34
------- -------
Revenues net of interest expense 2,159 2,083 4
------- -------
Expenses
Marketing, promotion, rewards and cardmember services 377 408 (8)
Human resources and other operating expenses 1,211 1,104 10
------- -------
Total 1,588 1,512 5
------- -------
Provisions for losses 263 282 (7)
------- -------
Pretax segment income 308 289 7
Income tax provision 31 62 (50)
------- -------
Segment income $277 $227 22
======= =======
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
June 30, Inc/(Dec)
------------------------------------- ----------------------
2007 2006
---- ----
Card billed business (billions) $54.6 $49.2 11%
Total cards in force (millions) 22.5 22.2 1
Basic cards in force (millions) 17.9 17.8 1
Average basic cardmember spending* (dollars) $3,052 $2,654 15
Segment capital (billions) $4.1 $4.0 3
Return on segment capital** 23.6% 21.5%
* 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 11% increase in billed business reflects a 15%
increase in average spending per proprietary basic card and a 1%
increase 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 10% and 8%, respectively, and all of
AXP's major geographic regions experienced high single-digit to
low double-digit growth.
- International consumer and small business spending rose 7%;
global corporate spending rose 12%.
- - TOTAL CARDS IN FORCE: Increased by 300K, or 1%, versus last year.
Excluding the impact of the 200K proprietary cards in Indonesia and
Malaysia transferred to GNMS in 3Q '06, cards in force rose 2%.
P&L DISCUSSION
o NET INCOME: Increased 22% versus last year as revenues net of interest
expense increased 4%, expenses increased 5% and provisions for losses
decreased 7%.
- 2Q '07 results include $9MM of the IRS benefit and $6MM ($4MM
after-tax) of the increased marketing and promotion spending in the
quarter, as referenced earlier.
-15-
AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
- 2Q '06 included:
-- A $119MM ($109MM after-tax) gain related to the completion of the sale
of our card operations in Brazil; and
-- A $62MM ($40MM after-tax) charge associated with certain adjustments
made to the Membership Rewards reserve model outside the U.S.
- 2Q '07 included $6MM ($4MM after-tax) and 2Q '06 included $34MM ($22MM
after-tax) of reengineering costs, related principally to ongoing
restructuring activities in the corporate travel business in both
periods and the international card business in 2Q '06.
- PRE-TAX MARGIN: Was 14.3% in 2Q '07 versus 14.8% in 1Q '07 and 13.9% in
2Q '06.
- EFFECTIVE TAX RATE: Was 10% in 2Q '07 versus 20% in 1Q '07 and 21% in
2Q '06. The lower rate in 2Q '07 reflects the IRS benefit, referenced
earlier, and additional benefits primarily related to the
finalization of certain 2006 tax returns. The 2Q '06 tax rate
reflects the relatively low effective rate on the Brazil gain, which
was offset by higher tax expense due to uncertainty regarding the
Company's ability to obtain tax benefits for certain expenses
attributable to foreign subsidiaries.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: The increase of 5%
versus 2Q '06 was driven primarily by the higher level of card spending,
increased other revenues and greater other commissions and fees partially
offset by decreased card-related fees due to the reclassification to this
revenue category of certain card-related acquisition costs effective July
1, 2006. 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 17% on 10% growth in average
lending balances and a higher portfolio yield.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 21% on higher loan
balances and an increased cost of funds.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Increased 34% on higher volumes
and a greater cost of funds.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
8%, reflecting the 2Q '06 $62MM charge associated with certain
adjustments made to the non-U.S. Membership Rewards reserve and lower
marketing and promotion costs, partially offset by greater volume-related
rewards costs in 2Q `07.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 10%, reflecting
last year's Brazil gain and greater human resource expenses in 2Q `07,
which were partially offset by the impact of the reclassification to
revenues of certain card acquisition-related costs beginning in 3Q '06,
and the sales of card operations in Brazil, Malaysia and Indonesia.
o PROVISIONS FOR LOSSES: Decreased 7% from a year ago as lower write-off
and past due rates, primarily reflecting the 2Q '06 industry-wide credit
issues in Taiwan, were partially offset by higher volumes and lending
balances.
- - CHARGE CARD: *
- -- The loss ratio and past due rate decreased versus last year and last
quarter.
6/07 3/07 6/06
----------------- ---------------- ---------------
Total Receivables (billions) $18.1 $17.1 $15.8
Net loss ratio as a % of charge volume 0.16% 0.20% 0.18%
90 days past due as a % of total 1.7% 1.9% 2.1%
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 decreased versus last year, but increased
versus last quarter. The past due rate declined from last year
and last quarter.
6/07 3/07 6/06
----------------- ---------------- ---------------
Cardmember Loans (billions) $10.0 $9.3 $8.7
Net write-off rate 6.0% 5.7% 6.4%
30 days past due as a % of loans 2.9% 3.1% 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
SECOND QUARTER 2007 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
June 30, Inc/(Dec)
--------------------- -----------
(millions) 2007 2006
Revenues
Discount revenue, fees and other $887 $765 16%
Interest expense:
Cardmember lending (31) (24) 29
Other (48) (50) (4)
---- ----
Revenues net of interest expense 966 839 15
Expenses
Marketing and promotion 150 140 7
Human resources and other operating expenses 389 370 5
---- ----
Total 539 510 6
---- ----
Provisions for losses 9 14 (36)
---- ----
Pretax segment income 418 315 33
Income tax provision 152 115 32
---- ----
Segment income $266 $200 33
==== ====
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
June 30, Inc/(Dec)
------------------------ --------------
2007 2006
---- ----
Global card billed business*(billions) $161.1 $140.5 15%
Segment capital (millions) $1,071 $1,271 (16)
Return on segment capital** 78.0% 53.8%
Global Network Services:***
Card billed business (billions) $12.3 $7.6 62
Total cards in force (millions) 17.6 13.1 34
* 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.
*** 2Q '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 as of 6/30/06 and 0.2MM proprietary cards in Malaysia and Indonesia
during 3Q '06 from ICGCS to GNS. Excluding these transfers, billed business
rose 41% and cards in force grew 32%.
P&L DISCUSSION
o NET INCOME: Increased 33% on 15% growth in revenues net of interest
expense and a 36% decrease in provisions for losses, partially offset by
a 6% increase in total expenses.
- - 2Q '07 results include:
-- A $27MM ($18MM after-tax) gain related to the sale of our
merchant-related operations in Russia; and
-- $10MM ($6MM after-tax) of the increased marketing and promotion
spending in the quarter, referenced earlier.
- - 2Q '06 included a $25MM ($22M after-tax) gain related to the sale of
our merchant-related operations in Brazil, partially offset by an
adjustment in amortization relating to an overseas joint venture.
- - 2Q '07 and 2Q '06 included $1MM ($1MM after-tax) of reengineering costs
in each period, respectively.
- PRE-TAX MARGIN: Was 43.3% in 2Q '07 versus 42.6% in 1Q '07 and 37.5%
in 2Q '06.
- EFFECTIVE TAX RATE: Was 36% in 2Q '07 versus 37% in 1Q '07 and 2Q '06.
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AMERICAN EXPRESS COMPANY
SECOND QUARTER 2007 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
o DISCOUNT REVENUE, FEES AND OTHER REVENUE: Increased 16%, 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 as of 6/30/06 of the
independent operator agreement in Brazil and in 3Q '06 of independent
operator agreements in Malaysia and Indonesia.
o CARDMEMBER LENDING INTEREST EXPENSE: The expense credit increased 29% due
to a larger volume and rate-driven interest credit related to internal
transfer pricing which recognizes the merchant services' accounts
payable-related funding benefit.
o OTHER INTEREST EXPENSE: The expense credit decreased 4% as higher
interest on capital allocations was partially offset by a larger volume
and rate-driven interest credit related to internal transfer pricing
which recognizes the merchant services' accounts payable-related funding
benefit.
o MARKETING AND PROMOTION EXPENSES: Increased 7%, reflecting an increase in
brand, merchant and partner-related advertising costs versus last year.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 5% primarily due
to greater human resources costs.
o PROVISIONS FOR LOSSES: Decreased 36%, due to a reduction in
merchant-related reserves, primarily related to airlines.
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INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
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 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; 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 INVEST IN TECHNOLOGY ADVANCES ACROSS ALL AREAS OF ITS
BUSINESS TO STAY ON THE LEADING EDGE OF TECHNOLOGIES APPLICABLE TO THE
PAYMENTS INDUSTRY; 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.
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