UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
------------------------
(Exact name of registrant as specified in its charter)
New York State 13-4922250
- ----------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Financial Center, 200 Vesey Street, New York, NY 10285
- --------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
------------------
None
- ---------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
- -------------------------------- -------------------------------
Common Shares (par value $.60 per share) 473,870,465 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statement of Income--Three and 1-2
nine months ended September 30, 1996 and 1995
Consolidated Balance Sheet--September 30, 3
1996 and December 31, 1995
Consolidated Statement of Cash Flows--Nine 4
months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of 6-17
Financial Condition and Results of Operations
Review Report of Independent Accountants 18
Part II. Other Information 19
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
------------------
1996 1995
Net Revenues: --------- ---------
Discount revenue $ 1,256 $ 1,116
Interest and dividends, net 796 896
Net card fees 418 439
Travel commissions and fees 316 316
Other commissions and fees 320 323
Management and distribution fees 302 241
Cardmember lending net finance charge 255 270
revenue
Insurance premiums 99 218
Other 294 235
------ ------
Total 4,056 4,054
------ ------
Expenses:
Human resources 1,103 1,010
Provisions for losses and benefits:
Annuities and investment certificates 348 358
Life insurance and other 134 226
Charge card 172 207
Cardmember lending 107 132
Interest:
Charge card 175 169
Other 94 141
Occupancy and equipment 281 271
Marketing and promotion 293 261
Professional services 212 208
Communications 119 101
Other 397 399
------ ------
Total 3,435 3,483
------ ------
Pretax income 621 571
Income tax provision 163 155
------ ------
Net income $ 458 $ 416
======= =======
Net income per common share $ 0.95 $ 0.83
======= =======
Average common and common equivalent
shares outstanding 481.9 496.5
======= =======
Cash dividends declared per
common share $ 0.225 $ 0.225
======= =======
See notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
---------------------
1996 1995
---------- ---------
Net Revenues:
Discount revenue $ 3,644 $ 3,246
Interest and dividends, net 2,478 2,642
Net card fees 1,253 1,311
Travel commissions and fees 943 931
Other commissions and fees 935 959
Management and distribution fees 878 673
Cardmember lending net finance charge 779 758
revenue
Insurance premiums 295 634
Other 777 638
------ ------
Total 11,982 11,792
------ ------
Expenses:
Human resources 3,177 3,000
Provisions for losses and benefits:
Annuities and investment certificates 1,045 1,037
Life insurance and other 403 652
Charge card 630 571
Cardmember lending 421 364
Interest:
Charge card 513 495
Other 356 437
Occupancy and equipment 830 795
Marketing and promotion 762 755
Professional services 609 584
Communications 329 301
Other 1,086 1,160
------ ------
Total 10,161 10,151
------ ------
Pretax income 1,821 1,641
Income tax provision 514 462
------ -------
Net income $ 1,307 $ 1,179
======= =======
Net income per common share $ 2.68 $ 2.34
======= =======
Average common and common equivalent
shares outstanding 486.6 499.4
======== =======
Cash dividends declared per
common share $ 0.675 $0.675
======= =======
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEET
(millions)
(Unaudited)
September 30, December 31,
Assets 1996 1995
- ------ ------------ ------------
Cash and cash equivalents $ 4,884 $ 3,200
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1996, $759; 1995, $753 16,080 17,154
Other receivables, less reserves:
1996, $53; 1995, $76 2,380 2,760
Investments 39,306 42,561
Loans:
Cardmember lending, less reserves:
1996, $420; 1995, $489 10,571 10,268
International banking, less reserves:
1996, $116; 1995, $111 5,524 5,317
Other, net 538 506
Separate account assets 17,485 14,974
Deferred acquisition costs 2,519 2,262
Land, buildings and equipment--at cost, less
accumulated depreciation: 1996, $1,838;
1995, $1,763 1,666 1,783
Other assets 5,714 6,620
-------- --------
Total assets $106,667 $107,405
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Customers' deposits $ 9,550 $ 9,889
Travelers Cheques outstanding 6,340 5,697
Accounts payable 4,477 4,686
Insurance and annuity reserves:
Fixed annuities 21,625 21,405
Life and disability policies 3,891 3,752
Investment certificate reserves 3,177 3,606
Short-term debt 16,901 17,654
Long-term debt 8,233 7,570
Separate account liabilities 17,485 14,974
Other liabilities 6,745 9,952
-------- -------
Total liabilities 98,424 99,185
Shareholders' equity:
Preferred shares, $1.66 2/3 par value,
authorized 20 million shares
Convertible Exchangeable Preferred shares,
issued and outstanding 4 million
shares at December 31, 1995, stated at
liquidation value - 200
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
473.5 million shares in 1996 and 483.1
million shares in 1995 284 290
Capital surplus 3,907 3,781
Net unrealized securities gains 577 875
Foreign currency translation adjustment (91) (85)
Retained earnings 3,566 3,159
-------- ---------
Total shareholders' equity 8,243 8,220
-------- ---------
Total liabilities and shareholders' equity $106,667 $107,405
======== =========
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
(Unaudited)
Nine Months Ended
September 30,
-------------------
1996 1995
---- ----
Cash Flows from Operating Activities
Net income $1,307 $1,179
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 1,490 1,463
Depreciation, amortization, deferred taxes and
other 202 237
Changes in operating assets and liabilities,
net of effects of acquisitions and dispositions:
Accounts receivable and accrued interest 477 (410)
Other assets 688 104
Accounts payable and other liabilities (1,066) (445)
Increase in Travelers Cheques outstanding 643 1,438
Increase in insurance reserves 154 364
------ ------
Net cash provided by operating activities 3,895 3,930
------ ------
Cash Flows from Investing Activities
Sale of investments 3,921 2,015
Maturity and redemption of investments 4,797 3,538
Purchase of investments (8,015) (7,200)
Net increase in Cardmember receivables (941) (1,695)
Proceeds from repayment of loans 16,703 15,963
Cardmember receivables/loans sold to Trust 2,242 -
Issuance of loans (18,811) (17,183)
Purchase of land, buildings and equipment (299) (224)
Sale of land, buildings and equipment 223 19
Acquisitions, net of cash acquired/sold - (7)
------ ------
Net cash used by investing activities (180) (4,774)
------ ------
Cash Flows from Financing Activities
Net decrease in customers' deposits (215) (604)
Sale of annuities and investment certificates 4,053 4,907
Redemption of annuities and investment (4,403) (3,166)
certificates
Net increase (decrease) in debt with maturities of
3 months or less 5,233 (4,732)
Issuance of debt 8,797 15,412
Principal payments on debt (14,381) (9,064)
Issuance of American Express common shares 116 202
Repurchase of American Express common shares (886) (665)
Dividends paid (330) (344)
------ -----
Net cash (used) provided by financing activities (2,016) 1,946
Effect of exchange rate changes on cash (15) 42
----- -----
Net increase in cash and cash equivalents 1,684 1,144
Cash and cash equivalents at beginning of period 3,200 3,433
----- -----
Cash and cash equivalents at end of period $4,884 $4,577
====== ======
See notes to Consolidated Financial Statements.
4
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. The consolidated financial statements should be read in conjunction
with the financial statements presented in the Annual Report on Form 10-
K of American Express Company (the "Company" or "American Express") for the
year ended December 31, 1995. Certain prior year's amounts have been
reclassified to conform to the current year's presentation.
Significant accounting policies disclosed therein have not changed.
The consolidated financial statements are unaudited; however, in the
opinion of management, they include all normal recurring adjustments
necessary for a fair presentation of the consolidated financial
position of the Company at September 30, 1996 and December 31, 1995,
the consolidated results of its operations for the three and nine
months ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 30, 1996 and 1995. Results of operations
reported for interim periods are not necessarily indicative of results
for the entire year.
2. Cardmember Lending Net Finance Charge Revenue is presented net of
interest expense of $122 million and $126 million for the three months
ended September 30, 1996 and 1995, respectively, and $373 million and
$368 million for the nine months ended September 30, 1996 and 1995,
respectively. Interest and Dividends is presented net of interest
expense of $128 million and $140 million for the three months ended
September 30, 1996 and 1995, respectively, and $396 million and $450
million for the nine months ended September 30, 1996 and 1995,
respectively, related to the Company's international banking
operations.
3. The following is a summary of investments:
September 30, December 31,
(In millions) 1996 1995
-------------- -------------
Held to Maturity, at amortized cost
(fair value: 1996, $13,539; 1995,
$17,549) $13,317 $16,790
Available for Sale, at fair value
(cost: 1996, $19,998; 1995, $20,452)
21,802 22,435
Investment mortgage loans (fair value:
1996, $3,714; 1995, $3,434)
3,672 3,180
Trading 515 156
------- -------
$39,306 $42,561
======= =======
4. Net income taxes paid during the nine months ended September 30, 1996
and 1995 were approximately $455 million and $475 million,
respectively. Interest paid during the nine months ended September 30,
1996 and 1995 was approximately $1.8 billion.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results Of Operations For The Three and Nine Months Ended
September 30, 1996 and 1995
The Company's consolidated net income increased 10 percent and 11 percent
in the quarter and nine months ended September 30, 1996, respectively,
compared with a year ago. Net income per share in the third quarter and
first nine months of 1996 rose by 14 percent and 15 percent, respectively,
reflecting higher revenues, improved margins and a reduction in average
shares outstanding. Excluding AMEX Life Assurance Company (AMEX Life), a
subsidiary that was sold in October 1995, consolidated revenues increased
4 percent and 6 percent in the quarter and nine months ended September 30,
1996, respectively, compared with last year. Proceeds from this sale were
used to fund a portion of the Company's share repurchase program which is
discussed below.
Consolidated Liquidity and Capital Resources
On October 28, 1996, the Company's Board of Directors approved a plan to
repurchase up to 40 million common shares over the next two to three
years, from time to time as market conditions allow. The plan is
primarily designed to allow the Company to offset share issuances under
employee compensation plans. Under certain conditions, the Company may
purchase additional shares to increase economic value for shareholders.
As of October 31, 1996, the Company had repurchased 57.7 million shares at
an average price of $38.19 per share under two previously authorized share
repurchase plans. The total authorization under those plans was 60
million shares.
During the nine months ended September 30, 1996, 2.3 million put options
issued in connection with the two prior share repurchase programs expired
unexercised. At September 30, 1996, the Company had a total of 500,000
put options outstanding with a weighted average strike price of $41.74 per
share. These options expired unexercised in October 1996.
On October 15, 1996, the Company completed the exchange of its DECS (Debt
Exchangeable for Common Stock) for shares of common stock of First Data
Corporation (FDC). Prior to the exchange, the Company had outstanding
23,618,500 DECS. Based on the appreciation of FDC shares during the three-
year term of the DECS, holders received 0.819 FDC shares for each DECS
held, or 19,343,536 FDC shares. As a result of the exchange, the
Company's holdings in FDC were reduced to 3,274,964 shares. In the fourth
quarter of 1996, the Company will recognize a $480 million pretax ($300
million after-tax) gain on the exchange.
On May 6, 1996, after receiving a redemption notice from the Company,
Nippon Life Insurance Company converted all of its four million $3.875
Convertible Exchangeable Preferred shares into 4,705,882 of the Company's
common shares. For purposes of computing earnings per common share, the
increase in outstanding common shares was offset by the elimination of the
preferred dividend. As a result, the conversion has no impact on earnings
per common share.
6
Travel Related Services
Results of Operations For The Three and Nine Months Ended September 30,
1996 and 1995
Statement of Income
-------------------
(Unaudited)
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
----------------- ---------------
1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec)
---------------------------- ------------------------------
Net Revenues:
Discount Revenue $1,256 $1,116 12.5% $3,644 $3,246 12.3%
Net Card Fees 418 439 (4.6) 1,253 1,311 (4.4)
Travel Commissions and Fees 316 316 0.1 943 931 1.3
Interest and Dividends 167 261 (36.3) 568 761 (25.3)
Other Revenues 508 570 (10.9) 1,384 1,608 (14.0)
---------------- ---------------
2,665 2,702 (1.4) 7,792 7,857 (0.8)
---------------- ---------------
Lending:
Finance Charge Revenue 377 396 (4.9) 1,152 1,126 2.3
Interest Expense 122 126 (3.0) 373 368 1.5
---------------- ---------------
Net Finance Charge
Revenue 255 270 (5.7) 779 758 2.8
---------------- ---------------
Total Net Revenues 2,920 2,972 (1.8) 8,571 8,615 (0.5)
---------------- ---------------
Expenses:
Marketing and Promotion 278 252 10.3 730 731 (0.2)
Provision for Losses and
Claims:
Charge Card 172 207 (16.8) 630 571 10.4
Lending 107 132 (18.8) 421 364 15.9
Other 28 137 (79.9) 79 382 (79.6)
----------------- ----------------
Total 307 476 (35.4) 1,130 1,317 (14.2)
----------------- ----------------
Interest Expense:
Charge Card 175 169 3.5 513 495 3.5
Other 72 114 (36.4) 282 338 (16.3)
----------------- ----------------
Total 247 283 (12.5) 795 833 (4.5)
Net Discount Expense 128 101 26.5 379 309 22.9
Human Resources 764 700 9.1 2,190 2,098 4.4
Other Operating Expenses 755 752 0.2 2,031 2,119 (4.1)
----------------- ----------------
Total Expenses 2,479 2,564 (3.3) 7,255 7,407 (2.1)
----------------- ----------------
Pretax Income 441 408 8.2 1,316 1,208 8.9
Income Tax Provision 118 111 6.5 384 349 10.1
----------------- ----------------
Net Income $323 $297 8.8 $932 $859 8.5
================= ================
7
The impact on the Statement of Income related to TRS' securitized receivables
and loans was as follows:
Increase Net Card Fees $4 - $4 -
Increase Other Revenues 45 $20 120 $63
Decrease Lending Finance
Charge Revenue (43) - (76) -
Decrease Lending Interest
Expense 17 - 25 -
Decrease Provision for
Losses and Claims:
Charge Card 51 40 160 124
Lending 11 - 22 -
Decrease Interest Expense:
Charge Card 43 41 124 122
Increase Net Discount
Expense (128) (101) (379) (309)
--------------- ----------------
Pretax Income $0 $0 $0 $0
=============== ================
Travel Related Services
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except
percentages and where indicated)
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
------------------ ------------------
1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec)
----------------------------- -----------------------------
Total Cards in Force (millions):
United States 28.4 25.9 9.4% 28.4 25.9 9.4%
Outside the United States* 11.9 11.5 4.1 11.9 11.5 4.1
------------ ----------------
Total 40.3 37.4 7.8 40.3 37.4 7.8
============ ================
Basic Cards in Force (millions):
United States 21.7 19.4 12.0 21.7 19.4 12.0
Outside the United States* 9.4 9.0 4.2 9.4 9.0 4.2
------------ ----------------
Total 31.1 28.4 9.5 31.1 28.4 9.5
============ ================
Card Billed Business:
United States $32.7 $29.2 11.8 $94.8 $83.9 13.0
Outside the United States* 13.2 11.8 12.4 38.4 34.6 10.9
------------- ----------------
Total $45.9 $41.0 12.0 $133.2 $118.5 12.4
============= ================
Travelers Cheque Sales $8.6 $8.3 3.2 $20.5 $20.5 -
Average Travelers Cheques
Outstanding $6.6 $6.7 (1.8) $6.1 $6.0 1.0
Travel Sales $3.8 $3.7 4.1 $11.5 $11.0 3.9
* Both years include Cards issued by strategic alliance partners
and independent operators as well as business billed on those Cards.
8
Travel Related Services' ("TRS") 1995 results included income from AMEX
Life. Excluding AMEX Life results from the three and nine month periods
ended September 30, 1995, TRS' net income grew approximately 13 percent in
both periods, revenues increased approximately 4 percent and 5 percent,
respectively, and expenses were up approximately 2 percent and 4 percent,
respectively.
For the three and nine months ended September 30, 1996, net revenues
reflected higher worldwide billed business on American Express Cards and
growth in Cardmember loans outstanding. The rise in billed business
resulted from greater spending per Cardmember, due in part to the benefits
of rewards programs and broader merchant coverage, and an increase in the
number of Cards outstanding. These improvements were partially offset by
a decrease in net Card fees consistent with TRS' strategy of expanding its
lending portfolio through the issuance of low- and no-fee credit cards.
Lending net finance charge revenue reflects the effect of the $1 billion
asset securitization completed in the second quarter of 1996 (see TRS'
Liquidity and Capital Resources discussion). Excluding this asset
securitization, lending net finance charge revenue rose 4 percent and 9
percent for the three and nine months ended September 30, 1996,
respectively, reflecting higher average loan balances, but lower net
interest spreads on introductory interest rates on new products. Interest
and dividends and other revenues declined primarily as a result of the
sale of AMEX Life. In addition, the decline in the third quarter also
reflects a lower level of investments due to a change in investment
strategy related to consolidation of certain legal entities within the
U.S. Consumer Lending business. This effect was offset by an equal
reduction in other interest expense.
Credit quality has improved since last year, particularly in Latin
America. Accordingly, the provision for losses for both charge and
lending products declined significantly during the third quarter.
Management expects the amount of the fourth quarter provision to be
similar to that of the third quarter.* The Charge Card provision for
losses rose in the nine month period primarily due to volume growth. The
lending provision for losses was higher for the nine month period because
of higher loss rates earlier in the year and volume growth. The other
provision for losses declined with the sale of AMEX Life. In the third
quarter of 1996, operating expenses increased from last year, primarily
relating to the cost of Cardmember loyalty programs, business growth and
investment spending.
* This is a forward-looking statement. See Part II, Item 5 of this 10-Q
report for certain risks and uncertainties relating to such statement.
9
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions)
September 30, December 31, Percentage September 30, Percentage
1996 1995 Inc/(Dec) 1995 Inc/(Dec)
------------------------------------------------------------------------
Accounts Receivable,
net $17.4 $18.9 (8.0%) $18.1 (4.0%)
Cardmember Loans, net $10.6 $10.3 3.0 $9.3 13.7
Owned and Managed Cardmember
Receivables (excluding
Revolving Card Products):
Total Cardmember
Receivables $20.7 $20.5 1.1 $18.7 10.5
90 Days Past Due as
a % of Total
Cardmember
Receivables 3.6% 3.5% - 3.6% -
Total Loss
Reserves (millions) $996 $952 4.6 $915 8.8
% of Cardmember
Receivables 4.8% 4.6% - 4.9% -
% of 90 Days Past Due 134% 131% - 135% -
Cardmember Receivables
Loss Ratio,
Net of Recoveries* 0.52% 0.51% - 0.49% -
Owned and Managed
U.S. Cardmember
Lending (including
Revolving Card
Products):
Total Cardmember Loans $11.2 $10.0 12.5 $9.0 24.2
30 Days Past Due
as a % of Total
Cardmember Loans 3.2% 3.8% - 3.5% -
Total Loss
Reserves (millions) $427 $443 (3.6) $389 9.8
% of Cardmember Loans 3.8% 4.5% - 4.3% -
% of 30 Days Past Due 119% 116% - 122% -
Write-Off Rates* 5.1% 4.4% - 4.4% -
Investments $6.5 $9.2 (28.9) $11.9 (45.3)
Total Assets $41.7 $45.2 (7.6) $47.1 (11.4)
Travelers Cheques
Outstanding $6.3 $5.7 11.3 $6.7 (5.5)
Short-term Debt $16.8 $17.9 (6.2) $16.9 (0.6)
Long-term Debt $5.0 $4.4 14.6 $3.4 47.7
Total Liabilities $36.7 $40.3 (8.8) $42.3 (13.2)
Total Shareholder's
Equity $5.0 $4.9 2.2 $4.8 4.6
Return on Average
Equity 25.1% 24.6% - 24.6% -
* For the year-to-date period
Note: Owned and Managed Cardmember Receivables and Loans include securitized
assets not reflected in the Consolidated Balance Sheet.
10
American Express Centurion Bank ("Centurion Bank") and American Express
Receivables Financing Corporation II, a newly formed wholly owned
subsidiary of TRS, created a new trust, the American Express Credit
Account Master Trust (the "Trust"), for the securitization of revolving
credit loans. On May 16, 1996, the Trust securitized $1 billion of loans
through the public issuance of two classes of investor certificates and a
privately placed collateral interest in the assets of the Trust. The
securitized assets consist of loans arising in a portfolio of designated
Optima Card, Optima Line of Credit and Sign & Travel revolving credit
accounts owned by Centurion Bank.
On September 18, 1996, the American Express Master Trust (the "Master Trust")
issued an additional $1.25 billion Class A Floating Rate Accounts
Receivable Trust Certificates. The securitized assets consist of
receivables generated under designated American Express Card, American
Express Gold Card and Platinum Card consumer accounts. The Master Trust
was formed in 1992 to securitize Charge Card receivables.
The decline in investments reflects a change in investment strategy
related to consolidation of certain legal entities within the U.S.
Consumer Lending business, which was offset by a corresponding decrease in
other liabilities.
11
American Express Financial Advisors
Results of Operations For The Three and Nine Months Ended September 30,
1996 and 1995
Statement of Income
--------------------
(Unaudited)
(Dollars in millions, except
where indicated)
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
--------------- ----------------
1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec)
----------------------------- -----------------------------
Revenues:
Investment Income $560 $555 0.9% $1,691 $1,639 3.2%
Management and
Distribution Fees 302 241 25.4 878 673 30.4
Other Income 159 138 15.5 472 406 16.3
----------------- ---------------
Total Revenues 1,021 934 9.4 3,041 2,718 11.9
----------------- ---------------
Expenses:
Provision for Losses and
Benefits:
Annuities 303 293 3.7 898 855 5.1
Insurance 102 99 2.8 312 296 5.3
Investment Certificates 45 55 (17.2) 147 150 (2.4)
---------------- ----------------
Total 450 447 0.9 1,357 1,301 4.3
Human Resources 259 226 14.4 757 650 16.4
Other Operating Expenses 82 64 28.3 270 214 25.9
---------------- -----------------
Total Expenses 791 737 7.5 2,384 2,165 10.1
---------------- -----------------
Pretax Income 230 197 16.6 657 553 19.0
Income Tax Provision 74 63 16.6 218 183 19.8
---------------- -----------------
Net Income $156 $134 16.5 $439 $370 18.5
================ =================
Selected Statistical Information
--------------------------------------
Life Insurance
in Force (billions) $65.2 $57.6 13.2 $65.2 $57.6 13.2
=============== ===============
Assets Owned and/or
Managed (billions):
Assets managed
for institutions $35.8 $32.3 10.9 $35.8 $32.3 10.9
Assets owned and
managed for individuals:
Owned Assets 50.8 46.2 9.9 50.8 46.2 9.9
Managed Assets 56.3 46.3 21.6 56.3 46.3 21.6
---------------- ----------------
Total $142.9 $124.8 14.5 $142.9 $124.8 14.5
================ ================
Sales of Selected Products:
Mutual Funds $3,313 $2,584 28.2 $10,644 $7,236 47.1
Annuities $946 $699 35.3 $3,226 $2,757 17.0
Investment Certificates $182 $363 (49.9) $503 $1,379 (63.5)
Life and Other
Insurance Sales $109 $94 16.2 $318 $273 16.3
Number of Financial Advisors 8,092 7,930 2.0 8,092 7,930 2.0
Fees From Financial
Plans (thousands) $11,660 $9,798 19.0 $34,867 $29,842 16.8
Product Sales Generated
from Financial Plans as
a Percentage of
Total Sales 64.7% 65.3% - 63.7% 64.3% -
12
During the three and nine months ended September 30, 1996, the increase in
American Express Financial Advisors' investment income reflected higher
average asset levels, but lower investment yields compared with the year-
ago periods. Management and distribution fees rose reflecting increases
in management fees earned on a higher asset base and distribution fees
attributable to greater mutual fund sales. The growth in managed assets
was due to market appreciation and positive net sales. Other income
increased primarily due to higher life insurance contract charges and
premiums.
The provisions for annuity and insurance benefits grew as higher business
in force was offset, in part, by lower accrual rates. The provision for
investment certificates declined due to lower average investment
certificates in force in the third quarter and lower accrual rates. Human
resources expense was higher as financial advisors' compensation increased
as a result of greater commissionable sales and, to a lesser extent, more
employees compared with last year. Other operating expenses grew
primarily as a result of higher data processing support costs. The growth
in other operating expenses in the nine month period also included a
higher provision for insurance industry guarantee association assessments.
American Express Financial Advisors
Liquidity and Capital Resources
September 30, December 31, Percentage September 30, Percentage
1996 1995 Inc/(Dec) 1995 Inc/(Dec)
--------------------------------------------------------------
Investments $28.2 $28.8 (2.0%) $28.0 0.6%
Separate Account
Assets $17.5 $15.0 16.8 $14.1 23.8
Total Assets $50.8 $48.3 5.2 $46.2 9.9
Reserves for
Losses and Benefits $28.6 $28.6 (0.2) $27.7 3.2
Total Liabilities $47.7 $45.2 5.6 $43.4 10.0
Total Shareholder's
Equity $3.0 $3.1 (0.9) $2.8 7.2
Return on Average
Equity 20.2% 19.4% - 19.2% -
American Express Financial Advisors' total assets grew from year end due
to an increase in separate account assets as a result of market
appreciation and positive net sales. The declines in investments and
total shareholder's equity from year end reflect a lower level of
unrealized securities gains due to a decline in market value resulting
from higher market interest rates.
13
American Express Bank
Results of Operations For The Three and Nine Months Ended September 30,
1996 and 1995
Statement of Income
--------------------
(Unaudited)
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
-------------- -------------
1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec)
--------------------------- ----------------------------
Net Revenues:
Interest Income $206 $221 (6.9%) $619 $693 (10.7%)
Interest Expense 128 140 (8.4) 396 450 (12.0)
------------- ---------------
Net Interest Income 78 81 (4.3) 223 243 (8.4)
Commissions, Fees and
Other Revenues 57 59 (4.8) 156 180 (13.6)
Foreign Exchange Income 16 21 (21.7) 56 61 (7.5)
------------- ---------------
Total Net Revenues 151 161 (6.7) 435 484 (10.2)
------------- ---------------
Provision for Credit Losses 5 1 # 13 5 #
------------- ------------
Expenses:
Human Resources 59 62 (5.0) 168 190 (11.7)
Other Operating Expenses 59 65 (9.2) 175 206 (14.9)
------------- ---------------
Total Expenses 118 127 (7.1) 343 396 (13.4)
------------- ---------------
Pretax Income 28 33 (16.3) 79 83 (5.0)
Income Tax Provision 10 11 (11.6) 28 26 5.3
------------- ---------------
Net Income $18 $22 (18.8) $51 $57 (9.8)
============= ===============
# Denotes variance of more than 100%.
The decline in American Express Bank's (the "Bank") earnings for the three
and nine months ended September 30, 1996 resulted from lower revenues,
partly offset by expense savings. These results also reflect the Bank's
continued efforts to focus on strategic markets and eliminate low return
activities.
Net interest income was down primarily as a result of higher short-term
funding costs, as well as a balance sheet reduction in the nine month
period. The decreases in commissions, fees and other revenues and
operating expenses were primarily due to exiting nonstrategic businesses,
including the transfer of certain aircraft assets to the Bank's parent,
American Express Company, in January 1996.
14
American Express Bank
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions, except
where indicated)
September 30, December 31, Percentage September 30, Percentage
1996 1995 Inc/(Dec) 1995 Inc/(Dec)
----------------------------------------------------------------
Investments $2.5 $2.5 (0.4%) $2.6 (2.0%)
Total Loans $5.6 $5.4 3.9 $5.4 4.8
Reserve for
Credit Losses (millions) $116 $111 4.5 $115 0.7
Reserves as a Percentage
of Total Loans 2.1% 2.0% - 2.1% -
Total Nonperforming
Loans (millions) $31 $34 (8.2) $32 (2.8)
Other Real Estate
Owned (millions) $34 $44 (21.8) $43 (20.6)
Total Assets $12.1 $12.3 (1.9) $12.5 (3.3)
Deposits $8.4 $8.5 (0.5) $8.4 0.4
Total Liabilities $11.3 $11.5 (1.5) $11.7 (3.2)
Total Shareholder's
Equity (millions) $777 $837 (7.3) $809 (4.0)
Risk-Based Capital Ratios:
Tier 1 9.0% 8.9% - 8.7% -
Total 12.8% 13.0% - 13.9% -
Leverage Ratio 6.0% 5.8% - 5.6% -
Return on Average Assets* 0.58% 0.59% - 0.57% -
Return on Average
Common Equity* 9.34% 9.99% - 9.80% -
* For the year-to-date peiod
The Bank's total balance sheet declined modestly from year end. Liquidity
created from the transfer of certain aircraft assets to the parent was
used to pay a special dividend and fund higher loans, while deposits
declined slightly. The decrease in other real estate owned primarily resulted
from the sale of a foreclosed asset.
Corporate and Other
Corporate and Other reported third quarter 1996 net expenses of $39
million, compared with net expenses of $37 million a year ago.
Corporate and Other reported net expenses of $115 million in the nine
months ended September 30, 1996, compared with $107 million last year.
Results for the first nine months of 1996 and 1995 include the Company's
share of the Travelers Inc. revenue participation in accordance with an
agreement related to the 1993 sale of the Shearson Lehman Brothers
Division, which was offset by expenses related to business building
initiatives.
15
INDEPENDENT ACCOUNTANTS REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of
American Express Company (the "Company") as of September 30, 1996, the
related consolidated statements of income for the three and
nine month periods ended September 30, 1996 and 1995, and the
consolidated statement of cash flows for the nine month periods
ended September 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, which will be performed for the full year with the
objective of expressing an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying
consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company
as of December 31, 1995, and the related consolidated statements
of income, shareholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated February 8,
1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31,
1995 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/Ernst & Young LLP
New York, New York
November 14, 1996
16
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 5. Other Information
(a) Forward-looking statements
--------------------------
A statement in Part I of this 10-Q is identified under "Travel Related
Services -- Results of Operations For The Three and Nine Months Ended
September 30, 1996 and 1995" as a "forward-looking statement." This statement
involves risks and uncertainties. Important factors which may cause actual
results to differ materially from this forward looking statement include, but
are not limited to, the following: consumer and/or business spending per
Cardmember, which may result from general economic conditions affecting
consumers or businesses, including the overall levels of consumer debt;
other general economic and business conditions, such as interest rates and
consumer credit trends, which could affect the ability of consumers and
businesses to repay credit and charge card debt to TRS; the rate of
bankruptcies of consumers and businesses; and the volume of new card products
issued by TRS, which typically involve higher provisioning.
(b) By-law Amendment
----------------
On October 28, 1996, Section 2.2 of the Company's By-laws was amended,
generally giving the Secretary of the Company the authority to fix a date
for special meetings of shareholders demanded by holders of a majority of
the Company's shares outstanding and entitled to vote in the election of
directors (which currently includes holders of the Company's common shares).
The amended section provides that the Secretary shall fix a date for such
meetings no less than 60 days nor more than 90 days after receipt of a
properly submitted demand by shareholders. See Exhibit 3.2 to this Form 10-Q
Report for the full text of the amended section.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated July 22, 1996, Item 5, relating to the
registrant's earnings for the quarter ended June 30, 1996.
Form 8-K, dated October 29, 1996, Item 5, relating to
the registrant's earnings for the quarter ended
September 30, 1996.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
------------------------
(Registrant)
Date: November 14, 1996 By /s/ Richard K. Goeltz
- ----------------------- -------------------------
Richard K. Goeltz
Vice Chairman and
Chief Financial Officer
Date: November 14, 1996 /s/ Daniel T. Henry
- ----------------------- --------------------------
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
18
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly
Report:
Exhibit Description
3.2 Registrant's By-laws, as amended on October 28, 1996.
12 Computation in Support of Ratio of Earnings to Fixed Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.