EXHIBIT 99.3
[LOGO OF AMERICAN EXPRESS COMPANY]
2009
FIRST QUARTER
EARNINGS SUPPLEMENT
THE ENCLOSED SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE TEXT AND
STATISTICAL TABLES INCLUDED IN AMERICAN EXPRESS COMPANY'S (THE
"COMPANY" OR "AXP") FIRST QUARTER 2009 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 59-61 IN THE COMPANY'S 2008 ANNUAL REPORT TO
SHAREHOLDERS AND IN ITS 2008 ANNUAL REPORT ON FORM 10-K, AND OTHER
REPORTS, ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION.
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AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
FINANCIAL RESULTS
o First quarter diluted EPS from continuing operations attributable to
common shareholders of $0.32 decreased 64% versus $0.89 last year. Total
revenues net of interest expense decreased 18%. Return on average common
equity (ROCE) was 16.7% and return on average tangible common equity
(ROTCE), which excludes goodwill and intangibles, was 21.6%.*
- - 1Q '09 and 1Q '08 income from continuing operations included $5MM
($3MM after-tax) of reengineering-related reversals and $10MM ($7MM
after-tax) of reengineering costs, respectively, across the Company's
reportable operating segments.
- - The discontinued operations line in the Consolidated Financial
Statements contains the results of operations, assets and liabilities
related to various business sales. This primarily includes the
results from American Express International Deposit Company
("AEIDC"), which is expected to be transferred to Standard Chartered
PLC ("Standard Chartered") through a put/call agreement in 3Q '09, as
well as American Express Bank, Ltd. ("AEB"), which was sold to
Standard Chartered in 1Q '08, as discussed further on page 5.
-- 1Q '09 results included $6MM of losses from discontinued
operations versus $53MM of losses last year. This primarily
reflected losses of $7MM ($5MM after-tax) and $104MM ($68MM
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
attributable to common shareholders of $0.31 decreased 64% versus
$0.85 last year.
BUSINESS METRICS
o Compared with the first quarter of 2008:
- - Worldwide billed business of $139.2B decreased 16% as the negative
impact of the global economic slowdown was evident within a lower
level of card spending. A comparatively stronger U.S. dollar resulted
in a 4% greater decline versus last year within the reported
worldwide growth rate.
- - Worldwide total cards-in-force of 91.6MM increased 4%, or 3.6MM, from
last year and decreased 1%, or 800K, from 4Q '08. Approximately 500K
inactive cards were cancelled by the Company during the quarter,
partially offset by the migration of CPS cards to the American
Express network.
- - Worldwide average spending per proprietary basic cards-in-force
decreased 18% versus last year reflecting the impact of the weaker
economic environment in both the U.S. and international markets. A
comparatively stronger U.S. dollar resulted in a 4% greater decline
versus last year within the reported average spending growth rate.
- - Worldwide owned cardmember lending balances of $36.7B decreased 26%
from last year. On a managed basis, including securitized loans,
cardmember lending balances of $65.0B declined 13%. These decreases
reflected the lower cardmember spending levels and the Company's
credit-related actions in the U.S. and certain international markets.
FINANCIAL HIGHLIGHTS
o In conjunction with the Company becoming a bank holding company ("BHC")
on November 14, 2008, the Company made various changes to its financial
reporting in 4Q '08.**
- - P&L REVISIONS: The former P&L lines of "cardmember lending finance
revenue," "other interest income," "cardmember lending interest
expense" and "charge card and other interest expense" are now
reflected within new categories in the "total interest income" and
"total interest expense" lines, respectively. Additionally,
provisions for losses are now reflected as a component of "total
revenues net of interest expense after provisions for losses," where
previously it was shown below expenses. Lastly, certain fees
associated with the Company's lending products have been reclassified
from "net card fees" to "interest and fees on loans" and certain
other provisions related to Global Network & Merchant Services
("GNMS") were reclassified to "other, net expense." The Company has
also made several changes to its presentation of expenses.
Specifically, "marketing, promotion, rewards & cardmember services
expense" are now shown on three separate lines, "marketing and
promotion", "cardmember rewards" and "cardmember services,"
respectively. Additionally, "human resources" has been renamed
"salaries and employee benefits."
- - CREDIT METRICS: In 4Q '08, consistent with applicable regulatory
guidance, the Company modified its reporting of the U.S. consumer and
small business charge card receivables portfolio within U.S. Card
Services ("USCS") to write-off cardmember receivables within a 180
days past due period. Previously, the Company's write-off methodology
for the charge card portfolio was 360 days past due. The Company
plans to conform to this methodology within the corporate card
receivables portfolio in Global Commercial Services ("GCS"), as well
as the international consumer and small business charge card
receivables portfolio in International Card Services ("ICS") in a
future period.
In addition, certain non-credit-related reserves were reclassified
from cardmember receivable and lending loss reserves to a
contra-asset within "cardmember receivables" and "cardmember loans"
prospectively beginning 4Q '08. Commencing 1Q '09, certain non-credit
provisions were reclassified from "other provisions" to "other, net
expense."
*Please refer to Appendix I of the First Quarter 2009 Earnings Release for
the components of return on average equity ("ROE"), ROCE and ROTCE on a
consolidated basis and Appendix II for return on average segment capital
("ROSC") and return on average tangible segment capital ("ROTSC") on a
segment basis.
** Revised P&Ls for the respective quarters ended March 31, 2008 through
December 31, 2008 are included within the First Quarter 2009 Earnings
Release, American Express Company Selected Statistical Information pages.
-1-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
These modifications do not result in a change in management's view of
the Company's underlying credit quality or risk profile for its
charge card portfolio, and do not impact the method in which the
Company assesses the adequacy of its reserves.
o PREFERRED SHARES DIVIDENDS AND RELATED ACCRETION: In 1Q '09, the Company
recorded $72MM of dividends and related accretion on the preferred shares
issued to the United States Department of the Treasury (the "Treasury")
on January 9, 2009 as part of its participation in the Capital Purchase
Program ("CPP"), as discussed further below.
o EARNINGS ALLOCATED TO PARTICIPATING SHARE AWARDS: In accordance with FSP
EITF 03-6-1 effective January 1, 2009, income attributable to unvested
share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents (e.g. Restricted Stock Awards) is
included in the computation of basic and diluted EPS pursuant to the two
class method. This new accounting standard is applied retroactively to
all prior periods. Under this method earnings allocated to participating
shares awards were $4MM in 1Q '09 versus $6MM in 1Q '08, thereby reducing
EPS by approximately $0.01 in each period.
Net income from continuing operations attributable to common shareholders
and net income attributable to common shareholders, both of which exclude
the impacts of the preferred shares dividends and related accretion and
earnings allocated to participating share awards referred to above were
$367MM and $361MM, respectively.
o SEGMENT INTEREST EXPENSE ALLOCATIONS: The Company has changed the manner
in which it assesses the performance of its reportable operating segments
to exclude the impact of its excess liquidity funding levels.
Accordingly, beginning 1Q '09 the debt and related cash/investment
balances associated with the Company's excess liquidity funding and the
related net negative interest spread are no longer included within the
reportable operating segment results (primarily USCS and GCS) and are
reported in the Corporate & Other segment. The segment results for prior
quarters have not been revised for this change.
o SECURITIZATION INCOME, NET: Decreased 68%, primarily due to lower excess
spread, net, driven by increased write-offs and a $32MM decrease in the
fair market value of the I/O Strip, which was partially offset by lower
interest expense due to lower rates paid on variable-rate investor
certificates. Securitization income, net represents the non-credit
provision components of the gains 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. As of March 31, 2009, the fair market value of the I/O
Strip was $0 versus $257MM as of March 31, 2008.
o TOTAL INTEREST INCOME: Decreased 24%, primarily due to lower interest and
fees on loans, reflecting a lower average owned loan balance, as well as
lower yields on investment securities and deposits, partially offset by a
higher average balance of liquidity-related investments.
o TOTAL INTEREST EXPENSE: Decreased 43%, primarily reflecting a lower cost
of funds due to the benefit of lower market interest rates on
variable-rate long-term and short-term debt.
o TOTAL PROVISIONS FOR LOSSES: Increased 49%, primarily reflecting higher
cardmember lending reserve levels due to increased net write-off and past
due loan levels, which more than offset the benefits of reduced average
owned loan balances. Owned cardmember lending loss reserves of $3.0B
increased $443MM in the quarter, including $93MM of reserves associated
with a $1.5B increase in cardmember loans as a result of $1.5B of
securitized debt maturities.
o MARKETING AND PROMOTION EXPENSES: Decreased 42%, reflecting lower
discretionary investment spending due to the Company's ongoing
reengineering initiatives.
o CARDMEMBER REWARDS EXPENSE: Decreased 19%, reflecting lower volume-driven
rewards costs.
o SALARIES AND EMPLOYEE BENEFITS EXPENSE: Decreased 15%, reflecting lower
employee levels due to the Company's reengineering initiatives announced
in 4Q '08 and reduced incentive-related costs.
- Compared with last year, the total employee count from continuing
operations of 63,600 decreased by 2,100 employees, or 3%. Compared
with last quarter, the employee count declined by 2,400 employees.
CAPITAL
o CAPITAL PURCHASE PROGRAM: On January 9, 2009, the Company issued to the
Treasury $3.39B of preferred shares, as well as warrants to purchase
common shares for up to 15% of that amount, or 24.3MM shares, at a per
share exercise price of $20.95. The preferred shares pay dividends at a
rate of 5% annually for five years, and 9% thereafter. Pursuant to the
terms of the American Recovery and Reinvestment Act, the Company may
repurchase the preferred shares in whole or in part with the consent of
the Treasury and the Federal Reserve. Additionally, so long as the
preferred shares are outstanding, dividends on the Company's common
shares may not exceed $0.18 per share in any quarter, and share
repurchases, except those related to employee compensation programs and
other limited circumstances, are not permitted, unless approved by the
Treasury. The warrants have a ten-year term. The Treasury may not
exercise more than one-half of the warrants prior to the earlier of
December 31, 2009 and the date the Company receives proceeds of at least
$3.39B from one or more equity offerings. These preferred shares and
warrants were recorded in the equity section in the Company's balance
sheet at $3.16B and $232MM, respectively, based on the relative fair
value of each component when issued. The value of the preferred shares
will accrete to the face value of $3.39B over five years. The Company
recorded $72MM in preferred shares dividends in 1Q '09, $61MM of which
was a cash dividend declared through May 15, 2009, and $11MM of which
amounted to the accretion of preferred shares.
-2-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
o CAPITAL ASSISTANCE PROGRAM: On February 25, 2009, the Treasury released
the terms of the supervisory Capital Assistance Program, ("CAP"). Under
CAP, federal banking supervisors are conducting assessments to evaluate
the capital needs of the major U.S. banking institutions under a base
case and more adverse economic scenario. The Company and all other
eligible banking institutions with assets in excess of $100B as of
December 31, 2008 are participating in this assessment, which is expected
to conclude at the end of April, 2009.
o CAPITAL DISTRIBUTION TO SHAREHOLDERS: During 1Q '09, approximately 54% of
capital generated was distributed to shareholders through our quarterly
dividend, as earnings were suppressed by the challenging economic
environment. On a cumulative basis, since 1994 the Company has
distributed 68% of capital generated through share repurchases and
dividends.
- - SHARE REPURCHASES: During 1Q '09 and 4Q '08 no shares were
repurchased, versus 5MM shares in 1Q '08. Share repurchases were
suspended during 1Q '08 in light of the uncertain U.S. economic
environment and as discussed above are subject to limitations under
the CPP. Since the inception of repurchase programs in December 1994,
670MM shares have been acquired under cumulative Board authorizations
to repurchase up to 770MM shares.
<Table>
<Caption>
Millions of Shares
----------------------
1Q '09 4Q '08 1Q '08
------ ------ ------
Shares outstanding - beginning of period 1,160 1,160 1,158
Repurchase of common shares - - (5)
Employee benefit plans, compensation and other 8 - 5
----- ----- -----
Shares outstanding - end of period 1,168 1,160 1,158
===== ===== =====
</Table>
o CAPITAL RATIOS:* As of March 31, 2009, the Company's key consolidated
capital ratios, including the $3.39B of CPP proceeds, were as follows:
<Table>
<Caption>
Tier 1 Risk- Total Risk-
($ in B) Total Average Tier 1 Leverage Risk Weighted Based Capital Tier 2 Based Capital
Tier 1 Capital Assets** Ratio Assets Ratio Capital Ratio
----------------------------------------------------------------------------------------------------
Reported $13.8 $120.5 11.4% $92.7 14.8% $2.2 17.2%
</Table>
Additionally, the Company also believes its ratio of Tangible Common
Equity to Risk Weighted Assets ("TCE/RWA") provides further insight into
the strength of its capital position. As of March 31, 2009, this ratio
was 10.1%. [On a proforma basis, assuming consolidation of off-balance
sheet loans and recognition of corresponding reserves per SFAS 140, this
ratio would be 7.3%.***]
* These ratios represent a preliminary estimate as of the date of this
Earnings Supplement and may be revised in the Company's First Quarter
2009 Form 10-Q. During the first quarter, the Company determined that its
outstanding subordinated debentures due in 2036 qualifies as Tier 2
capital.
** For the purpose of calculating the Tier 1 Leverage Ratio.
*** Based upon common shareholders' equity of $12.4B, goodwill and intangibles
of $3.0B and risk weighted assets of $92.7. Proforma for SFAS 140 assumes
consolidation of off-balance sheet loans and the recognition of
corresponding reserves. TCE decreases by $1.1B for the incremental
reserves and other adjustments and RWA increases by $20.5B to reflect the
consolidation of loans.
FUNDING AND LIQUIDITY
o FUNDING ACTIVITIES: During 1Q '09, the Company funded its business
primarily through payments received from customers on contracting loan
and receivable balances and its Federal Deposit Insurance Corporation
("FDIC") insured deposit-taking activities within its American Express
Centurion Bank and American Express Bank, FSB subsidiaries (together, the
"Banks"):
- - DEPOSITS. As of March 31, 2009, the Company has accumulated $18.1B of
funding through customer retail and institutional deposits, an
increase of $2.6B from 4Q '08. The Company has accumulated $9.3B
through the brokered retail certificate of deposit ("CD") program
launched in October 2008, an increase of $3.1B from 4Q '08. Through
offering deposits to sweep account holders at selected broker-dealer
networks, the Company has raised $7.5B, an increase of $0.4B from 4Q
'08. Institutional and other deposits declined $0.9B in the period.
- - FUNDING REQUIREMENTS: The maturities of the Company's long-term debt,
debt issued in connection with off-balance sheet securitizations and
long-term CDs for the following four quarters are as follows:
<Table>
<Caption>
Funding Maturities, in billions
----------------------------------------------------
Certificates of
Quarter Ending: Long-Term Off-Balance Sheet Deposit Total
--------------- --------- ----------------- --------------- -----
June 30, 2009 $ 7.2 $0.6 $ - $ 7.8
September 30, 2009 2.6 2.7 - 5.3
December 31, 2009 2.8 - 1.7 4.5
March 31, 2010 2.4 2.7 0.8 5.9
----- ---- ---- -----
$15.0 $6.0 $2.5 $23.5
===== ==== ==== =====
</Table>
The Company's current funding plan is lower than these debt maturities,
primarily reflecting the anticipated continuation of spending-related and
credit-related actions on the amount of the Company's cardmember
receivables and loan balances.
-3-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
o FUNDING SOURCES: The Company currently has an objective to hold excess
cash and readily marketable securities to satisfy all maturing
obligations and fund normal business operations for in excess of a
12-month period, with access to significant additional contingency
liquidity sources, in the event that access to the traditional secured
and unsecured fixed income capital markets remains unavailable. As of
March 31, 2009 the Company held $25B of excess cash and readily
marketable securities on its balance sheet.
If conditions in the capital markets remain challenged, the Company
expects that deposit-taking will continue to be its primary funding
source. The Company plans to launch a direct deposit-taking program in 2Q
'09, which will further extend its funding capabilities beyond the
brokered retail CD and sweep account programs utilized to date. This
program will make FDIC-insured CD and high-yield savings account products
available directly from its banks to consumers.
On March 3, 2009, the Department of the Treasury and the Federal Reserve
Board announced the launch of the Term Asset-Backed Securities Loan
Facility, ("TALF"). Securitized credit card receivables are eligible
collateral under the TALF, provided the securities qualify for AAA
ratings from two or more nationally recognized statistical rating
organizations, ("NRSROs"). The Company is evaluating the marketplace
acceptance of the TALF programs, and may supplement its deposit-taking
activities by issuing TALF-eligible securities to meet its funding
objectives during 2009. The Company believes that it can issue up to
$9.8B of securities backed by its cardmember loans or receivables that
would be eligible under this program.
In addition to deposit and TALF funding, the Company can draw upon
various other funding resources:
- - TLGP: Under the FDIC's Temporary Liquidity Guarantee Program
("TLGP"), the Banks, as FDIC depository institutions, can issue up to
$13.3B of senior unsecured guaranteed debt. In the fourth quarter of
2008, the Banks issued $5.9B of securities under this facility, and
did not issue any securities in the first quarter of 2009. Therefore,
capacity of $7.4B remains as of March 31, 2009. Issuance under the
TLGP is currently scheduled to expire October 31, 2009.
- - COMMERCIAL PAPER: The Company had continuous access to the commercial
paper market throughout the quarter. In addition, the Commercial
Paper Financial Facility ("CPFF") became operational on October 27,
2008, and is currently set to expire on October 30, 2009. Through its
subsidiary, American Express Credit Corporation ("Credco"), the
Company is eligible to have up to $14.7B of commercial paper
outstanding through the CPFF. The commercial paper must be rated at
least A1/P1/F1 by two or more major NRSROs to qualify for
participation in the CPFF. At March 31, 2009, the Company had $1.8B
of commercial paper outstanding, none of which was placed with the
CPFF.
- - DISCOUNT WINDOW. The Banks are insured depository institutions that
have the capability of borrowing from the Federal Reserve Bank of San
Francisco (i.e., access to the Federal Reserve Bank discount window),
subject to the amount of qualifying collateral that they pledge. The
Federal Reserve has indicated that both credit and charge card
receivables are a form of qualifying collateral for secured
borrowings made through the discount window or its Term Auction
Facility (TAF) program.
- - BANK LINES. At March 31, 2009, the Company maintained committed bank
lines of credit totaling $11.2B, of which $2.5B was drawn as part of
the Company's normal non-U.S. funding activities. The committed
facilities have $2.0B of expirations in 2010 and $3.2B in 2011, with
the remainder expiring in 2012.
- - CONDUIT. The Company maintains an undrawn committed facility to
purchase certificates backed by securitized credit card receivables
up to $5B. The conduit expires on June 30, 2009.
OTHER ITEMS OF NOTE
o REENGINEERING INITIATIVES: On October 30, 2008, the Company announced
various reengineering initiatives which are expected to produce cost
benefits of approximately $1.8B in 2009 from previously anticipated
spending levels. These initiatives include: reducing staffing levels and
compensation expenses (expected benefit of $700MM in 2009), reducing
certain operating costs (expected benefit of $125MM in 2009) and scaling
back investment spending (expected benefit of $1B in 2009). The Company
began the execution and implementation of these initiatives in 4Q '08,
and as such, recorded a restructuring charge of $404MM ($262MM after-tax)
in continuing operations, primarily associated with severance and other
costs related to the elimination of approximately 7,000 jobs or about 10
percent of the Company's worldwide workforce. The Company believes it is
on track to realize the $1.8B of projected benefits over the course of
2009.
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 up to $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
-4-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
recognized $70MM from Visa for each of the past five quarters and $150MM
from MasterCard for each of the past three quarters pursuant to these
agreements.
The installment payments from both parties are subject to the Company
achieving certain quarterly performance criteria in the Global Network
Services ("GNS") business within the U.S., which the Company believes it
is positioned to meet. Payments earned through March 2009 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 believes 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. Goodwill and intangible assets of $1.0B are recorded in the other
assets line on the Consolidated Balance Sheet reflecting this
transaction, primarily in the GCS segment.
As of March 31, 2009, the GE commercial card relationships that have
agreed to become GCS clients have migrated to the AXP network as the
Company issues commercial cards to their employees. The classification
will therefore be consistent with existing AXP relationships as cards
issued and spending related to these relationships will be recorded as
"cards-in-force" and "billed business" and the associated receivables
will be reflected in the "cardmember receivables" line.
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 that issues investment certificates
to AEB's customers, to Standard Chartered. On February 29, 2008, Standard
Chartered completed its purchase of the AEB portion of this transaction.
In 2Q '08, the Company and Standard Chartered agreed on the final
purchase price of $796MM, equaling the final net asset value of the
businesses that were sold plus $300MM. The AEIDC portion of the
transaction is expected to be transferred to Standard Chartered through a
put/call agreement in 3Q '09.
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 are also 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 Hilton HHonors, launched a new premium co-branded credit card for
U.S.-based consumers and announced several enhancements to the existing
Hilton HHonors Card from American Express.
- Introduced new options within the Membership Rewards program that allow
Cardmembers to redeem points for gas cards, household appliances and
gift cards at an expanded list of casual dining restaurants and a
broader range of retailers.
- Announced the expansion of the OPEN Savings program with the launch of
partners Carey International and Epson America.
In the GNS business we:
- Appointed First Data as our exclusive merchant acquirer and merchant
processor for American Express Card transactions in Poland.
- Supported GNS partners in launching a wide range of new products:
Swisscard Coop Verde American Express Card (Switzerland); United Mileage
Plus American Express Credit Card from MBNA (United Kingdom); Cathay
Pacific American Express Elite Credit Card (Philippines); Blue from
American Express by Samsung Card (Korea); Singapore Airlines KrisFlyer
American Express Gold Credit Card (Malaysia); and Sri Lankan Airlines
Platinum American Express Card (Sri Lanka).
- In China, our GNS partner, China CITIC Bank, announced the launch of
the China CITIC Bank American Express Business Travel Account, a
customizable, expense management solution that will help corporations
in China manage their business travel expenses and savings.
-5-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP basis)
<Table>
<Caption>
(Millions, except per share amounts) Quarters Ended Percentage
March 31, Inc/(Dec)
----------------- ----------
2009 2008
---- ----
Revenues
Non-interest revenues
Discount revenue $3,066 $3,718 (18)%
Net card fees 532 531 -
Travel commissions and fees 365 494 (26)
Other commissions and fees 453 622 (27)
Securitization income, net 141 444 (68)
Other 450 460 (2)
------ ------
Total non-interest revenues 5,007 6,269 (20)
------ ------
Interest income
Interest and fees on loans 1,292 1,671 (23)
Interest and dividends on investment securities 154 186 (17)
Deposits with banks and other 28 85 (67)
------ ------
Total interest income 1,474 1,942 (24)
------ ------
Interest expense
Deposits 85 149 (43)
Short-term borrowings 27 161 (83)
Long-term debt 434 650 (33)
Other 9 11 (18)
------ ------
Total interest expense 555 971 (43)
------ ------
Net interest income 919 971 (5)
------ ------
Total revenues net of interest expense 5,926 7,240 (18)
------ ------
Provisions for losses
Charge card 336 345 (3)
Cardmember lending 1,414 809 75
Other 53 57 (7)
------ ------
Total provisions for losses 1,803 1,211 49
------ ------
Total revenues net of interest expense after provisions for
losses 4,123 6,029 (32)
------ ------
Expenses
Marketing and promotion 345 594 (42)
Cardmember rewards 846 1,040 (19)
Cardmember services 111 122 (9)
Salaries and employee benefits 1,253 1,470 (15)
Professional services 519 550 (6)
Occupancy and equipment 358 375 (5)
Communications 104 115 (10)
Other, net 43 302 (86)
------ ------
</Table>
<Table>
Total 3,579 4,568 (22)
------ ------
Pretax income from continuing operations 544 1,461 (63)
Income tax provision 101 417 (76)
------ ------
Income from continuing operations 443 1,044 (58)
Loss from discontinued operations, net of tax (6) (53) (89)
------ ------
Net income $ 437 $ 991 (56)
====== ======
Income from continuing operations attributable to common
shareholders (A) $ 367 $1,038 (65)
====== ======
Net income attributable to common shareholders (A) $ 361 $ 985 (63)
====== ======
Earnings Per Common Share-Basic
Income from continuing operations attributable to common
shareholders $ 0.32 $ 0.90 (64)
Loss from discontinued operations (0.01) (0.05) (80)
------ ------
Net Income attributable to common shareholders $ 0.31 $ 0.85 (64)
====== ======
Earnings Per Common Share-Diluted
Income from continuing operations attributable to common
shareholders $ 0.32 $ 0.89 (64)
Loss from discontinued operations (0.01) (0.04) (75)
------ ------
Net Income attributable to common shareholders $ 0.31 $ 0.85 (64)
====== ======
Average Shares Outstanding
Basic 1,156 1,153 -
====== ======
Diluted 1,156 1,163 (1)
====== ======
</Table>
(A) Represents income from continuing operations or net income, as
applicable, less (i) preferred shares dividends and related
accretion of $72MM for 1Q '09 and (ii) earnings allocated to
participating share awards of $4MM and $6MM for 1Q '09 and 1Q '08,
respectively.
-6-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
o CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE: Consolidated total
revenues net of interest expense decreased 18%, reflecting decreases
versus last year of 17% in USCS, 14% in ICS, 17% in GCS and 17% in GNMS.
Total revenues net of interest expense decreased due to lower discount
revenues, lower total interest income, reduced securitization income,
net, lower other commissions and fees, reduced travel commissions and
fees and lower other revenues, partially offset by lower total interest
expense. Net card fees were essentially flat to last year. Translation of
foreign currency resulted in a 4% greater decline in the reported
revenues net of interest expense growth rate.
o CONSOLIDATED PROVISIONS FOR LOSSES: Consolidated provisions for losses
increased 49% versus last year, reflecting an increase of 57% in USCS,
46% in ICS, 13% in GNMS and a decrease of 24% in GCS. Provisions
increased primarily reflecting higher cardmember lending reserve levels
due to increased net write-off and past due loan levels, which more than
offset the benefits of reduced average owned loan balances. Owned
cardmember lending loss reserves of $3.0B increased $443MM in the
quarter, including $93MM of reserves associated with a $1.5B increase in
cardmember loans as a result of $1.5B of securitized debt maturities.
Translation of foreign currency reduced the consolidated provisions for
losses growth rate by approximately 3%.
o CONSOLIDATED EXPENSES: Consolidated expenses decreased 22%, reflecting
decreases of 15% in USCS, 20% in ICS, 11% in GCS and 32% in GNMS. The
total expense decline reflected lower other, net expenses, decreased
marketing and promotion expenses, reduced salaries and employee benefits
expense, lower cardmember rewards expenses, decreased professional
services costs, lower occupancy and equipment expenses and reduced
communications and cardmember services expenses. Translation of foreign
currency resulted in a 5% greater decline in the reported consolidated
expenses growth rate.
o PRE-TAX MARGIN: Was 9.2% of total revenues net of interest expense in
1Q '09 compared with 20.2% in 1Q '08.
o EFFECTIVE TAX RATE: Was 19% in 1Q '09 versus 29% in 1Q '08. Each of the
periods reflects recurring permanent tax benefits; however, the lower 1Q
'09 tax rate reflects the larger impact of these benefits on a decreased
level of pre-tax income.
o DISCOUNT REVENUE: Decreased 18%, on a 16% decrease in billed business.
The greater revenue versus billed business decline primarily reflects the
relatively faster growth in billed business related to GNS, where we
share discount revenue with our card issuing partners.
- The average discount rate* was 2.56% in 1Q '09 versus 2.53% in 4Q '08
and 2.57% in 1Q '08. The increase versus 4Q '08 reflects the normal
seasonal impact of a relatively lower proportional level of
non-T&E-related business volume in the first quarter. As indicated in
prior quarters, selective re-pricing 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.
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------- ----------
2009 2008
---- ----
Card billed business* (billions):
United States $ 97.4 $114.6 (15)%
Outside the United States 41.8 51.8 (19)
------ ------
Total $139.2 $166.4 (16)
====== ======
Total cards-in-force (millions):
United States 53.4 52.9 1
Outside the United States 38.2 35.1 9
------ ------
Total 91.6 88.0 4
====== ======
Basic cards-in-force (millions):
United States 41.6 41.4 -
Outside the United States 33.3 30.2 10
------ ------
Total 74.9 71.6 5
====== ======
Average basic cardmember spending**
United States $2,587 $3,087 (16)
Outside the United States $2,077 $2,723 (24)
Total $2,443 $2,984 (18)
</Table>
* For additional information about billed business and discount rate
calculations, please refer to the First Quarter 2009 Earnings Release,
American Express Company Selected Statistical Information pages.
** Proprietary card activity only.
-7-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
- - WORLDWIDE BILLED BUSINESS: The 16% decrease in worldwide billed business
reflected decreases of 15% in USCS, 21% in ICS, 23% in GCS and 6% in GNS.
The table below summarizes selected billed business related statistics for
1Q '09:
<Table>
<Caption>
Percentage
Increase/(Decrease)
Assuming No
Percentage Changes in Foreign
Increase/(Decrease) Exchange Rates
------------------ ------------------
Worldwide*
Total billed business (16)% (12)%
Proprietary billed business (17) (14)
GNS (6) 8
Average spending per proprietary basic card (18) (14)
Basic cards-in-force 5
U.S.*
Billed business (15)
Average spending per proprietary basic card (16)
Basic cards-in-force -
Proprietary consumer card billed business** (16)
</Table>
<Table>
Proprietary small business billed business** (13)
Proprietary Corporate Services billed business*** (19)
Outside the U.S.*
Billed business (19) (3)
Average spending per proprietary basic card (24) (8)
Basic cards-in-force 10
Proprietary consumer and small business billed
business**** (21) (5)
Proprietary Corporate Services billed business*** (30) (15)
</Table>
* Captions not designated as "proprietary" include both
proprietary and GNS data.
** Included in USCS.
*** Included in GCS.
**** Included in ICS.
-- U.S. non-T&E-related volume categories (which represented
approximately 71% of total U.S. billed business) declined 12%,
while T&E volumes declined 20%.
-- U.S. airline-related volume, which represented approximately 9% of
total U.S. volumes during the quarter, decreased 26% due to a 23%
decrease in the average airline charge and a 4% decline in airline
transactions.
-- Worldwide airline volumes, which represented approximately 10% of
total volumes during the quarter, decreased 29% due to a 25%
decrease in the average airline charge and a 6% decline in airline
transactions.
-- Assuming no changes in foreign exchange rates: Total billed
business outside the U.S. reflected growth in the low-single
digits in Latin America and Asia Pacific, and declines in the
single digits in Europe and Canada.
- - TOTAL CARDS-IN-FORCE: Rose 4% worldwide due to increases of 6% in GCS
and 18% in GNS, partially offset by decreases of 1% in USCS and 2% in
ICS. The increases in GCS were driven by the migration of CPS cards
to the American Express network. The declines in USCS and ICS reflect
more modest card acquisition activities and the effect of certain
credit-related actions, including the cancellation of approximately
500K consumer and small business cards, the majority of which came
from ICS.
- -- Total cards-in-force declined in the U.S. and international markets by 600K
and 200K, respectively, during the quarter.
o NET CARD FEES: Were essentially flat to the prior year as a slight
increase in the average fee per card offset a modest decline in total
proprietary cards-in-force.
o TRAVEL COMMISSIONS AND FEES: Decreased 26%, primarily reflecting a 35%
decrease in worldwide travel sales.
o OTHER COMMISSIONS AND FEES: Decreased 27%, driven primarily by lower fees
related to reduced average owned loan balances, credit-related actions
and decreased cardmember spending levels.
o SECURITIZATION INCOME, NET: Decreased 68%, primarily due to a lower
excess spread, net, driven by increased write-offs and a $32MM decrease
in the fair market value of the I/O Strip, which was partially offset by
lower interest expense due to lower rates paid on variable-rate investor
certificates. Securitization income, net represents the non-credit
provision components of the gains 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
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
- - Components of Securitization Income, Net:
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
-------------- -----------
2009 2008
---- ----
(millions)
Excess spread, net* $ 2 $310 (99)%
Servicing fees 139 127 9
Gain on sales from securitizations** - 7 #
---- ----
Total securitization income, net $141 $444 (68)
==== ====
</Table>
# Denotes variance of more than 100%.
* Excess spread, net is the net cash flow from interest and fee
collections allocated to the investors' interests after deducting
the interest paid on investor certificates, credit losses,
contractual servicing fees, other expenses and changes in the fair
value of the I/O Strip.
** Excludes ($93MM) of impact from cardmember loan maturities in 1Q
'09 and $140MM and ($68MM) of impact from cardmember loan sales and
maturities in 1Q '08, which are reflected in provisions for losses
for each respective period.
- - The average balance of Cardmember lending securitizations was $27.7B in 1Q
'09 compared with $25.5B in 1Q '08.
o OTHER REVENUES: Decreased 2%, primarily reflecting lower publishing and
other miscellaneous revenues partially offset by the CPS acquisition.
o TOTAL INTEREST INCOME: Decreased 24%.
- - INTEREST AND FEES ON LOANS: Decreased 23%, primarily reflecting lower
average owned loan balances.
- - INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES: Decreased 17%,
primarily reflecting reduced investment yields which more than offset
increased liquidity-related investment levels.
- - DEPOSITS WITH BANKS AND OTHERS: Decreased 67%, primarily due to
significantly lower yields.
o TOTAL INTEREST EXPENSE: Decreased 43%.
- - DEPOSITS: Decreased 43%, due to a lower cost of funds which more than offset
increased balances.
- - SHORT-TERM BORROWINGS: Decreased 83%, due to a decrease in short-term debt
levels and a lower cost of funds.
- - LONG-TERM DEBT: Decreased 33%, primarily reflecting a lower cost of
funds driven by reduced market rates on variably-priced debt,
partially offset by an increased amount of average long-term debt
outstanding.
- - OTHER: Decreased $2MM.
o CHARGE CARD PROVISION FOR LOSSES: Decreased 3%, as lower business volumes
and receivable levels in 1Q '09 more than offset the impact of higher
losses and past due receivables.
- - WORLDWIDE CHARGE CARD:*
- -- The write-off rates increased versus last year and last quarter. Past due
rate trends were mixed.
- - WORLDWIDE CHARGE CARD:*
-- The write-off rates increased versus last year and last quarter. Past
due rate trends were mixed.
<Table>
<Caption>
3/09 12/08 3/08
------ ------- -------
USCS Net write-off rate+ 4.9% 3.5% 3.6%
ICS Net loss ratio as a % of charge volume 0.35% 0.30% 0.21%
GCS Net loss ratio as a % of charge volume 0.17% 0.14% 0.12%
USCS 30 days past due as a % of total 3.7% 3.7% 3.7%
ICS 90 days past due as a % of total 3.3% 3.1% 2.2%
GCS 90 days past due as a % of total 2.4% 2.7% 1.7%
Worldwide Receivables (billions) $30.3 $33.0 $ 39.0
Reserves (millions) $ 810 $ 810 $1,221
% of receivables 2.7% 2.5% 3.1%
</Table>
* There are no off-balance sheet Charge Card securitizations. Therefore,
all credit quality statistics for the Charge Card portfolio are on an
"Owned Basis."
+ In the fourth quarter of 2008, the Company revised the time period in
which past due cardmember receivables in USCS are written off to 180
days past due, consistent with applicable regulatory guidance.
Previously, receivables were written off when 360 days past due. The
net write-offs for the fourth quarter 2008 include write-offs of
$341MM resulting from this write-off methodology change, which is not
reflected in the net write-off rate for USCS.
-9-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
o CARDMEMBER LENDING PROVISION FOR LOSSES: Increased 75%, primarily
reflecting higher cardmember reserve levels due to increased net
write-off and past due loan levels, which more than offset the benefits
of lower average owned loan balances. Owned cardmember lending loss
reserves of $3.0B increased $443MM in the quarter, including $93MM of
reserves associated with a $1.5B increase in cardmember loans as a result
of $1.5B of securitized debt maturities.
- - WORLDWIDE LENDING:*
- -- The write-off and past due rates increased versus last year and last
quarter.
<Table>
<Caption>
3/09 12/08 3/08
------- ------- ------
Net write-off rate 8.0% 6.5% 4.5%
30 days past due as a % of loans 4.9% 4.4% 3.3%
Total Loans (billions) $ 36.7 $ 42.2 $ 49.4
Reserves (millions) $3,013 $2,570 $1,919
% of total loans 8.2% 6.1% 3.9%
% of 30 days past due accounts 168% 137% 118%
</Table>
* All lending statistics are presented here on a GAAP or "Owned
Basis". "Managed Basis" credit quality statistics are available
in the First Quarter 2009 Earnings Release, American Express Company
Consolidated Selected Statistical Information pages.
o OTHER PROVISION FOR LOSSES: Decreased $4MM versus last year.
o MARKETING AND PROMOTION EXPENSES: Decreased 42%, reflecting lower
discretionary investment spending per the Company's ongoing reengineering
initiatives.
o CARDMEMBER REWARDS EXPENSE: Decreased 19%, reflecting lower volume-driven
rewards costs.
o CARDMEMBER SERVICES EXPENSES: Decreased 9%.
o SALARIES AND EMPLOYEE BENEFITS EXPENSE: Decreased 15%, reflecting the
impact of lower employee levels due to the Company's 4Q '08 reengineering
activities and reduced incentive-related costs.
o PROFESSIONAL SERVICES EXPENSE: Decreased 6%, driven by lower technology
and legal costs which more than offset higher credit and collection
expenses.
o OCCUPANCY AND EQUIPMENT EXPENSE: Decreased 5%, on lower rent and lease
expenses.
o COMMUNICATIONS EXPENSE: Decreased 10%, driven by lower volume-related costs.
o OTHER, NET EXPENSE: Decreased 86%, due to the 1Q '09 settlement payment
from MasterCard, a $63MM favorable impact related to fair value hedge
ineffectiveness and lower travel and entertainment expenses as part of
the Company's ongoing reengineering initiatives.
-10-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
CONSOLIDATED
SUPPLEMENTAL INFORMATION - TANGIBLE COMMON EQUITY AND TOTAL ADJUSTED ASSETS
During the third quarter of 2006, the Company issued $750MM of 6.80%
Subordinated Debentures due 2036 ("Subordinated Debentures"), which are
automatically extendable until 2066 unless certain events occur prior to that
date. In connection with the Subordinated Debentures, the Company has
undertaken to disclose on a quarterly basis the amount of its "tangible common
equity" and "total adjusted assets", as defined in the Subordinated
Debentures. The Company's consolidated "tangible common equity" amount as of
the end of any fiscal quarter means the total shareholders' equity, excluding
preferred stock, of the Company as reflected on its consolidated balance sheet
prepared in accordance with GAAP as of such fiscal quarter end minus (i)
intangible assets and goodwill and (ii) deferred acquisition costs, as
determined in accordance with GAAP and reflected in such consolidated balance
sheet. The Company's "total adjusted assets" as of the end of any fiscal
quarter is calculated as the sum of (i) total consolidated assets as reflected
on the Company's balance sheet minus (ii) non-securitized Cardmember lending
receivables (without deduction for reserves), which are set forth on the
Company's balance sheet, plus (iii) managed (i.e., securitized and
non-securitized) worldwide Cardmember lending receivables as reported by the
Company for such fiscal quarter. As of March 31, 2009, the Company's "tangible
common equity" was $10B and its "total adjusted assets" as defined in the
Subordinated Debentures, were $149B. As of March 31, 2009, the consolidated
assets as reflected on the Company's balance sheet were $121B.
CORPORATE & OTHER
o Net income was $106MM in 1Q '09 compared with a net loss of $2MM in 4Q '08
and net income of $14MM in 1Q '08.
- - 1Q '09 included:
-- $93MM and $43MM of after-tax income related to the MasterCard and Visa
litigation settlements, respectively; and
-- Higher interest expenses related to the cost of carrying increased levels
of liquidity, partially offset by lower tax expenses.
- - 4Q '08 included:
-- $93MM and $43MM of after-tax income related to the MasterCard and Visa
litigation settlements, respectively; and
-- $93MM of after-tax expense related to the Company's reengineering
initiatives.
- - 1Q '08 included:
-- $43MM of after-tax income related to the Visa litigation settlement; and
-- A $19MM after-tax charge related to the exit of certain AEB operations not
sold.
-11-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------- ----------
(millions) 2009 2008
---- ----
Revenues
Discount revenue, net card fees and other $2,205 $2,579 (15)%
Securitization income, net 141 444 (68)
Interest income 946 1,308 (28)
Interest expense 218 609 (64)
------ ------
Net interest income 728 699 4
------ ------
Total revenues net of interest expense 3,074 3,722 (17)
------ ------
Provisions for losses 1,383 881 57
------ ------
Total revenues net of interest expense after provisions for losses 1,691 2,841 (40)
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 889 1,144 (22)
Salaries and employee benefits and other operating expenses 852 906 (6)
------ ------
Total 1,741 2,050 (15)
------ ------
Pretax segment (loss) income (50) 791 #
Income tax (benefit) provision (25) 268 #
------ ------
Segment (loss) income $ (25) $ 523 #
====== ======
</Table>
# Denotes a variance of more than 100%.
STATISTICAL INFORMATION
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------- ----------
2009 2008
---- ----
Card billed business (billions) $ 78.0 $ 92.1 (15)%
Total cards-in-force (millions) 43.4 43.8 (1)
Basic cards-in-force (millions) 32.3 32.7 (1)
Average basic cardmember spending* (dollars) $2,391 $2,838 (16)
Segment capital (millions)** $4,846 $4,517 7
Return on average segment capital** 6.3% 37.9%
Return on average tangible segment capital** 6.7% 39.4%
</Table>
* Proprietary cards only.
** Segment capital includes an allocation attributable to goodwill and other
intangibles. Please refer to Appendix II of the First Quarter 2009
Earnings Release or the components of ROSC and ROTSC.
- BILLED BUSINESS: The 15% decrease in billed business reflects lower
average spending per proprietary basic cards-in-force and the reduced
basic cards-in-force level.
-- Within the U.S. consumer business, billed business decreased 16%;
small business volumes declined by 13%.
- TOTAL CARDS-IN-FORCE: Decreased by 0.4MM, or 1%, versus last year,
reflecting the reduced card acquisition activities and the effects of
certain credit-related actions.
P&L DISCUSSION:
o SEGMENT RESULTS: Reflected a loss of $25MM this year versus income of
$523 last year. Total revenues net of interest expense declined 17%,
provisions for losses increased 57% and expenses declined by 15%.
- PRE-TAX MARGIN: Was (1.6%) in 1Q '09 compared with 21.3% in 1Q '08.
- EFFECTIVE TAX RATE: Was 50% in 1Q '09 compared with 34% in 1Q '08.
The high rate in 1Q '09 reflects the impact of recurring tax benefits
on a pre-tax loss and the lower rate in 1Q '08 reflects the
resolution of certain tax items from prior years.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 15%, due to lower
billed business volumes and lower commissions and fees.
o SECURITIZATION INCOME, NET: Decreased 68% primarily due to a lower excess
spread, net, driven by increased write-offs and the charge to the fair
value of the I/O Strip, which was partially offset by lower interest
expense due to lower rates paid on variable-rate investor certificates.
o INTEREST INCOME: Decreased 28%, due to a decline of 24% in the average
owned lending balance and lower market interest rate-driven portfolio
yields, partially offset by the benefits of certain pricing initiatives.
-12-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
o INTEREST EXPENSE: Decreased 64%, due to a lower market interest
rate-driven cost of funds and reduced average owned cardmember lending
and receivable balances.
o PROVISIONS FOR LOSSES: Increased 57%, principally due to increased
lending provisions reflecting higher net write-off and past due loan
levels and reserves associated with a $1.5B increase in cardmember loans
as a result of $1.5B of securitized debt maturities, partially offset by
reduced loan and business volumes.
- CHARGE CARD: *
-- The net write-off rate increased versus last year and last
quarter. The past due rate was unchanged versus last year and
last quarter.
<Table>
<Caption>
3/09 12/08 3/08
------ ------- ------
Total Receivables (billions) $15.6 $17.8 $19.2
Net write-off rate 4.9% 3.5% 3.6%
30 days past due as a % of total 3.7% 3.7% 3.7%
</Table>
- CARDMEMBER LENDING: **
-- The net write-off and past due rates increased versus last year
and last quarter.
<Table>
<Caption>
3/09 12/08 3/08
------ ------- ------
Total Loans (billions) $28.2 $32.7 $38.0
Net write-off rate 8.5% 7.0% 4.5%
30 days past due as a % of total 5.1% 4.7% 3.4%
</Table>
* 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.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
22%, primarily due to lower volume-related rewards costs and reduced
marketing and promotion expenses.
o SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
6%, primarily due to a portion of the favorable impact related to fair
value hedge ineffectiveness and benefits from the Company's reengineering
initiatives, partially offset by costs associated with the Delta contract
extension.
-13-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
MANAGED BASIS
For USCS, the managed basis presentation assumes that there have been no
off-balance sheet securitization transactions, i.e., all securitized
cardmember loans and related income effects are reflected as if they were in
the Company's balance sheets and income statements, respectively. For the
managed basis presentation, revenue and expenses related to securitized
cardmember loans are reflected in other commissions and fees (included in
discount revenue, net card fees and other), interest income, interest expense
and provisions for losses. On a managed basis, there is no securitization
income, net, as the managed basis presentation assumes no securitization
transactions have occurred.
The Company presents USCS information on a managed basis because that is the
way the Company's management views and manages the business. Management
believes that a full picture of trends in the Company's cardmember lending
business can only be derived by evaluating the performance of both securitized
and non-securitized cardmember loans. Management also believes that use of a
managed basis presentation presents a more comprehensive portrayal of the key
dynamics of the cardmember lending business. Irrespective of the on- and
off-balance sheet funding mix, it is important for management and investors to
see metrics for the entire cardmember lending portfolio because they are more
representative of the economics of the aggregate cardmember relationships and
ongoing business performance and trends over time. It is also important for
investors to see the overall growth of cardmember loans and related revenue in
order to evaluate market share. These metrics are significant in evaluating
the Company's performance and can only be properly assessed when all
non-securitized and securitized cardmember loans are viewed together on a
managed basis. The Company does not currently securitize international loans.
On a GAAP basis, revenue and expenses from securitized cardmember loans are
reflected in the Company's income statements in securitization income, net,
fees and commissions, and provisions for losses for cardmember lending. At the
time of a securitization transaction, the securitized cardmember loans are
removed from the Company's balance sheet, and the resulting gain on sale is
reflected in securitization income, net as well as an impact to provision for
losses (credit reserves are no longer recorded for the cardmember loans once
sold). Over the life of a securitization transaction, the Company recognizes
servicing fees and other net revenues (referred to as "excess spread") related
to the interests sold to investors (i.e. the investors' interests). These
amounts, in addition to changes in the fair value of the interest-only strips,
are reflected in securitization income, net, and fees and commissions. The
Company also recognizes total interest income over the life of the
securitization transaction related to the interest it retains (i.e. the
seller's interest). At the maturity of a securitization transaction,
cardmember loans on the balance sheet increase, and the impact of the
incremental required loss reserves is recorded in provisions for losses.
As presented, in aggregate over the life of a securitization transaction, the
pretax income impact to the Company is the same whether or not the Company had
securitized cardmember loans or funded these loans through other financing
activities (assuming the same financing costs). The income statement
classifications, however, of specific items will differ.
The following information reconciles the GAAP basis presentation for
certain USCS income statement line items to the managed basis presentation,
where different:
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
------------------- ----------
(millions) 2009 2008
------ ------
- DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $2,205 $2,579 (15)%
Securitization adjustments 99 73 36
------ ------
Managed discount revenue, net card fees and other $2,304 $2,652 (13)
====== ======
- INTEREST INCOME:
Reported for the period (GAAP) $ 946 $1,308 (28)
Securitization adjustments 886 903 (2)
------ ------
Managed interest income $1,832 $2,211 (17)
====== ======
- SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $ 141 $ 444 (68)
Securitization adjustments (141) (444) (68)
------ ------
Managed securitization income, net $ - $ - -
====== ======
- INTEREST EXPENSE:
Reported for the period (GAAP) $ 218 $ 609 (64)
Securitization adjustments 83 220 (62)
------ ------
Managed interest expense $ 301 $ 829 (64)
====== ======
- PROVISIONS FOR LOSSES:
Reported for the period (GAAP) $1,383 $ 881 57
Securitization adjustments 636 387 64
------ ------
Managed provisions for losses $2,019 $1,268 59
====== ======
</Table>
-14-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
U.S. CARD SERVICES
MANAGED P&L DISCUSSION
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 13%, largely due to
lower billed business volumes and lower commissions and fees.
o INTEREST INCOME: Decreased 17%, primarily due to a decrease of 8% in the
average managed lending balance and lower market interest rate-driven
portfolio yields partially offset by the benefits of certain pricing
initiatives.
o INTEREST EXPENSE: Decreased 64%, due to a lower market interest
rate-driven cost of funds and lower average managed cardmember lending
and receivable balances.
o PROVISIONS FOR LOSSES: Increased 59%, principally due to increased
lending provisions from higher net write-off and past due loan levels,
partially offset by reduced loan and business volumes.
- CARDMEMBER LENDING: *
-- The write-off and past due rates increased versus last year and
last quarter.
<Table>
<Caption>
3/09 12/08 3/08
-------------- -------------- --------------
Total Loans (billions) $56.5 $62.4 $63.6
Net write-off rate 8.5% 6.7% 4.3%
30 days past due as a % of total 5.1% 4.7% 3.2%
</Table>
* 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."
-15-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
INTERNATIONAL CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
------------------- ----------
(millions) 2009 2008
---- ----
Revenues
Discount revenue, net card fees and other $ 772 $ 937 (18)%
------ ------
Interest income 400 510 (22)
Interest expense 149 252 (41)
------ ------
Net interest income 251 258 (3)
------ ------
Total revenues net of interest expense 1,023 1,195 (14)
------ ------
Provisions for losses 335 229 46
------ ------
Total revenues net of interest expense after provisions for losses 688 966 (29)
------ ------
Expenses
Marketing, promotion, rewards and cardmember services 258 358 (28)
Salaries and employee benefits and other operating expenses 422 491 (14)
------ ------
Total 680 849 (20)
------ ------
Pretax segment income 8 117 (93)
Income tax benefit (31) (16) 94
------ ------
Segment income $ 39 $ 133 (71)
====== ======
</Table>
STATISTICAL INFORMATION
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
------------------- ----------
2009 2008
------ ------
Card billed business (billions) $ 20.5 $ 26.1 (21)%
Total cards-in-force (millions) 15.8 16.1 (2)
Basic cards-in-force (millions) 11.0 11.4 (4)
Average basic cardmember spending* (dollars) $1,823 $2,309 (21)
Segment capital (millions)** $2,004 $2,041 (2)
Return on average segment capital** 12.3% 16.4%
</Table>
<Table>
<Caption>
Return on average tangible segment capital** 16.6% 22.6%
</Table>
* Proprietary cards only.
** Segment capital includes an allocation attributable to goodwill and other
intangibles. Please refer to Appendix II of the First Quarter 2009 Earnings
Release for the components of ROSC and ROTSC.
- - BILLED BUSINESS: The 21% decrease in billed business reflects a 21%
decrease in average spending per proprietary basic cards-in-force and
a 4% decrease in basic cards-in-force.
-- Adjusting for the impacts of foreign exchange translation,
billed business decreased 5% and average spending per
proprietary basic card-in-force decreased 5%. Volume declines
within the major geographic regions were in the low single
digits.
- - TOTAL CARDS-IN-FORCE: Decreased by 0.3MM, or 2%, versus last year,
reflecting the reduced card acquisition activities and the effects of
certain credit-related actions, including the cancellation of
approximately 350K inactive accounts in the quarter.
P&L DISCUSSION
o SEGMENT INCOME: Decreased 71% to $39MM, as total revenues net of interest
expense declined 14%, provisions for losses increased 46% and expenses
decreased by 20%. Both the revenue and expense declines were inflated by
the translation of foreign currency.
- 1Q '08 included $1MM ($1MM after-tax) of reengineering reversals.
- PRE-TAX MARGIN: Was 0.8% in 1Q '09 compared with 9.8% in 1Q '08.
- EFFECTIVE TAX RATE: Was (388%) in 1Q '09 compared with (14%) in 1Q
'08. The rates in both periods reflect the impact of recurring tax
benefits on varying pre-tax income. As indicated in previous
quarters, this segment reflects an overall tax benefit which will
likely continue going forward as the Company's internal tax
allocation process provides ICS with the consolidated benefit related
to its ongoing funding activities outside the U.S.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 18%, driven
primarily by the lower level of card spending, decreased other
commissions and fees and lower travel commissions and fees.
-16-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
INTERNATIONAL CARD SERVICES
o INTEREST INCOME: Decreased 22% on a 21% reduction in average loans and
lower interest on bank and other deposits, partially offset by a higher
cardmember loan portfolio yield.
o INTEREST EXPENSE: Decreased 41%, on lower volumes and average loan
balances and a decreased cost of funds.
o PROVISIONS FOR LOSSES: Increased 46%, primarily due to increased net
write-off and past due levels partially offset by lower loan and business
volumes.
- CHARGE CARD: *
-- The loss ratio and past due rates increased versus last year and
last quarter.
<Table>
<Caption>
3/09 12/08 3/08
------------ ----------- -----------
Total Receivables (billions) $ 5.0 $ 5.6 $ 6.3
Net loss ratio as a % of charge volume 0.35% 0.30% 0.21%
90 days past due as a % of total 3.3% 3.1% 2.2%
</Table>
- CARDMEMBER LENDING: *
-- The net write-off and past due rates increased versus last year
and last quarter.
<Table>
<Caption>
3/09 12/08 3/08
------------ ----------- -----------
Cardmember Loans (billions) $8.5 $9.5 $11.4
Net write-off rate 6.4% 5.1% 4.4%
30 days past due as a % of total 4.2% 3.6% 3.0%
</Table>
* 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."
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
28%, reflecting reduced marketing and promotion spending and lower
volume-related rewards costs.
o SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
14%, primarily due to the benefit from the Company's reengineering
initiatives.
-17-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
------------------- ----------
(millions) 2009 2008
----- ------
Revenues
Discount revenue, net card fees and other $ 981 $1,235 (21)%
----- ------
Interest income 21 46 (54)
Interest expense 58 137 (58)
----- ------
Net interest income (37) (91) (59)
----- ------
Total revenues net of interest expense 944 1,144 (17)
----- ------
Provisions for losses 47 62 (24)
----- ------
Total revenues net of interest expense after provisions for losses 897 1,082 (17)
----- ------
Expenses
Marketing, promotion, rewards and cardmember services 79 86 (8)
Salaries and employee benefits and other operating expenses 690 778 (11)
----- ------
Total 769 864 (11)
----- ------
Pretax segment income 128 218 (41)
Income tax provision 42 67 (37)
----- ------
Segment income $ 86 $ 151 (43)
===== ======
</Table>
STATISTICAL INFORMATION
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
------------------- ----------
2009 2008
---- ----
Card billed business (billions) $ 25.1 $ 32.8 (23)%
Total cards-in-force (millions) 7.3 6.9 6
Basic cards-in-force (millions) 7.3 6.9 6
Average basic cardmember spending* (dollars) $3,517 $4,770 (26)
Segment capital (millions)** $3,439 $3,352 3
Return on average segment capital** 12.8% 23.2%
Return on average tangible segment capital** 29.2% 42.4%
</Table>
* Proprietary cards only.
** Segment capital includes an allocation attributable to goodwill and other
intangibles. Please refer to Appendix II of the First Quarter 2009 Earnings
Release for the components of ROSC and ROTSC.
- BILLED BUSINESS: The 23% decrease in billed business reflects a 26%
decline in average spending per proprietary basic cards-in-force
partially offset by a 6% 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 decreased 18% and 21%, respectively. Volume
decreases of 19% within the U.S. compared to results within
other major geographic regions ranging from double digit
declines in Asia Pacific and Europe, high single digit declines
in Canada and low single digit increases in Latin America.
- TOTAL CARDS-IN-FORCE: Increased by 0.4MM, or 6%, versus last year,
driven by the migration of CPS cards onto the AXP network.
P&L DISCUSSION
o SEGMENT INCOME: Decreased 43% to $86MM as total revenues net of interest
expense decreased 17%, provisions for losses decreased 24% and expenses
declined by 11%. Both the revenue and expense declines were inflated by
the translation impact of a comparatively stronger dollar, and reflected
the inclusion of the CPS acquisition this year.
- 1Q '09 and 1Q '08 included $2MM ($1MM after-tax) of reengineering
costs and $3MM ($2MM after-tax) of reengineering reversals,
respectively.
- PRE-TAX MARGIN: Was 13.6% in 1Q '09 compared with 19.1% in 1Q '08.
- EFFECTIVE TAX RATE: Was 33% in 1Q '09 compared with 31% in 1Q '08.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER: Decreased 21%, driven
primarily by the reduced level of card spending, as well as lower travel
commissions and fees, partially offset by higher other revenues from the
CPS acquisition.
o INTEREST INCOME: Decreased 54%, driven by lower deposit-related income.
-18-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
GLOBAL COMMERCIAL SERVICES
o INTEREST EXPENSE: Decreased 58%, due to a lower cost of funds and lower
average receivables partially offset by the cost of funding the CPS
acquisition.
o PROVISIONS FOR LOSSES: Decreased $15MM.
- - 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.
<Table>
<Caption>
3/09 12/08 3/08
------- ------- -------
Total Receivables (billions) $ 9.6 $ 9.4 $12.8
Net loss ratio as a % of charge volume 0.17% 0.14% 0.12%
90 days past due as a % of total 2.4% 2.7% 1.7%
</Table>
* There are no off-balance sheet charge card securitizations.
Therefore, all credit quality statistics for the charge card
portfolio are on an "Owned Basis."
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Decreased
8%, reflecting lower volume-related rewards costs.
o SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
11%, due in part to the benefits from the Company's reengineering
initiatives partially offset by the expenses related to the CPS
acquisition.
-19-
AMERICAN EXPRESS COMPANY
FIRST QUARTER 2009 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP Basis)
(Preliminary)
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------- ----------
(millions) 2009 2008
------ ------
Revenues
Discount revenue, fees and other $813 $ 942 (14)%
------ ------
Interest income 1 1 -
Interest expense (22) (60) (63)
------ ------
Net interest income 23 61 (62)
------ ------
Total revenues net of interest expense 836 1,003 (17)
------ ------
Provisions for losses 35 31 13
------ ------
Total revenues net of interest expense after provisions for losses 801 972 (18)
------ ------
Expenses
Marketing and promotion 64 136 (53)
Salaries and employee benefits and other operating expenses 372 501 (26)
------ ------
Total 436 637 (32)
------ ------
Pretax segment income 365 335 9
Income tax provision 128 112 14
------ ------
Segment income $237 $ 223 6
====== ======
</Table>
STATISTICAL INFORMATION
<Table>
<Caption>
Quarters Ended Percentage
March 31, Inc/(Dec)
---------------- ----------
2009 2008
------ ------
Global card billed business* (billions) $139.2 $166.4 (16)%
Segment capital (millions)** $1,716 $1,167 47
Return on average segment capital** 70.6% 91.3%
Return on average tangible segment capital** 72.4% 94.2%
Global Network Services:
Card billed business (billions) $14.8 $15.7 (6)
Total cards-in-force (millions) 25.1 21.2 18
</Table>
* Includes activities related to proprietary cards (including cash advances),
cards issued under network partnership agreements, and certain insurance
fees charged on proprietary cards.
** Segment capital includes an allocation attributable to goodwill and other
intangibles. Please refer to Appendix II of the First Quarter 2009 Earnings
Release for the components of ROSC and ROTSC.
P&L DISCUSSION
o SEGMENT INCOME: Increased 6%, to $237MM as total revenues net of interest
expense declined 17%, provisions for losses increased by $4MM and
expenses decreased by 32%. Both the revenue and expense declines were
inflated by the translation impact of a comparatively stronger dollar.
- 1Q '09 and 1Q '08 included $3MM ($2MM after-tax) and $1MM
($0MM after-tax), respectively, of reengineering reversals.
- PRE-TAX MARGIN: Was 43.7% in 1Q '09 compared with 33.4% in 1Q '08.
- EFFECTIVE TAX RATE: Was 35% in 1Q '09 compared with 33% in 1Q '08.
o DISCOUNT REVENUE, FEES AND OTHER REVENUE: Decreased 14%, reflecting a
decline in merchant-related revenues, primarily from the 16% decrease in
global card billed business.
o INTEREST INCOME: Was flat versus the prior year.
o INTEREST EXPENSE: The expense credit decreased 63% due to lower volumes
and 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 PROVISIONS FOR LOSSES: Increased $4MM.
o MARKETING AND PROMOTION EXPENSES: Decreased 53%, reflecting lower brand
and merchant-related marketing and promotion costs due to the Company's
reengineering initiatives.
o SALARIES AND EMPLOYEE BENEFITS AND OTHER OPERATING EXPENSES: Decreased
26%, primarily due to higher litigation-related expenses in 1Q '08 and
the benefits from the Company's reengineering initiatives.
-20-
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: THE COMPANY'S ABILITY TO MANAGE CREDIT RISK RELATED TO
CONSUMER DEBT, BUSINESS LOANS, MERCHANTS AND OTHER CREDIT TRENDS, WHICH WILL
DEPEND IN PART ON (I) THE ECONOMIC ENVIRONMENT, INCLUDING, AMONG OTHER THINGS,
THE HOUSING MARKET, THE RATES OF BANKRUPTCIES AND UNEMPLOYMENT, WHICH CAN
AFFECT SPENDING ON CARD PRODUCTS, DEBT PAYMENTS BY INDIVIDUAL AND CORPORATE
CUSTOMERS AND BUSINESSES THAT ACCEPT THE COMPANY'S CARD PRODUCTS, (II) THE
EFFECTIVENESS OF THE COMPANY'S CREDIT MODELS AND (III) THE ULTIMATE OUTCOME OF
CERTAIN PROPOSED LEGISLATIVE INITIATIVES AFFECTING THE CREDIT CARD BUSINESS;
THE IMPACT OF THE COMPANY'S EFFORTS TO DEAL WITH DELINQUENT CARDMEMBERS IN THE
CURRENT CHALLENGING ECONOMIC ENVIRONMENT, WHICH MAY AFFECT PAYMENT PATTERNS OF
CARDMEMBERS AND THE PERCEPTION OF THE COMPANY'S SERVICES, PRODUCTS AND BRANDS;
THE COMPANY'S NEAR-TERM WRITE-OFF RATES, INCLUDING THOSE FOR THE SECOND, THIRD
AND FOURTH QUARTERS OF 2009, WHICH WILL DEPEND IN PART ON CHANGES IN THE LEVEL
OF THE COMPANY'S LOAN BALANCES, DELINQUENCY RATES OF CARDMEMBERS AND
UNEMPLOYMENT AND BANKRUPTCY RATES; DIFFERENCES BETWEEN OWNED (I.E., GAAP) AND
MANAGED WRITE-OFF RATES WHICH CAN BE IMPACTED BY FACTORS SUCH AS THE VARIOUS
TYPES OF CUSTOMER ACCOUNTS IN THE PORTFOLIOS OF THE COMPANY AND THE LENDING
SECURITIZATION TRUST; CONSUMER AND BUSINESS SPENDING ON THE COMPANY'S CREDIT
AND CHARGE CARD PRODUCTS AND TRAVELERS CHEQUES AND OTHER PREPAID PRODUCTS AND
GROWTH IN CARD LENDING BALANCES, WHICH DEPEND IN PART ON THE ECONOMIC
ENVIRONMENT, AND THE ABILITY TO ISSUE NEW AND ENHANCED CARD AND PREPAID
PRODUCTS, SERVICES AND REWARDS PROGRAMS, AND INCREASE REVENUES FROM SUCH
PRODUCTS, ATTRACT NEW CARDMEMBERS, REDUCE CARDMEMBER ATTRITION, CAPTURE A
GREATER SHARE OF EXISTING CARDMEMBERS' SPENDING, AND SUSTAIN PREMIUM DISCOUNT
RATES ON ITS CARD PRODUCTS IN LIGHT OF REGULATORY AND MARKET PRESSURES,
INCREASE MERCHANT COVERAGE, RETAIN CARDMEMBERS AFTER LOW INTRODUCTORY LENDING
RATES HAVE EXPIRED, AND EXPAND THE GLOBAL NETWORK SERVICES BUSINESS; THE
WRITE-OFF AND DELINQUENCY RATES IN THE MEDIUM- TO LONG-TERM OF CARDMEMBERS
ADDED BY THE COMPANY DURING THE PAST FEW YEARS, WHICH COULD IMPACT THEIR
PROFITABILITY TO THE COMPANY; THE COMPANY'S ABILITY TO EFFECTIVELY IMPLEMENT
CHANGES IN THE PRICING OF CERTAIN OF ITS PRODUCTS AND SERVICES; FLUCTUATIONS
IN INTEREST RATES (INCLUDING FLUCTUATIONS IN BENCHMARKS, SUCH AS LIBOR AND
OTHER BENCHMARK RATES, AND CREDIT SPREADS), WHICH IMPACT THE COMPANY'S
BORROWING COSTS, RETURN ON LENDING PRODUCTS AND THE VALUE OF THE COMPANY'S
INVESTMENTS; THE COMPANY'S ABILITY TO MEET ITS LONG-TERM ON AVERAGE AND OVER
TIME FINANCIAL TARGETS; 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 AND GENERATE EXCESS CAPITAL AND
EARNINGS IN A MANNER AND AT LEVELS THAT WILL ALLOW THE COMPANY TO RETURN A
PORTION OF CAPITAL TO SHAREHOLDERS, WHICH WILL DEPEND ON THE COMPANY'S ABILITY
TO MANAGE ITS CAPITAL NEEDS, AND THE EFFECT OF BUSINESS MIX, ACQUISITIONS AND
RATING AGENCY AND REGULATORY REQUIREMENTS, INCLUDING THOSE ARISING FROM THE
-21-
COMPANY'S STATUS AS A BANK HOLDING COMPANY; THE ABILITY OF THE COMPANY TO MEET
ITS OBJECTIVES WITH RESPECT TO THE GROWTH OF ITS BROKERED RETAIL CD PROGRAM
AND BROKERAGE SWEEP ACCOUNT PROGRAM AND THE IMPLEMENTATION OF ITS DIRECT
DEPOSIT INITIATIVE; THE SUCCESS OF THE GLOBAL NETWORK SERVICES BUSINESS IN
PARTNERING WITH BANKS IN THE UNITED STATES, WHICH WILL DEPEND IN PART ON THE
EXTENT TO WHICH SUCH BUSINESS FURTHER ENHANCES THE COMPANY'S BRAND, ALLOWS THE
COMPANY TO LEVERAGE ITS SIGNIFICANT PROCESSING SCALE, EXPANDS MERCHANT
COVERAGE OF THE NETWORK, PROVIDES GLOBAL NETWORK SERVICES' BANK PARTNERS IN
THE UNITED STATES THE BENEFITS OF GREATER CARDMEMBER LOYALTY AND HIGHER SPEND
PER CUSTOMER, AND MERCHANT BENEFITS SUCH AS GREATER TRANSACTION VOLUME AND
ADDITIONAL HIGHER SPENDING CUSTOMERS; THE ABILITY OF THE GLOBAL NETWORK
SERVICES BUSINESS TO MEET THE PERFORMANCE REQUIREMENTS CALLED FOR BY THE
COMPANY'S SETTLEMENTS WITH MASTERCARD AND VISA; TRENDS IN TRAVEL AND
ENTERTAINMENT SPENDING AND THE OVERALL LEVEL OF CONSUMER CONFIDENCE; THE
UNCERTAINTIES ASSOCIATED WITH BUSINESS ACQUISITIONS, INCLUDING, AMONG OTHERS,
THE FAILURE TO REALIZE ANTICIPATED BUSINESS RETENTION, GROWTH AND COST
SAVINGS, AS WELL AS THE ABILITY TO EFFECTIVELY INTEGRATE THE ACQUIRED BUSINESS
INTO THE COMPANY'S EXISTING OPERATIONS; THE 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
DELTA AIR LINES/NORTHWEST AIRLINES MERGER) AFFECTING THE AIRLINE OR ANY OTHER
INDUSTRY REPRESENTING A SIGNIFICANT PORTION OF THE COMPANY'S BILLED BUSINESS,
INCLUDING ANY POTENTIAL NEGATIVE EFFECT ON PARTICULAR CARD PRODUCTS AND
SERVICES AND BILLED BUSINESS GENERALLY THAT COULD RESULT FROM THE ACTUAL OR
PERCEIVED WEAKNESS OF KEY BUSINESS PARTNERS IN SUCH INDUSTRIES; THE TRIGGERING
OF OBLIGATIONS TO MAKE PAYMENTS TO CERTAIN CO-BRAND PARTNERS, MERCHANTS,
VENDORS AND CUSTOMERS UNDER CONTRACTUAL ARRANGEMENTS WITH SUCH PARTIES UNDER
CERTAIN CIRCUMSTANCES; A DOWNTURN IN THE COMPANY'S BUSINESSES AND/OR NEGATIVE
CHANGES IN THE COMPANY'S AND ITS SUBSIDIARIES' CREDIT RATINGS, WHICH COULD
RESULT IN CONTINGENT PAYMENTS UNDER CONTRACTS, DECREASED LIQUIDITY AND HIGHER
BORROWING COSTS; THE ABILITY OF THE COMPANY TO SATISFY ITS LIQUIDITY NEEDS AND
EXECUTE ON ITS FUNDING PLANS, WHICH WILL DEPEND ON, AMONG OTHER THINGS, THE
COMPANY'S FUTURE BUSINESS GROWTH, ITS CREDIT RATINGS, MARKET CAPACITY AND
DEMAND FOR SECURITIES OFFERED BY THE COMPANY, PERFORMANCE BY THE COMPANY'S
COUNTERPARTIES UNDER ITS BANK CREDIT FACILITIES AND OTHER LENDING FACILITIES,
REGULATORY CHANGES, INCLUDING CHANGES TO THE POLICIES, RULES AND REGULATIONS
OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND THE FEDERAL
RESERVE BANK OF SAN FRANCISCO, THE COMPANY'S ABILITY TO SECURITIZE AND SELL
RECEIVABLES AND THE PERFORMANCE OF RECEIVABLES PREVIOUSLY SOLD IN
SECURITIZATION TRANSACTIONS AND THE COMPANY'S ABILITY TO MEET THE CRITERIA FOR
PARTICIPATION IN CERTAIN LIQUIDITY FACILITIES AND OTHER FUNDING PROGRAMS,
INCLUDING THE COMMERCIAL PAPER FUNDING FACILITY AND THE TEMPORARY LIQUIDITY
GUARANTEE PROGRAM, BEING MADE AVAILABLE THROUGH THE FEDERAL RESERVE BANK OF
NEW YORK, THE FEDERAL DEPOSIT INSURANCE CORPORATION AND OTHER FEDERAL
DEPARTMENTS AND AGENCIES; ACCURACY OF ESTIMATES FOR THE FAIR VALUE OF THE
ASSETS IN THE COMPANY'S INVESTMENT PORTFOLIO AND, IN PARTICULAR, THOSE
INVESTMENTS THAT ARE NOT READILY MARKETABLE, INCLUDING THE VALUATION OF THE
INTEREST-ONLY STRIP RELATING TO THE COMPANY'S LENDING SECURITIZATIONS AND THE
ABILITY OF OUR CHARGE CARD AND LENDING TRUSTS TO MAINTAIN EXCESS SPREADS AT
LEVELS SUFFICIENT TO AVOID MATERIAL SET-ASIDES OR EARLY AMORTIZATION OF OUR
CHARGE CARD AND LENDING SECURITIZATIONS, WHICH WILL DEPEND ON VARIOUS FACTORS
SUCH AS INCOME DERIVED FROM THE RELEVANT PORTFOLIOS AND THEIR RESPECTIVE
CREDIT PERFORMANCES; THE COMPANY'S ABILITY TO AVOID MATERIAL LOSSES ON ITS
INVESTMENT PORTFOLIO, INCLUDING ITS INVESTMENTS IN STATE AND MUNICIPAL
OBLIGATIONS, THE ISSUERS OF WHICH COULD BE ADVERSELY AFFECTED BY THE
CHALLENGING ECONOMIC ENVIRONMENT; THE COMPANY'S ABILITY TO INVEST IN
TECHNOLOGY ADVANCES ACROSS ALL AREAS OF ITS BUSINESS TO STAY ON THE LEADING
EDGE OF TECHNOLOGIES APPLICABLE TO THE PAYMENT INDUSTRY; THE COMPANY'S ABILITY
TO ATTRACT AND RETAIN EXECUTIVE MANAGEMENT AND OTHER KEY EMPLOYEES IN LIGHT OF
THE LIMITATIONS ON COMPENSATION IMPOSED ON PARTICIPANTS IN THE U.S. DEPARTMENT
OF THE TREASURY'S CAPITAL PURCHASE PROGRAM IN WHICH THE COMPANY IS A
PARTICIPANT; 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
RECENTLY ADOPTED BY FEDERAL BANK REGULATORS RELATING TO CERTAIN CREDIT AND
CHARGE CARD PRACTICES, INCLUDING, AMONG OTHERS, THE IMPOSITION BY CARD ISSUERS
OF INTEREST RATE INCREASES ON OUTSTANDING BALANCES AND THE ALLOCATION OF
PAYMENTS IN RESPECT OF OUTSTANDING BALANCES WITH DIFFERENT INTEREST RATES,
WHICH COULD HAVE AN ADVERSE IMPACT ON THE COMPANY'S NET INCOME; ACCOUNTING
CHANGES; OUTCOMES AND COSTS ASSOCIATED WITH LITIGATION AND COMPLIANCE AND
REGULATORY MATTERS; AND COMPETITIVE PRESSURES IN ALL OF THE COMPANY'S MAJOR
BUSINESSES. A FURTHER DESCRIPTION OF THESE AND OTHER RISKS AND UNCERTAINTIES
CAN BE FOUND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2008, AND THE COMPANY'S OTHER REPORTS FILED WITH THE SEC.
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