EXHIBIT 99.3
[LOGO OF AMERICAN EXPRESS COMPANY]
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
2008
THIRD QUARTER
EARNINGS SUPPLEMENT
THE ENCLOSED SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE TEXT AND
STATISTICAL TABLES INCLUDED IN AMERICAN EXPRESS COMPANY'S (THE
"COMPANY" OR "AXP") THIRD QUARTER 2008 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 PAGE 22 OF
THIS SUPPLEMENT, PAGES 63-64 IN THE COMPANY'S 2007 ANNUAL REPORT TO
SHAREHOLDERS AND IN ITS 2007 ANNUAL REPORT ON FORM 10-K, AND OTHER
REPORTS, ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION.
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AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
FINANCIAL RESULTS
o Third quarter diluted EPS from continuing operations of $0.74 decreased
21% versus $0.94 last year. Revenues net of interest expense rose 3%.
Return on average equity (ROE) was 28% and return on average tangible
equity (ROTE), which excludes goodwill and intangibles, was 34%.*
- 3Q '08 and 3Q '07 Income from continuing operations included $11MM
($7MM after-tax) and $10MM ($7MM after-tax), respectively, of
reengineering costs primarily within Corporate & Other and Global
Network & Merchant Services ("GNMS") in 3Q '08 and Global Commercial
Services ("GCS") in 3Q `07.
- The discontinued operations line in the Consolidated Financial
Statements contains the results, assets and liabilities related to
various business sales. This primarily includes the results from
American Express Bank, Ltd. ("AEB"), which was sold to Standard
Chartered PLC ("Standard Chartered") in 1Q '08, as well as American
Express International Deposit Company, ("AEIDC"), which is contracted
to be sold to Standard Chartered through a put/call agreement in
August 2009, as discussed further on page 4.
-- 3Q '08 results reflected ($46MM) of losses from discontinued
operations versus ($55MM) of losses last year, primarily
reflecting charges of $69MM ($45MM after-tax) and $81MM ($41MM
after-tax) in each respective period, for mark-to-market
adjustments and sales within the AEIDC investment portfolio.
- Including discontinued operations, diluted EPS on a net income basis of
$0.70 decreased 22% versus last year.
BUSINESS METRICS
o Compared with the third quarter of 2007:
- Worldwide billed business of $175.5B increased 8% on relatively
strong growth within both the proprietary and network businesses. A
comparatively weaker U.S. dollar resulted in a 1% benefit within the
reported worldwide growth rate.
- Worldwide total cards-in-force of 92.1MM increased 9%, up 7.4MM from
last year and 2.0MM during 3Q '08, on continued proprietary and
network card growth.
- Worldwide average spending per proprietary basic card-in-force
increased 1% versus last year reflecting the suppressing effect of a
more difficult U.S. economy and substantial card additions over the
past few years.
- Worldwide lending balances of $45.8B on an owned basis decreased 9%;
on a managed basis, worldwide lending balances of $75.6B were up 5%.
FINANCIAL HIGHLIGHTS
o FINANCIAL REPORTING CHANGES. The following revisions were made in 3Q '08
to the financial reporting of discontinued operations and certain credit
metrics:
- DISCONTINUED OPERATIONS: As part of the Company's agreement to sell
AEIDC to Standard Chartered, as referenced above and further
discussed on page 4, the results of AEIDC have been removed from the
Corporate & Other segment and are now reported in the discontinued
operations line on the Company's Consolidated Statements of Income
for all prior periods. Please refer to the Company's Form 8-K filing
dated September 12, 2008 for the financial and other information
reflecting the inclusion of AEIDC as a discontinued operation for all
historical periods.
- - CREDIT METRICS:**
-- CARDMEMBER LENDING NET WRITE-OFF RATE: In 3Q '08, the Company
revised its method of reporting the cardmember lending net
write-off rate. Historically, the net write-off rate has been
presented using net write-off amounts for principal, interest
and fees. However, industry convention is generally to include
only the net write-offs related to principal in write-off rate
disclosures. The Company is presenting the net write-off rate
using the net write-off amounts for principal only, consistent
with industry convention.
-- 30 DAYS PAST DUE AS A % OF LOANS AND RESERVES AS A % OF 30 DAYS
PAST DUE ACCOUNTS: These metrics were revised for the U.S. Card
Services ("USCS") segment to align with industry practice and
the International Card Services ("ICS") segment, whereby
payments made by U.S. cardmembers after billing cycle cut, but
before month-end, are applied to their oldest balance.
Previously, USCS applied such payments to current balances.
-- Neither of these credit metric modifications indicates a change
in management's view of the Company's underlying credit quality
or risk profile, and they do not impact the method in which the
Company assesses the adequacy of its reserves.
* Please refer to Appendix I of the Third Quarter 2008 Earnings Release for
the components of ROE and ROTE on both a consolidated and segment basis.
** Please refer to Appendix II & III of the Third Quarter 2008 Earnings
Release, American Express Company Selected Statistical Information pages,
for revised credit metrics for quarters ended March 31, 2006 through
June 30, 2007. Revised credit metrics for quarters ended September 30, 2007
through June 30, 2008 are included within the relevant Third Quarter 2008
Earnings Release, American Express Company Selected Statistical Information
pages.
-1-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
o SECURITIZATION INCOME, NET: Decreased 49% primarily due to lower excess
spread, net, driven by increased write-offs and a $100MM ($62MM
after-tax) charge to the fair value of the I/O Strip, which were
partially offset by higher finance charges and fees due to a greater
average balance of securitized loans and lower interest expense due to
lower rates paid on investor certificates. The charge to the I/O Strip
was driven primarily by higher expected write-offs and interest expense
due to changes in recent market conditions. As of September 30, the fair
market value of the I/O Strip was $38MM, versus $223MM as of December 31,
2007.
o TOTAL INTEREST INCOME: Decreased 3% due to a lower average loan balance
and a lower portfolio yield, driven by the impact of reduced market
interest rates on variably priced assets.
o TOTAL INTEREST EXPENSE: Decreased 16%, reflecting a lower cost of funds,
due to the benefit of lower market interest rates on short-term and
variable-rate debt, which more than offset the cost of higher funding
levels related to increased cash amounts and other liquidity resources.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
7% on higher volume-driven rewards costs. Marketing and promotion
expenses were flat versus the prior year, reflecting a consistent
consolidated level of business-building investments versus 3Q '07, but
with a greater emphasis on our non-U.S. activities.
o HUMAN RESOURCES EXPENSE: Increased 7%, reflecting the impact of a higher
level of employees and greater merit and salesforce-related incentive
costs.
- Compared with last year, the total employee count from continuing
operations of 66,500 increased by 1,500 employees, or 2%. Compared
with last quarter, the employee count was flat.
o TOTAL PROVISIONS FOR LOSSES: Increased 51% primarily reflecting the
difficult U.S. credit environment, which led to increased write-off and
delinquency rates, as well as increased business volumes, partially offset
by lower average owned loan balances.
CAPITAL, LIQUIDITY, AND FUNDING
o CAPITAL RETURNED TO SHAREHOLDERS. During 3Q '08 we returned 24% of
capital generated to shareholders through our quarterly dividend. On a
cumulative basis, since 1994, we have returned 68% of capital generated
through share repurchases and dividends.
- SHARE REPURCHASES: During 3Q '08 and 2Q '08 no shares were
repurchased, versus 15MM shares in 3Q '07. Share repurchases were
suspended during 1Q '08 in light of the uncertain U.S. economic
environment. Since the inception of repurchase programs in December
1994, 670MM shares have been acquired under cumulative Board
authorizations to repurchase up to 770MM shares.
Millions of Shares
---------------------------------------------
- ACTUAL SHARE ACTIVITY: 3Q '08 2Q '08 3Q '07
------ ------ ------
Shares outstanding - beginning of period 1,159 1,158 1,182
Repurchase of common shares - - (15)
Employee benefit plans, compensation and other 1 1 2
------ ------ ------
Shares outstanding - end of period 1,160 1,159 1,169
====== ====== ======
CAPITAL AND FUNDING NEEDS: In light of recent conditions in the financial
markets, the Company provided an update regarding its liquidity and
capital resources in a Form 8-K filed with the SEC on October 6, 2008
("October 8-K").
During 2008, the Company increased its surplus capital above normal
historical levels by retaining a larger portion of the capital and funds
generated from ongoing business operations.
The Company's 2008 funding plan currently targets the issuance of
approximately $27B of term debt for the year, including off-balance sheet
securitizations of credit card loans. Through September 30,
2008, the Company had raised approximately $23B, or 85% of this
total. The Company's current funding targets for 2008 are approximately
$5B lower than the amount reported in the Company's Quarterly
Report on Form 10-Q for the three months ended June 30, 2008. The
decrease from prior levels primarily reflects slower expected growth in
the Company's credit card loans outstanding and reductions in net
operating cash needs.
Notwithstanding the difficult conditions in the financial markets during
the past year, the Company has satisfied all maturing obligations and
funded its growth by accessing a variety of sources, including long and
short-term debt, off-balance sheet securitizations and bank deposits.
Similar to most issuances across debt markets, the Company's issuances of
debt securities and securitizations through September have included
spreads above benchmark rates that are greater than those on similar
issuances completed during the prior several years. During the recent
market turmoil, the Company has continued to issue commercial paper.
While these commercial paper issuances have occurred at shorter weighted
average maturities than the Company's historic trend, the shorter term is
consistent with the issuances occurring in the current overall commercial
paper market.
-2-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
The upcoming approximate maturities of the Company's long-term debt and
debt issued in connection with off-balance sheet securitizations are as
follows:
Debt Maturities, in billions
---------------------------------------------
QUARTER ENDING: LONG-TERM OFF-BALANCE SHEET TOTAL
--------------- ---------- ------------------ ------
December 31, 2008 $3.6 - $3.6
March 31, 2009 2.3 $1.5 3.8
June 30, 2009 7.2 0.6 7.8
September 30, 2009 2.9 2.7 5.6
December 31, 2009 2.9 - 2.9
As of September 30, 2008, the Company's approximate U.S. capital market
short-term outstandings were as follows:
IN BILLIONS Commercial Bank Time Total
Paper Deposits
---------- ---------- ----------
Gross Amount $9 $9 $18*
Proceeds from issuance invested
in cash and equivalents (5) (7) (12) **
---------- ---------- ----------
Net amount $4 $2 $6
========== ========== ==========
* Excludes FDIC-insured demand deposits of approximately $4B and
non-U.S. short-term term debt and deposits of approximately $3B.
** Excludes cash and cash equivalents on hand for day to day
operations.
o LIQUIDITY. As discussed in the Company's October 8-K, in addition to the
short-term and long-term capital market programs that the Company has
accessed to date to satisfy its funding needs, as of September 30, 2008,
the Company had in place various sources of cash including:
- $12B of cash and cash equivalents (as referenced above) for liquidity
purposes, which excludes cash and cash equivalents on hand to fund
day-to-day operations;
- A $5B liquidity investment portfolio of U.S. Treasury and government
agency securities;
- A $5B undrawn committed facility to purchase securitized credit card
receivables; and
- $9B of undrawn committed bank credit facilities.
In addition, the Company's subsidiaries, American Express Centurion Bank
and American Express Bank, FSB (together, the "Banks") are insured
depository institutions that have the capability of borrowing from the
Federal Reserve Bank of San Francisco (i.e., access to the Federal
Reserve Bank discount window), subject to the amount of qualifying
collateral that they pledge. The Federal Reserve has indicated that
credit card receivables are a form of qualifying collateral for secured
borrowings made through the discount window or its Term Auction Facility
(TAF) program. On October 3, 2008, the Banks were approved to access the
discount window, subject to the discretion of the Federal Reserve Bank of
San Francisco, thereby providing the Banks with an additional source of
contingent liquidity, if needed.
The Company has approximately $45B in U.S. credit card loans and
charge card receivables that could be sold over time through its existing
securitization trusts, its undrawn committed securitization facility
referred to above or pledged in return for secured borrowings to provide
further liquidity.
In consideration of all the funding sources described above, the Company
believes that it would have the liquidity to satisfy all maturing
obligations and fund normal business operations for at least a 12-month
period in the event that access to the secured and unsecured fixed income
capital markets were interrupted.
The Company consistently looks to expand its funding options. As such, in
3Q '08 the Company, through its American Express Credit Corporation,
("Credco"), subsidiary, commenced an InterNotes(R) program which offers
individual investors the opportunity to make unsecured medium and
long-term fixed income investments in the Company through retail broker
distribution. Additionally, the Company recently launched a retail
certificate of deposit program through the Banks. To date, these
two recently launched programs have raised over $700MM of funding.
On October 7, 2008 the Federal Reserve Board (the "Board") announced the
creation of the Commercial Paper Funding Facility ("CPFF"). The CPFF will
provide three-month liquidity to U.S. issuers of commercial paper through
a special purpose vehicle, ("SPV") which will purchase three-month
unsecured and asset-backed commercial paper directly from eligible
issuers using financing provided by the Federal Reserve Bank of New York.
The commercial paper must be rated at least A1/P1/F1 by a major
nationally recognized statistical rating organization ("NRSRO") and, if
rated by multiple major NRSROs, must be rated at least A1/P1/F1 by two or
more NRSROs. Commercial paper issuers must register with the CPFF in
order to sell commercial paper to the SPV. Registration is scheduled to
begin on Monday, October 20, 2008 and access to the SPV is scheduled to
begin on Monday, October 27, 2008. The maximum amount of a single
issuer's commercial paper the SPV may own at any time is limited to the
greatest amount of U.S. denominated commercial paper outstanding on any
day between January 1 and August 31, 2008. The SPV will cease purchasing
commercial paper on April 30, 2009, unless the Board extends the
facility. The Company believes that Credco, which issues unsecured
commercial paper and has a short term credit rating of A1/P1/F1, is
eligible to participate in this program. Once eligibility is determined,
the Company expects that Credco will register with the CPFF in order to
prudently manage its liquidity profile and further diversify its sources
of funding. The Company's greatest amount of commercial paper outstanding
during the reference period was approximately $14.7B.
-3-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
On October 14, 2008 the Federal Deposit Insurance Corporation ("FDIC")
announced the establishment of a new program - the Temporary Liquidity
Guarantee Program ("TLGP") - to temporarily guarantee newly-issued senior
unsecured debt of eligible entities, and by providing full coverage to
non-interest-bearing deposit accounts in FDIC-insured institutions,
regardless of amount. Under the plan, certain newly-issued senior
unsecured debt issued on or before June 30, 2009, would be fully
protected in the event the issuing entity subsequently fails, or its
holding company files for bankruptcy. Coverage would end on June 30, 2012,
even if the maturity exceeds that date. The amount of debt covered by the
TLGP may not exceed 125 percent of senior unsecured debt that was
outstanding as of September 30, 2008 and that was scheduled to mature
before June 30, 2009. The Company believes that its subsidiary Banks, as
FDIC depository institutions, are both eligible to participate in this
program. The Bank's senior unsecured debt as of September 30, 2008 that is
scheduled to mature within the reference period is approximately $7.1B.
OTHER ITEMS OF NOTE
o VISA AND MASTERCARD LITIGATION SETTLEMENTS: In November of 2004 the
Company filed suit against Visa Inc., Visa USA and Visa International
(collectively "Visa"), MasterCard Inc., ("MasterCard") and certain of
their member banks to seek monetary damages for the lost business
opportunity that resulted from the illegal conspiracy to boycott American
Express from partnering with U.S. credit card issuing banks. The Company
announced that it had reached an agreement with Visa on November 7, 2007
and with MasterCard on June 25, 2008. All defendants have been removed
and the case is now dismissed.
Under the terms of the settlement agreements, the Company will receive
aggregate maximum payments of $2.25B from Visa and $1.8B from MasterCard.
The total of more than $4.0B represents the largest antitrust settlement
in U.S. history. The settlement with Visa is comprised of an initial
payment of $1.13B ($700MM after-tax) that was recorded in 4Q '07 and
received in March 2008, and quarterly payments of up to $70MM ($43MM
after-tax) for four years from 1Q '08 through 4Q '11. The settlement with
MasterCard is comprised of quarterly payments of up to $150MM ($93MM
after-tax) for three years from 3Q '08 through 2Q '11. The Company has
recognized $70MM from Visa in each of the three quarters of 2008 and
$150MM from MasterCard in 3Q '08 pursuant to these agreements.
Installment payments from both parties are subject to the Company
achieving certain quarterly performance criteria in the Global Network
Services ("GNS") business within the U.S., which the Company is
optimistic it is positioned to meet. Payments earned through September
2008 have been recorded as a reduction to the "other, net" expense line
within the Corporate & Other segment.
o ACQUISITION OF CPS: On March 28, 2008, the Company completed its purchase
of GE's commercial card and corporate purchasing business unit, CPS, for
$1.1B in cash and the repayment of $1.2B in CPS debt. The purchase
included card relationships with GE as well as more than 300 large
corporate clients, which cumulatively generated over $14B in global
purchase volume in 2007. The Company expects that this acquisition will
be additive to revenue growth, and will have a minor dilutive impact on
both EPS and ROE in the early years following the transaction. This
dilution estimate assumes the cash used for the purchase price would
otherwise have been used for the repurchase of American Express common
shares.
In 1Q '08 the cash payment, total receivables of $1.3B and goodwill and
other intangible assets of $1.0B related to the transaction were
reflected on the Consolidated Balance Sheet. Receivables have been
initially recorded within the other receivables ($1.2B) and other loans
($0.1B) lines. As underlying cardmember relationships migrate to AXP
products over the coming quarters, the associated receivables will be
reflected in the cardmember receivables and "cardmember lending" lines.
As the receivables are related to commercial card relationships, they are
reflected within the GCS segment, while the loans, related to small
business relationships, are reflected within the USCS segment. The
goodwill and intangible assets are recorded in the other assets line on
the Consolidated Balance Sheet, and have been preliminarily allocated to
the GCS ($1.0B) and USCS ($21MM) segments, respectively.
o AEB AND AEIDC: On September 18, 2007, the Company announced that it
entered into an agreement to sell AEB, its international banking
subsidiary, and AEIDC, a subsidiary which issues investment certificates
to AEB's customers, to Standard Chartered. On February 29, 2008, Standard
Chartered completed its purchase of the AEB portion of this transaction.
In 2Q '08, the Company and Standard Chartered agreed on the final
purchase price of $796MM, equaling the final net asset value of the
businesses that were sold plus $300MM. The Company also expects to
realize an additional amount representing the final net asset value of
AEIDC which is contracted to be sold to Standard Chartered through a
put/call agreement. As of September 30, 2008, the net asset value of that
business was $50MM. This value is expected to be realized through (i)
dividends from the subsidiary to the Company and (ii) a subsequent
payment from Standard Chartered based on the net asset value of AEIDC on
the date the business is transferred, which will occur in August 2009.
As a result of the agreement, beginning with 3Q '07 and for all prior
periods, AEB results, assets and liabilities (except for certain
components of the business which were not sold) were removed from the
Corporate & Other segment and reported within Discontinued Operations on
the Company's Consolidated Financial Statements. Beginning with 3Q '08
and for all prior periods, AEIDC results, assets and liabilities were
removed from the Corporate & Other segment and reported within
Discontinued Operations on the Company's Consolidated Financial
Statements.
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:
- With our co-brand partner, David Jones, launched the David Jones
American Express Card in Australia, where customers will be able to
use this credit card both inside and outside of David Jones stores.
- Announced an alliance with Concur Technologies, Inc., a leading
provider of on-demand T&E expense management services involving both
an exclusive marketing partnership and strategic equity investment in
the company. Concur will exclusively promote American Express's
Corporate Cards to its clients, in return for promotional exclusivity
of Concur(R) Expense by American Express's Global Commercial Card and
Global Business Travel businesses.
- Signed a multi-year preferred supplier agreement with Carson Wagonlit
Travel (CWT). As part of the agreement, CWT will promote and
distribute three American Express payment solutions - Business Travel
Account, Corporate Card and Corporate Meeting Card - to its clients
and prospects in 21 countries.
- With International Speedway Corporation ("ISC") announced that the
American Express(R) Card is now accepted at all ISC events and
properties across the country.
- Announced that American Express Cards are now accepted for auction
purchases at Christie's in the United States.
- With Starwood Hotels & Resorts Worldwide, Inc., announced a $75 food
and beverage credit whenever Gold Card members book a stay of two or
more consecutive nights at over 500 properties around the world across
four Starwood brands: W Hotels, Westin Hotels & Resorts, Le Meridien
Hotels & Resorts and Sheraton Hotels & Resorts.
- Added seven new travel agencies to the American Express Travel U.S.
Representative Network: Corporate Travel Planners in San Antonio,
Texas; Cruises-N-More in Orlando, Florida; El Sol Travel in Tempe,
Arizona; Elite Travel Group in Clearwater, Florida; Main Street Travel
in Lakewood Ranch, Florida; Mundi Travel in San Jose, California; and
Travel On, Ltd. in Beltsville, Maryland.
- Announced our intent to launch BusinessTravelConnexion.com, a
business-to-business online network for the corporate travel industry.
Designed as a place for members to connect, share, and learn,
BusinessTravelConnexion.com will bring together a consortium of
industry decision makers, and subject-matter experts, educational
resources, and perspectives from across the industry to create the
most extensive online, business travel community.
- Signed a hotel folio agreement with InterContinental Hotels Group
("IHG") that enables American Express to provide its corporate card
customers with reports that break down their lodging expenditures at
nearly 2,800 IHG properties in the U.S.
- Announced a $1MM donation to make eight U.S. cities cleaner,
greener and more beautiful through the Root For Our City Challenge.
- Announced a partnership between American Express OPEN and Women
Impacting Public Policy to launch "Give Me 5: Education and Access for
Women in Federal Contracts." The national program is designed to
educate women business owners on how to apply for and secure federal
procurement opportunities.
- Released our latest television spot featuring comedian and actress
Tina Fey and director Martin Scorsese showcasing how American Express
provides exclusive travel benefits for Platinum Card(R) members.
In our Global Network Services ("GNS") business we:
- Partnered with Westpac New Zealand to launch a new credit card that
boosts the points earning power of Westpac's hotpoints rewards program
by up to 50%.
- With our new partner Crnogorska Komercijalna Banka, a member of the
OTP Group, launched the first American Express Gold Credit Cards
issued in Montenegro.
- Expanded our partnership with MCB and launched the first American
Express Green Card and Gold Card in Mauritius.
- With our new partner Iberia Cards, issued Iberia Sendo American Express
Cards in Spain.
On September 3, 2008, J.D. Power and Associates released its second
annual nationwide credit card satisfaction study and ranked American
Express highest in overall satisfaction among 18 of the largest card
issuers in the U.S.
-5-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP BASIS)
(Millions, except per share amounts) Quarters Ended Percentage
September 30, Inc/(Dec)
-------------------- ----------
2008 2007
---- ----
Revenues
Discount revenue $3,848 $3,659 5%
Net card fees 577 522 11
Travel commissions and fees 499 484 3
Other commissions and fees 573 644 (11)
Securitization income, net 200 392 (49)
Other 551 443 24
------ ------
Total 6,248 6,144 2
------ ------
Interest income
Cardmember lending finance revenue 1,521 1,581 (4)
Other 238 239 -
------ ------
Total 1,759 1,820 (3)
------ ------
Total Revenues 8,007 7,964 1
------ ------
Interest expense
Cardmember lending 346 444 (22)
Charge card and other 497 564 (12)
------ ------
Total 843 1,008 (16)
------ ------
Revenues net of interest expense 7,164 6,956 3
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 1,929 1,810 7
Human resources 1,465 1,366 7
Professional services 608 539 13
Occupancy and equipment 398 374 6
Communications 118 118 --
Other, net 200 339 (41)
------ ------
Total 4,718 4,546 4
------ ------
Provisions for losses
Charge card 351 279 26
Cardmember lending 958 579 65
Other 59 47 26
------ ------
Total 1,368 905 51
------ ------
Pretax income from continuing operations 1,078 1,505 (28)
Income tax provision 217 383 (43)
------ ------
Income from continuing operations 861 1,122 (23)
Loss from discontinued operations, net of tax (46) (55) (16)
------ ------
Net income $ 815 $ 1,067 (24)
====== ======
EPS-Basic
Income from continuing operations $ 0.75 $ 0.96 (22)
====== ======
Loss from discontinued operations (0.04) (0.05) (20)
====== ======
Net Income $ 0.71 $ 0.91 (22)
====== ======
EPS-Diluted
Income from continuing operations $ 0.74 $ 0.94 (21)
====== ======
Loss from discontinued operations (0.04) (0.04) --
====== ======
Net Income $ 0.70 $ 0.90 (22)
====== ======
Average Shares Outstanding
Basic 1,154 1,170 (1)
====== ======
Diluted 1,158 1,192 (3)
====== ======
o CONSOLIDATED REVENUES NET OF INTEREST EXPENSE: Consolidated revenues net
of interest expense increased 3%, reflecting a decrease versus last year
of 4% in USCS, and increases of 11% in ICS, 13% in GCS and 9% in GNMS.
Revenues net of interest expense increased due to greater discount
revenues, lower interest expense, higher other revenues, increased net
card fees and greater travel commissions and fees, partially offset by
lower securitization income, net, lower other commissions and fees and
lower interest income. Translation of foreign currency benefited the
revenues net of interest expense growth rate by approximately 1%.
o CONSOLIDATED EXPENSES: Consolidated expenses increased 4%, reflecting
increases of 6% in USCS, 13% in ICS, 14% in GCS and 11% in GNMS. The
total expense growth reflected higher marketing, promotion, rewards and
cardmember services expense, greater human resources expense, higher
professional services expense, increased occupancy and equipment costs,
and flat communications expense, partially offset by lower other, net
expense. Translation of foreign currency contributed approximately 1% to
the expense growth rate.
o CONSOLIDATED PROVISIONS FOR LOSSES: Consolidated provisions for losses
increased 51% versus last year, reflecting increases of 47% in USCS, 60%
in ICS, 43% in GCS and 87% in GNMS. Provisions rose primarily due to the
difficult credit environment, which led to increased write-off and
delinquency rates versus last year and increased merchant-related
reserves. Translation of foreign currency had a minimal impact on the
provision growth rate.
o PRE-TAX MARGIN: Was 15.0% in 3Q '08 compared with 10.4% in 2Q '08 and 21.6%
in 3Q '07.
o EFFECTIVE TAX RATE: Was 20% in 3Q '08 versus 15% in 2Q '08 and 25% in 3Q
'07. The rates for each of these periods reflect tax benefits related to
the resolution of certain prior years' tax items as well as the benefit
of the revision of our estimated annual effective tax rate.
o DISCOUNT REVENUE: Rose 5% on an 8% 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 2.56% in 3Q '08 and in 2Q '08 versus
2.57% in 3Q '07. As indicated in prior quarters, selective repricing
initiatives, changes in the mix of business and volume-related
pricing discounts will likely result in some erosion of the average
discount rate over time.
Quarters Ended Percentage
September 30, Inc/(Dec)
-------------------------------- ---------------
2008 2007
Card billed business* (billions):
United States $ 120.3 $ 115.2 4%
Outside the United States 55.2 47.3 17
---------- ---------- -----
Total $ 175.5 $ 162.5 8
========== ========== =====
Total cards-in-force (millions):
United States 54.3 51.7 5
Outside the United States 37.8 33.0 15
---------- ---------- -----
Total 92.1 84.7 9
========== ========== =====
Basic cards-in-force (millions):
United States 42.3 40.1 5
Outside the United States 32.8 28.3 16
---------- ---------- -----
Total 75.1 68.4 10
========== ========== =====
Average basic cardmember spending**
United States $ 3,167 $ 3,192 (1)
Outside the United States $ 2,752 $ 2,542 8
Total $ 3,049 $ 3,006 1
* For additional information about billed business and discount
rate calculations, please refer to the Third Quarter 2008
Earnings Release, American Express Company Selected
Statistical Information pages.
** Proprietary card activity only.
-7-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
WORLDWIDE BILLED BUSINESS: The 8% increase in worldwide billed business
reflected increases of 4% in USCS, 11% in ICS, 8% in GCS and 29% in
GNS partner volume. The table below summarizes selected billed
business related statistics for 3Q '08:
Percentage
Increase
Assuming No
Changes in
Percentage Foreign
Increase Exchange Rates
------------- ------------------
WORLDWIDE*
Billed Business 8% 7%
Average spending per proprietary basic card 1 1
Basic cards-in-force 10
U.S.*
Billed Business 4
Average spending per proprietary basic card (1)
Basic cards-in-force 5
Proprietary consumer card billed business** 1
Proprietary small business billed business** 10
Proprietary Corporate Services billed business*** 5
OUTSIDE THE U.S.*
Billed Business 17 14
Average spending per proprietary basic card 8 5
Basic cards-in-force 16
Proprietary consumer and small business billed 12 8
business****
Proprietary Corporate Services billed business*** 13 10
* Captions not designated as "proprietary" include
both proprietary and GNS data.
** Included in USCS.
*** Included in GCS.
**** Included in ICS.
-- U.S. non-T&E-related volume categories (which represented
approximately 70% of total U.S. billed business) grew 7%, while
T&E volumes rose 2%.
-- U.S. airline-related volume, which represented approximately 9% of
total U.S. volumes during the quarter, increased 6% due to a 6%
increase in the average airline charge while transactions were
flat.
-- Worldwide airline volumes, which represented approximately 11% of
total volumes during the quarter, increased 5% on 2% growth in
transactions and a 3% increase in the average airline charge.
-- Assuming no changes in foreign exchange rates: Total billed
business outside the U.S. reflected proprietary growth in Asia
Pacific in the mid single-digits, growth in Canada and Europe in
the high single-digits and growth in Latin America in the low teens.
- - TOTAL CARDS-IN-FORCE: Rose 9% worldwide due to an increase of 4% in
both USCS and in ICS, a 3% increase in GCS and a 25% increase in GNS.
Continued card acquisitions within proprietary and GNS
activities, as well as continued solid average customer retention
levels, were partially offset by the suppressing effect of
credit-related actions.
-- 800K and 1.2MM net cards were added during the quarter in the U.S. and the
non-U.S. businesses, respectively.
o NET CARD FEES: Increased 11% due to a higher average fee per proprietary
card and card growth.
o TRAVEL COMMISSIONS AND FEES: Increased 3%, primarily reflecting a 4%
increase in worldwide travel sales.
o OTHER COMMISSIONS AND FEES: Decreased 11% on a lower average balance of
owned cardmember loans and a reclass to other revenues in USCS of certain
card service-related fees.
o SECURITIZATION INCOME, NET: Decreased 49% primarily due to lower excess
spread, net, driven by increased write-offs and the charge to the fair
value of the I/O Strip, which were partially offset by higher finance
charges and fees due to a greater average balance of securitized loans
and lower interest expense due to lower rates paid on investor
certificates. Securitization income, net represents the non-credit
provision components of the gains from securitization activities within
the USCS segment, fair value changes of the related I/O Strip and excess
spread related to securitized loans and servicing income, net of related
discounts or fees.
-8-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
- - Components of Securitization Income, Net:
Quarters Ended Percentage
September 30, Inc/(Dec)
---------------------- ------------
2008 2007
----- -----
(millions)
Excess spread, net* $ 84 $ 264 (68)%
Servicing fees 141 108 31
(Losses) Gains on sales from securitizations** (25) 20 #
----- -----
Total securitization income, net $ 200 $ 392 (49)
===== =====
# Denotes variance of more than 100%.
* Excess spread, net is the net positive cash flow from interest and
fee collections allocated to the investors' interests after
deducting the interest paid on investor certificates, credit
losses, contractual servicing fees, other expenses and changes in
the fair value of the I/O Strip.
** Excludes $189MM and ($38MM) of impact from cardmember loan sales
and maturities in 3Q '08, respectively, as well as $47MM and
($18MM) of impact from cardmember loan sales and maturities in 3Q '07,
respectively, reflected in the provisions for losses.
- - The average balance of Cardmember lending securitizations was $28.1B in 3Q
'08 compared with $21.7B in 3Q '07.
o OTHER REVENUES: Increased 24%, primarily reflecting the benefits of the
CPS acquisition, higher network and partner-related revenues, and a
reclass from other commissions and fees within USCS.
o CARDMEMBER LENDING FINANCE REVENUE: Decreased 4% due to lower average
loan balances and a lower portfolio yield, due to the impact of reduced
market interest rates on variably priced assets.
o OTHER INTEREST INCOME: Was flat versus the prior year.
o CARDMEMBER LENDING INTEREST EXPENSE: Decreased 22% due to a lower cost of
funds driven by reduced market rates on variably priced loans.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Decreased 12%, reflecting a lower
cost of funds driven by reduced market rates on variably priced loans
which more than offset increased liquidity-related funding levels.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
7%, reflecting higher volume-driven rewards costs. Marketing and
promotion expenses were flat versus the prior year.
o HUMAN RESOURCES EXPENSE: Increased 7% due to a 2% increase in employees and
higher merit and salesforce-related incentive costs.
o PROFESSIONAL SERVICES EXPENSE: Increased 13% primarily due to higher
technology-related consulting and credit and collection expenses.
o OCCUPANCY AND EQUIPMENT EXPENSE: Rose 6% on higher technology-related and
servicing costs.
o COMMUNICATIONS EXPENSE: Was flat versus the prior year.
o OTHER, NET EXPENSE: Decreased 41% primarily due to the settlement
payments from MasterCard and Visa, partially offset by expenses related
to the CPS acquisition.
o CHARGE CARD PROVISION FOR LOSSES: Increased 26% due to higher loss ratios
and delinquency rates versus last year, partially offset by a lower
receivables balance.
- - WORLDWIDE CHARGE CARD:*
- -- The loss ratio and past due rates increased versus last year and last
quarter.
9/08 6/08 9/07
-------------- ------------- -------------
Net loss ratio as a % of charge volume 0.33% 0.29% 0.26%
90 days past due as a % of receivables 3.2% 3.0% 2.8%
9/08 6/08 9/07
-------------- ------------- -------------
Total Receivables (billions) $ 37.6 $ 39.9 $ 38.5
Reserves (millions) $ 1,134 $ 1,146 $ 998
% of receivables 3.0% 2.9% 2.6%
% of 90 day past due accounts 95% 97% 91%
*There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card
portfolio are on an "Owned Basis."
-9-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
o CARDMEMBER LENDING PROVISION FOR LOSSES: Increased 65% due to higher
write-off and delinquency rates partially offset by decreased average
loan balances.
- WORLDWIDE LENDING:*
-- The write-off and past due rates increased versus last year and last
quarter.
9/08 6/08 9/07
----------- ------------- -------------
Net write-off rate 5.8% 5.5%** 3.4%
30 days past due as a % of loans 3.7% 3.4% 2.5%
9/08 6/08 9/07
----------- ------------- -------------
Total Loans (billions) $ 45.8 $ 49.7 $ 50.5
Reserves (millions) $ 2,640 $ 2,594 $ 1,469
% of total loans 5.8% 5.2% 2.9%
% of 30 days past due accounts 155% 155% 118%
* All lending statistics are presented here on a GAAP or "Owned
Basis". "Managed Basis" credit quality statistics are
available in the Third Quarter 2008 Earnings Release,
American Express Company Consolidated Selected Statistical
Information pages.
** The 6/08 owned net write-off rate was elevated partially due
to an addition of $10.2B of loans to the American Express
Credit Account Master Trust (the "Lending Trust") on May 16,
2008. This resulted in decreased net write-off rates within
the Lending Trust, and increased net write-off rates on an
owned basis. The managed basis net write-off rates were not
affected by this addition.
o OTHER PROVISION FOR LOSSES: Increased 26% reflecting additional
merchant-related reserves primarily due to the generally weaker
U.S. economic conditions.
-10-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
CONSOLIDATED
SUPPLEMENTAL INFORMATION - TANGIBLE COMMON EQUITY AND TOTAL ADJUSTED ASSETS
During the third quarter of 2006, the Company issued $750MM of 6.80%
Subordinated Debentures due 2036 ("Subordinated Debentures"), which are
automatically extendable until 2066 unless certain events occur prior to that
date. In connection with the Subordinated Debentures, the Company has
undertaken to disclose on a quarterly basis the amount of its "tangible common
equity" and "total adjusted assets", as defined in the Subordinated
Debentures. The Company's consolidated "tangible common equity" amount as of
the end of any fiscal quarter means the total shareholders' equity, excluding
preferred stock, of the Company as reflected on its consolidated balance sheet
prepared in accordance with GAAP as of such fiscal quarter end minus (i)
intangible assets and goodwill and (ii) deferred acquisition costs, as
determined in accordance with GAAP and reflected in such consolidated balance
sheet. The Company's "total adjusted assets" as of the end of any fiscal
quarter is calculated as the sum of (i) total consolidated assets as reflected
on the Company's balance sheet minus (ii) non-securitized Cardmember lending
receivables (without deduction for reserves), which are set forth on the
Company's balance sheet, plus (iii) managed (i.e., securitized and
non-securitized) worldwide Cardmember lending receivables as reported by the
Company for such fiscal quarter. As of September 30, 2008, the Company's
"tangible common equity" was $10B and its "total adjusted assets" as defined
in the Subordinated Debentures, were $157B. As of September 30, 2008, the
consolidated assets as reflected on the Company's balance sheet were $127B.
CORPORATE & OTHER
o Net income was $158MM in 3Q '08 compared with net expense of $2MM in 2Q '08
and $11MM in 3Q '07.
- 3Q '08 included:
-- $93MM and $43MM of after-tax income related to the MasterCard and Visa
litigation settlements, respectively; and
-- $56MM in tax benefits primarily due to the revision of the Company's
estimated annual effective tax rate.
- 2Q '08 included:
-- $43MM of after-tax income related to the Visa litigation settlement; and
-- $9MM of the tax benefits related to the resolution of certain prior
years' tax items.
- The 3Q '08 and 2Q '08 expense included $4MM and $1MM after-tax of
reengineering costs, respectively.
-11-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
--------------------- ----------
(millions) 2008 2007
---- ----
Revenues
<c>
Discount revenue, net card fees and other $2,623 $2,632 -%
Cardmember lending finance revenue 1,087 1,224 (11)
Securitization income, net 200 392 (49)
------ ------
Total revenues 3,910 4,248 (8)
Interest expense
Cardmember lending 290 402 (28)
Charge card and other 161 257 (37)
------ ------
Revenues net of interest expense 3,459 3,589 (4)
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 1,245 1,191 5
Human resources and other operating expenses 909 848 7
------ ------
Total 2,154 2,039 6
------ ------
Provisions for losses 941 638 47
------ ------
Pretax segment income 364 912 (60)
Income tax provision 120 320 (63)
------ ------
Segment Income $ 244 $ 592 (59)
------ ------
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
--------------------------- --------------------
2008 2007
---- ----
Card billed business (billions) $ 97.9 $ 94.2 4%
Total cards-in-force (millions) 44.7 42.9 4
Basic cards-in-force (millions) 33.4 31.8 5
Average basic cardmember spending* (dollars) $ 2,950 $ 2,986 (1)
Segment capital (millions)** $ 5,069 $ 4,468 13
Return on average segment capital** 17.0% 50.5%
Return on average tangible segment capital** 17.7% 52.5%
* Proprietary cards only.
** Segment capital includes an allocation attributable to goodwill of
$175MM and $168MM and other intangibles of $25MM and none in 3Q '08 and 3Q
'07, respectively. Please refer to Appendix I of the Third Quarter 2008
Earnings Release, for the components of ROE and ROTE.
- BILLED BUSINESS: The 4% increase in billed business primarily reflects
the 5% increase in basic cards-in-force.
-- Within the U.S. consumer business, billed business grew 1%; small
business volumes rose 10%.
- TOTAL CARDS-IN-FORCE: Increased by 1.8MM, or 4%, versus last year on
continued card acquisition initiatives and generally stable retention
levels, which were partially offset by the suppressing effect of
credit-related actions.
P&L DISCUSSION:
o SEGMENT INCOME: Decreased 59% as revenues net of interest expense
decreased 4%, expenses increased 6% and provisions for losses increased
47%.
- PRE-TAX MARGIN: Was 10.5% in 3Q '08 versus (1.8%) in 2Q '08 and 25.4%
in 3Q '07.
- EFFECTIVE TAX RATE: Was 33% in 3Q '08 compared to 133% in 2Q '08 and
35% in 3Q '07. The tax rates in 3Q '08 and 3Q '07 reflect the net
tax benefits primarily related to the resolution of certain prior
years' tax items in each of these respective periods. The tax
benefit in 2Q '08 reflects the effect of significant charges on
pretax segment income and the benefits primarily related to the
resolution of certain prior years' tax items.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Was unchanged largely due to
greater billed business volumes and higher net card fees offset by lower
commissions and assessments.
o CARDMEMBER LENDING FINANCE REVENUE: Decreased 11% due to a decrease of 6%
in average owned lending balances and lower yields.
-12-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
U.S. CARD SERVICES
o SECURITIZATION INCOME, NET: Decreased 49% primarily due to lower excess
spread, net, driven by increased write-offs and the charge to the fair
value of the I/O Strip, which were partially offset by higher finance
charges and fees due to a greater average balance of securitized loans
and lower interest expense due to lower rates paid on investor
certificates. Securitization income, net represents the non-credit
provision components of the gains from securitization activities within
the USCS segment, fair value changes of the related I/O Strip and excess
spread related to securitized loans and servicing income, net of related
discounts or fees.
o CARDMEMBER LENDING INTEREST EXPENSE: Decreased 28% due to a lower cost of
funds and lower average owned lending balances.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Decreased 37% primarily due to a
lower cost of funds.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
5% due to greater rewards costs which were partially offset by lower
marketing and promotion expenses.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 7% primarily due
to higher technology-related investments and increased credit and
collection costs.
o PROVISIONS FOR LOSSES: Increased 47% due to higher write-off and
delinquency rates.
- - CHARGE CARD: *
-- The loss ratio and past due rate increased versus last year and
last quarter.
9/08 6/08 9/07
------------- ------------ ------------
Total Receivables (billions) $18.8 $19.8 $19.4
Net loss ratio as a % of charge volume 0.47% 0.44% 0.34%
90 days past due as a % of total 4.2% 4.1% 3.9%
- - CARDMEMBER LENDING: **
-- The write-off rate and past due rate increased versus last year and last
quarter.
9/08 6/08 9/07
------------- -------------- -----------
Total Loans (billions) $ 34.6 $ 37.9 $ 40.0
Net write-off rate 6.1% 5.8%*** 3.0%
30 days past due as a % of loans 3.9% 3.4% 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 14-15 for "Managed Basis" Cardmember lending
information.
*** The 6/08 owned net write-off rate was elevated partially
due to an addition of $10.2B of loans to the Lending Trust on
May 16, 2008. This resulted in decreased net write-off rates
within the Lending Trust, and increased net write-off rates on
an owned basis. The managed basis net write-off rates were not
affected by this addition.
-13-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
U.S. CARD SERVICES
MANAGED BASIS
For USCS, the managed basis presentation assumes that there have been no
off-balance sheet securitization transactions, i.e., all securitized
cardmember loans and related income effects are reflected as if they were in
the Company's balance sheets and income statements, respectively. For the
managed basis presentation, revenue and expenses related to securitized
cardmember loans are reflected in other commissions and fees (included in
discount revenue, net card fees and other), cardmember lending finance
revenue, cardmember lending interest expense and provisions for losses. On a
managed basis, there is no securitization income, net, as the managed basis
presentation assumes no securitization transactions have occurred.
The Company presents USCS information on a managed basis because that is the
way the Company's management views and manages the business. Management
believes that a full picture of trends in the Company's cardmember lending
business can only be derived by evaluating the performance of both securitized
and non-securitized cardmember loans. Management also believes that use of a
managed basis presentation presents a more 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 provisions for losses for cardmember lending. At the
time of a securitization transaction, the securitized cardmember loans are
removed from the Company's balance sheet, and the resulting gain on sale is
reflected in securitization income, net as well as an impact to provision for
losses (credit reserves are no longer recorded for the cardmember loans once
sold). Over the life of a securitization transaction, the Company recognizes
servicing fees and other net revenues (referred to as "excess spread") related
to the interests sold to investors (i.e. the investors' interests). These
amounts, in addition to changes in the fair value of the interest-only strips,
are reflected in securitization income, net, and fees and commissions. The
Company also recognizes 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 provisions for losses.
As presented, in aggregate over the life of a securitization transaction, the
pretax income impact to the Company is the same whether or not the Company had
securitized cardmember loans or funded these loans through other financing
activities (assuming the same financing costs). The income statement
classifications, however, of specific items will differ.
The following information reconciles the GAAP basis presentation for
certain USCS income statement line items to the managed basis presentation,
where different:
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
(millions) 2008 2007
---- ----
o DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $ 2,623 $ 2,632 -%
Securitization adjustments 122 67 82
------- -------
Managed discount revenue, net card fees and
other $ 2,745 $ 2,699 2
======= =======
o CARDMEMBER LENDING FINANCE REVENUE:
Reported for the period (GAAP) $ 1,087 $ 1,224 (11)
Securitization adjustments 883 821 8
------- -------
Managed cardmember lending finance revenue $ 1,970 $ 2,045 (4)
======= =======
o SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $ 200 $ 392 (49)
Securitization adjustments (200) (392) (49)
------- -------
Managed securitization income, net $ -- $ -- --
======= =======
o CARDMEMBER LENDING INTEREST EXPENSE:
Reported for the period (GAAP) $ 290 $ 402 (28)
Securitization adjustments 196 302 (35)
------- -------
Managed cardmember lending interest expense $ 486 $ 704 (31)
======= =======
o PROVISIONS FOR LOSSES:
Reported for the period (GAAP) $ 941 $ 638 47
Securitization adjustments 629 226 #
------- -------
Managed provisions for losses $ 1,570 $ 864 82
======= =======
# Denotes variance of more than 100%.
-14-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
U.S. CARD SERVICES
MANAGED P&L DISCUSSION
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Increased 2% largely due to
greater billed business volumes and higher net card fees.
o CARDMEMBER LENDING FINANCE REVENUE: Decreased 4% as lower yields more than
offset the 8% growth in average managed lending balances.
o CARDMEMBER LENDING INTEREST EXPENSE: Decreased 31% due to a lower cost of
funds which more than offset higher average managed lending balances.
o PROVISIONS FOR LOSSES: Increased 82% due to higher write-off and
delinquency rates within the U.S. portfolio as well as increased average
managed loan volumes.
- - CARDMEMBER LENDING: *
- -- The write-off rate and past due rate increased versus last year and last
quarter.
9/08 6/08 9/07
----------- ------------- ------------
Total Loans (billions) $64.4 $64.7 $61.5
Net write-off rate 5.9% 5.3% 3.0%
30 days past due as a % of loans 3.9% 3.3% 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 13.
-15-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
INTERNATIONAL CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
(millions) 2008 2007
---- ----
Revenues
Discount revenue, net card fees and other $ 1,023 $ 953 7%
Cardmember lending finance revenue 432 353 22
------- -------
Total revenues 1,455 1,306 11
Interest expense
Cardmember lending 157 126 25
Charge card and other 66 66 -
------- -------
Revenues net of interest expense 1,232 1,114 11
------- -------
Expenses
Marketing, promotion, rewards and cardmember services 388 354 10
Human resources and other operating expenses 527 453 16
------- -------
Total 915 807 13
------- -------
Provisions for losses 316 197 60
------- -------
Pretax segment income 1 110 (99)
Income tax benefit (66) (30) #
------- -------
Segment income $ 67 $ 140 (52)
======= =======
# Denotes a variance of more than 100%.
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
2008 2007
---- ----
Card billed business (billions) $ 27.5 $ 24.7 11%
Total cards-in-force (millions) 16.4 15.8 4
Basic cards-in-force (millions) 11.5 11.2 3
Average basic cardmember spending* (dollars) $ 2,393 $ 2,209 8
Segment capital (millions)** $ 2,257 $ 1,983 14
Return on average segment capital** 11.8% 24.4%
Return on average tangible segment capital** 15.9% 34.3%
* Proprietary cards only.
** Segment capital includes an allocation attributable to goodwill of $517MM
and $520MM and other intangibles of $41MM and $19MM in 3Q '08 and 3Q '07,
respectively. Please refer to Appendix I of the Third Quarter 2008 Earnings
Release, for the components of ROE and ROTE.
- BILLED BUSINESS: The 11% increase in billed business reflects an 8%
increase in average spending per proprietary basic card and a 3%
increase in basic cards-in-force.
-- Adjusting for the impacts of foreign exchange translation,
billed business and average spending per proprietary basic
card-in-force increased 8% and 5%, respectively. Volume growth
within the major geographic regions ranged from growth in the
mid single-digits to the low double-digits.
- TOTAL CARDS-IN-FORCE: Increased by 600K, or 4%, versus last year.
P&L DISCUSSION
o SEGMENT INCOME: Decreased 52% versus last year as revenues net of
interest expense increased 11% due to spending and loan growth, expenses
rose by 13% reflecting higher volumes and business-building investments
and provisions for losses increased 60%, primarily driven by higher
lending reserve levels in Mexico. Both revenue and expense growth rates
were inflated by the translation of foreign currency.
- 3Q '08 included a $1MM ($0MM after-tax) reengineering credit.
- PRE-TAX MARGIN: Was 0.1% in 3Q '08 versus 5.8% in 2Q '08 and 9.9% in
3Q '07.
- EFFECTIVE TAX RATE: Was not meaningful in 3Q '08 versus
(58%) in 2Q '08 and (27%) in 3Q '07. As indicated in previous
quarters, this segment reflects an overall tax benefit which will
likely continue going forward since our internal tax allocation
process provides ICS with the consolidated benefit related to its
ongoing funding activities outside the U.S. Additionally, the tax
rate in 3Q '08 reflects a low level of pre-tax income. The tax
rates in both 2Q '08 and 3Q '07 reflect tax benefits primarily
related to the resolution of certain prior years' tax items.
-16-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
INTERNATIONAL CARD SERVICES
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Increased 7% driven primarily
by the higher level of card spending and increased net card fees.
o CARDMEMBER LENDING FINANCE REVENUE: Increased 22% on 13% growth in average
lending balances and a higher portfolio yield.
o CARDMEMBER LENDING INTEREST EXPENSE: Increased 25% on higher average loan
balances and an increased cost of funds.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Was unchanged versus last year.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
10% on higher marketing and promotion expenses and higher volume-related
rewards costs.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 16% primarily due
to higher human resources expense, which reflected a higher level of
employees, greater professional services expense and increased other
operating expenses.
o PROVISIONS FOR LOSSES: Increased 60% due to higher lending reserve levels
in Mexico, increased delinquency and write-off rates and loan and
business volume growth.
- - CHARGE CARD: *
-- The loss ratio decreased versus last year but increased versus
last quarter. The past due rate increased versus last year and
last quarter.
9/08 6/08 9/07
---- ---- ----
Total Receivables (billions) $ 6.1 $ 6.6 $ 6.1
Net loss ratio as a % of charge volume 0.25% 0.22% 0.26%
90 days past due as a % of total 2.7% 2.4% 1.8%
- - CARDMEMBER LENDING: *
-- The write-off and past due rates increased versus last year and last
quarter.
9/08 6/08 9/07
---- ---- ----
Cardmember Loans (billions) $ 11.1 $ 11.8 $ 10.5
Net write-off rate 5.0% 4.5% 4.8%
30 days past due as a % of loans 3.3% 3.1% 2.7%
* There are no off-balance sheet charge card and currently no
off-balance sheet international lending securitizations.
Therefore, all credit quality statistics for the charge card
and lending portfolio are on an "Owned Basis."
-17-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
(millions) 2008 2007
---- ----
Revenues
Discount revenue, net card fees and other $1,309 $1,180 11%
------ ------
Charge card and other interest expense 109 116 (6)
------ ------
Revenues net of interest expense 1,200 1,064 13
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 113 86 31
Human resources and other operating expenses 836 749 12
------ ------
Total 949 835 14
------ ------
Provisions for losses 60 42 43
------ ------
Pretax segment income 191 187 2
Income tax provision 57 52 10
------ ------
Segment income $ 134 $ 135 (1)
====== ======
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
2008 2007
---- ----
Card billed business (billions) $ 32.3 $ 29.9 8%
Total cards-in-force (millions) 7.0 6.8 3
Basic cards-in-force (millions) 7.0 6.8 3
Average basic cardmember spending* (dollars) $ 4,611 $ 4,389 5
Segment capital (millions)** $ 3,564 $ 2,230 60
Return on average segment capital** 21.2% 26.2%
Return on average tangible segment capital** 43.9% 44.3%
* Proprietary cards only.
** Segment capital includes an allocation attributable to goodwill of $1.6B
and $767MM and other intangibles of $362MM and $129MM in 3Q '08 and 3Q '07,
respectively. Please refer to Appendix I of the Third Quarter 2008 Earnings
Release, for the components of ROE and ROTE.
- BILLED BUSINESS: The 8% increase in billed business reflects a 5%
increase in average spending per proprietary basic card and a 3%
increase in basic cards-in-force.
-- Adjusting for the impacts of foreign exchange translation,
billed business and average spending per proprietary basic
card-in-force increased 7% and 4%, respectively. Volume growth
of 5% within the U.S. compared to growth within the Company's
other major geographic regions ranging from the high
single-digits to 20%.
- TOTAL CARDS-IN-FORCE: Increased by 200K, or 3%, versus last year.
P&L DISCUSSION
o SEGMENT INCOME: Decreased 1% versus last year as revenues net of interest
expense increased 13%, expenses rose by 14% and provisions for losses
increased 43%. Both revenue and expense growth rates were inflated by the
translation of foreign currency, as well as the impact of the CPS
acquisition.
- 3Q '08 included $1MM ($0MM after-tax) of reengineering expense
versus $9MM ($6MM after-tax) in 3Q '07.
- PRE-TAX MARGIN: Was 15.9% in 3Q '08 versus 24.9% in 2Q '08 and 17.6%
in 3Q '07.
- EFFECTIVE TAX RATE: Was 30% in 3Q '08 and in 2Q '08, versus 28% in
3Q '07.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Increased 11% driven primarily
by higher card spending, increased other revenues and greater travel
revenues.
o CHARGE CARD AND OTHER INTEREST EXPENSE: Decreased 6% due to a lower cost
of funds, primarily within the U.S., partially offset by the cost of
funding the CPS acquisition.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
31%, primarily reflecting a reallocation of rewards reserve costs for
linked corporate and consumer accounts from the USCS segment, as well as
higher volume-related rewards costs.
-18-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
GLOBAL COMMERCIAL SERVICES
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 12% primarily due
to higher other operating expense and greater human resources expense.
o PROVISIONS FOR LOSSES: Increased 43%, primarily reflecting higher loss and
past due rates.
o CHARGE CARD: *
- -- The loss ratio and past due rates increased versus last year and last
quarter.
9/08 6/08 9/07
------ ------ ------
Total Receivables (billions) $ 12.5 $ 13.4 $ 12.5
Net loss ratio as a % of charge volume 0.15% 0.10% 0.11%
90 days past due as a % of total 1.8% 1.6% 1.6%
* There are no off-balance sheet charge card securitizations. Therefore,
all credit quality statistics for the charge card portfolio are on an
"Owned Basis."
-19-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
(millions) 2008 2007
---- ----
Revenues
Discount revenue, fees and other $ 1,016 $ 902 13%
------- -------
Interest expense
Cardmember lending (24) (33) (27)
Other (31) (45) (31)
------- -------
Revenues net of interest expense 1,071 980 9
------- -------
Expenses
Marketing and promotion 150 151 (1)
Human resources and other operating expenses 481 417 15
------- -------
Total 631 568 11
------- -------
Provisions for losses 43 23 87
------- -------
Pretax segment income 397 389 2
Income tax provision 139 123 13
------- -------
Segment income $ 258 $ 266 (3)
======= =======
STATISTICAL INFORMATION
Quarters Ended Percentage
September 30, Inc/(Dec)
----------------------- ---------
2008 2007
---- ----
Global card billed business* (billions) $ 175.5 $ 162.5 8%
Segment capital (millions)** $ 1,437 $ 1,125 28
Return on average segment capital** 82.4% 84.7%
Return on average tangible segment capital** 84.7% 87.5%
Global Network Services:
Card billed business (billions) $ 18.2 $ 14.1 29%
Total cards-in-force (millions) 24.0 19.2 25
* Includes activities related to proprietary cards (including cash advances),
cards issued under network partnership agreements, and certain insurance
fees charged on proprietary cards.
** Segment capital includes an allocation attributable to goodwill of $28MM
in 3Q '08 and $27MM in 3Q '07 and other intangibles of $7MM and $5MM,
respectively. Please refer to Appendix I of the Third Quarter 2008 Earnings
Release, for the components of ROE and ROTE.
P&L DISCUSSION
o SEGMENT INCOME: Decreased 3% as revenues net of interest expense grew 9%,
expenses rose 11% and provisions for losses increased $20MM versus 3Q '07.
Both revenue and expense growth rates were inflated by the translation of
foreign currency.
- 3Q '08 included $4MM ($3MM after-tax) of reengineering expense.
- PRE-TAX MARGIN: Was 37.1% in 3Q '08 versus 42.0% in 2Q '08 and 39.7%
in 3Q '07.
- EFFECTIVE TAX RATE: Was 35% in 3Q '08 versus 34% in 2Q '08 and 32%
in 3Q '07.
o DISCOUNT REVENUE, FEES AND OTHER REVENUE: Increased 13%, reflecting
growth in merchant-related revenues, primarily from the 8% increase in
global card billed business and higher GNS-related revenues.
o CARDMEMBER LENDING INTEREST EXPENSE: The expense credit decreased 27% due
to a lower rate-driven interest credit primarily in the U.S. related to
internal transfer pricing which recognizes the merchant services'
accounts payable-related funding benefit.
o OTHER INTEREST EXPENSE: The expense credit decreased 31% reflecting the
impact of a lower effective cost of funds on charge card-related transfer
pricing, which recognizes the merchant services' accounts payable-related
funding benefit.
o MARKETING AND PROMOTION EXPENSES: Decreased 1%.
-20-
AMERICAN EXPRESS COMPANY
THIRD QUARTER 2008 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 15% primarily due
to greater human resources expense, which reflected an expansion of the
merchant sales force, as well as higher volume-related and professional
services expenses.
o PROVISIONS FOR LOSSES: Increased $20MM reflecting an increase in
merchant-related reserves primarily due to the generally weaker U.S.
economic conditions.
-21-
INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This release includes forward-looking statements, which are subject to risks
and uncertainties. The forward-looking statements, which address the Company's
expected business and financial performance, among other matters, contain
words such as "believe," "expect," "anticipate," "optimistic," "intend,"
"plan," "aim," "will," "may," "should," "could," "would," "likely," and
similar expressions. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which
they are made. The Company undertakes no obligation to update or revise any
forward-looking statements. Factors that could cause actual results to differ
materially from these forward-looking statements include, but are not limited
to, the following: consumer and business spending on the Company's credit and
charge card products and Travelers Cheques and other prepaid products and
growth in card lending balances, which depend in part on the economic
environment, and the ability to issue new and enhanced card and prepaid
products, services and rewards programs, and increase revenues from such
products, attract new Cardmembers, reduce Cardmember attrition, capture a
greater share of existing Cardmembers' spending, and sustain premium discount
rates on its card products in light of regulatory and market pressures,
increase merchant coverage, retain Cardmembers after low introductory lending
rates have expired, and expand the Global Network Services business; the
Company's ability to manage credit risk related to consumer debt, business
loans, merchants and other credit trends, which will depend in part on the
economic environment, including, among things, the housing market, the rates
of bankruptcies and unemployment, which can affect spending on card products,
debt payments by individual and corporate customers and businesses that accept
the Company's card products, and on the effectiveness of the Company's credit
models; the impact of the Company's efforts to deal with delinquent
Cardmembers in the current challenging economic environment, which may affect
payment patterns of Cardmembers, the Company's near-term write-off rates,
including during the remainder of 2008 and in 2009, and the volumes of the
Company's loan balances in 2008 and 2009; the write-off and delinquency rates
in the medium- to long-term of Cardmembers added by the Company during the
past few years, which could impact their profitability to the Company; the
Company's ability to effectively implement changes in the pricing of certain
of its products and services; fluctuations in interest rates (including
fluctuations in benchmarks, such as LIBOR and other benchmark rates, and
credit spreads), which impact the Company's borrowing costs, return on lending
products and the value of the Company's investments; the 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 actual
amount to be spent by the Company on marketing, promotion, rewards and
Cardmember services based on management's assessment of competitive
opportunities and other factors affecting its judgment; the ability to control
and manage operating, infrastructure, advertising and promotion expenses as
business expands or changes, including the ability to accurately estimate the
provision for the cost of the Membership Rewards program; fluctuations in
foreign currency exchange rates; the Company's ability to grow its business,
generate excess capital and, over time, 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 which will depend on the Company's ability to manage
its capital needs and the effect of business mix, acquisitions and rating
agency requirements; the success of the Global Network Services business in
partnering with banks in the United States, which will depend in part on the
extent to which such business further enhances the Company's brand, allows the
Company to leverage its significant processing scale, expands merchant
coverage of the network, provides Global Network Services' bank partners in
the United States the benefits of greater Cardmember loyalty and higher spend
per customer, and merchant benefits such as greater transaction volume and
additional higher spending customers; the ability of the Global Network
Services business to meet the performance requirements called for by the
Company's recent settlements with MasterCard and VISA; trends in travel and
entertainment spending and the overall level of consumer confidence; the
uncertainties associated with business acquisitions, including, among others,
the failure to realize anticipated business retention, growth and cost
savings, as well as the ability to effectively integrate the acquired business
into the Company's existing operations; the underlying assumptions and
expectations related to the February 2008 sale of the American Express Bank
Ltd. businesses and the transaction's impact on the Company's earnings proving
to be inaccurate or unrealized; the success, timeliness and financial impact
(including costs, cost savings and other benefits including increased
revenues), and beneficial effect on the Company's operating expense to revenue
ratio, both in the short-term (including during 2009) and over time, of
reengineering initiatives being implemented or considered by the Company,
including cost management, structural and strategic measures such as vendor,
process, facilities and operations consolidation, outsourcing (including,
among others, technologies operations), relocating certain functions to
lower-cost overseas locations, moving internal and external functions to the
internet to save costs, and planned staff reductions relating to certain of
such reengineering actions; the Company's ability to reinvest the benefits
arising from such reengineering actions in its businesses; bankruptcies,
restructurings, consolidations or similar events (including, among others, the
proposed Delta Airlines/Northwest Airlines merger) affecting the airline or
any other industry representing a significant portion of the Company's billed
business, including any potential negative effect on particular card products
and services and billed business generally that could result from the actual
or perceived weakness of key business partners in such industries; the
triggering of obligations to make payments to certain co-brand partners,
merchants, vendors and customers under contractual arrangements with such
parties under certain circumstances; a downturn in the Company's businesses
and/or negative changes in the Company's and its subsidiaries' credit ratings,
which could result in contingent payments under contracts, decreased liquidity
and higher borrowing costs; the ability of the Company to satisfy its
liquidity needs and execute on its funding plans, which will depend on, among
other things, the Company's future business growth, its credit ratings, market
capacity and demand for securities offered by the Company, performance by the
Company's counterparties under its bank credit facilities and other lending
facilities, regulatory changes, including changes to the policies, rules and
regulations of the Board of Governors of the Federal Reserve System and the
Federal Reserve Bank of San Francisco, the Company's ability to securitize and
sell receivables and the performance of receivables previously sold in
securitization transactions and the Company's ability to meet the criteria for
participation in certain liquidity facilities and other funding programs,
including the Commercial Paper Funding Facility and the Temporary Liquidity
Guarantee Program, being made available through the Federal Reserve Bank of
New York, the Federal Deposit Insurance Corporation and other federal
departments and agencies; accuracy of estimates for the fair value of the
assets in the Company's investment portfolio and, in particular, those
investments that are not readily marketable, including the valuation of the
interest-only strip relating to the Company's lending securitizations; 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; the potential
impact of regulations proposed by federal bank regulators relating to certain
credit and charge card practices, including, among others, the imposition by
card issuers of interest rate increases on outstanding balances and the
allocation of payments in respect of outstanding balances with different
interest rates, which could have an adverse impact on the Company's net
income; accounting changes; 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, 2007, and its other reports filed with the SEC.
-22-