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, 1997
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 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, 1997
- -------------------------------------- -------------------------------
Common Shares (par value $.60 per share) 464,779,442 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Statement of Income - Three and 1-2
nine months ended September 30, 1997 and 1996
Consolidated Balance Sheet - September 30, 3
1997 and December 31, 1996
Consolidated Statement of Cash Flows - Nine 4
months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of 6-16
Financial Condition and Results of Operations
Review Report of Independent Accountants 17
Part II. Other Information 18
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
----------------------
1997 1996
Net Revenues: -------- ---------
Discount revenue $ 1,422 $ 1,256
Interest and dividends, net 809 796
Net card fees 399 418
Travel commissions and fees 370 354
Other commissions and fees 381 320
Cardmember lending net finance charge
revenue 318 255
Management and distribution fees 391 302
Life and other insurance premiums 106 99
Other 304 294
-------- ---------
Total 4,500 4,094
-------- ---------
Expenses:
Human resources 1,190 1,103
Provisions for losses and benefits:
Annuities and investment certificates 355 348
Life insurance and other 143 134
Charge card 228 172
Cardmember lending 179 107
Interest:
Charge card 186 175
Other 55 94
Occupancy and equipment 289 281
Marketing and promotion 308 293
Professional services 264 250
Communications 112 119
Other 473 397
-------- ---------
Total 3,782 3,473
-------- ---------
Pretax income 718 621
Income tax provision 194 163
-------- ---------
Net income $ 524 $ 458
======== =========
Net income per common share $ 1.10 $ 0.95
======== =========
Average common and common equivalent
shares outstanding 477.2 481.9
======== =========
Cash dividends declared per
common share $ 0.225 $ 0.225
======== =========
See notes to Consolidated Financial Statements.
1
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
----------------------
1997 1996
Net Revenues: -------- ---------
Discount revenue $ 4,136 $ 3,644
Interest and dividends, net 2,381 2,478
Net card fees 1,206 1,253
Travel commissions and fees 1,087 1,041
Other commissions and fees 1,081 935
Cardmember lending net finance charge
revenue 910 779
Management and distribution fees 1,082 878
Life and other insurance premiums 314 295
Other 889 777
-------- ---------
Total 13,086 12,080
-------- ---------
Expenses:
Human resources 3,472 3,177
Provisions for losses and benefits:
Annuities and investment certificates 1,064 1,045
Life insurance and other 413 403
Charge card 658 630
Cardmember lending 577 421
Interest:
Charge card 530 513
Other 144 356
Occupancy and equipment 847 830
Marketing and promotion 780 762
Professional services 730 672
Communications 336 329
Other 1,475 1,121
-------- ---------
Total 11,026 10,259
-------- ---------
Pretax income 2,060 1,821
Income tax provision 562 514
-------- ---------
Net income $ 1,498 $ 1,307
======== =========
Net income per common share $ 3.12 $ 2.68
======== =========
Average common and common equivalent
shares outstanding 479.6 486.6
======== =========
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 1997 1996
- ------ ------------ ------------
Cash and cash equivalents $ 4,614 $ 2,677
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1997, $674; 1996, $658 18,316 17,938
Other receivables, less reserves:
1997, $71; 1996, $64 2,187 2,553
Investments 39,182 38,339
Loans:
Cardmember lending, less reserves:
1997, $547; 1996, $482 12,016 12,194
International banking, less reserves:
1997, $127; 1996, $117 6,403 5,760
Other, net 875 564
Separate account assets 23,223 18,535
Deferred acquisition costs 2,828 2,660
Land, buildings and equipment--at cost, less
accumulated depreciation: 1997, $1,877;
1996, $1,852 1,584 1,675
Other assets 6,414 5,617
-------- --------
Total assets $117,642 $108,512
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Customers' deposits $ 9,724 $ 9,555
Travelers Cheques outstanding 6,134 5,838
Accounts payable 5,089 4,601
Insurance and annuity reserves:
Fixed annuities 22,215 21,838
Life and disability policies 3,995 3,836
Investment certificate reserves 3,714 3,265
Short-term debt 18,511 18,402
Long-term debt 8,080 6,552
Separate account liabilities 23,223 18,535
Other liabilities 7,839 7,562
-------- -------
Total liabilities 108,524 99,984
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
465.8 million shares in 1997 and 472.9
million shares in 1996 280 284
Capital surplus 4,285 4,191
Net unrealized securities gains 544 386
Foreign currency translation adjustment (97) (89)
Retained earnings 4,106 3,756
-------- --------
Total shareholders' equity 9,118 8,528
-------- --------
Total liabilities and shareholders' equity $117,642 $108,512
======== ========
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
(Unaudited)
Nine Months Ended
September 30,
-------------------
1997 1996
---- ----
Cash Flows from Operating Activities
Net income $1,498 $1,307
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 1,706 1,490
Depreciation, amortization, deferred taxes
and other 200 202
Changes in operating assets and liabilities, net
of effects of acquisitions and dispositions:
Accounts receivable and accrued interest 252 477
Other assets (216) 688
Accounts payable and other liabilities 334 (1,066)
Increase in Travelers Cheques outstanding 305 643
Increase in insurance reserves 98 154
----- -----
Net cash provided by operating activities 4,177 3,895
----- -----
Cash Flows from Investing Activities
Sale of investments 1,564 3,921
Maturity and redemption of investments 3,479 4,797
Purchase of investments (5,740) (8,015)
Net increase in Cardmember receivables (1,252) (941)
Proceeds from repayment of loans 18,594 16,703
Cardmember loans/receivables sold to Trust, net 516 2,242
Issuance of loans (21,049) (18,811)
Purchase of land, buildings and equipment (249) (299)
Sale of land, buildings and equipment 136 223
Dispositions, net of cash sold 9 -
----- -----
Net cash used by investing activities (3,992) (180)
----- -----
Cash Flows from Financing Activities
Net increase (decrease) in customers' deposits 633 (215)
Sale of annuities and investment certificates 4,518 4,053
Redemption of annuities and investment
certificates (3,859) (4,403)
Net (decrease) increase in debt with maturities
of 3 months or less (1,027) 5,233
Issuance of debt 9,421 8,797
Principal payments on debt (6,719) (14,381)
Issuance of American Express common shares 149 116
Repurchase of American Express common shares (924) (886)
Dividends paid (318) (330)
----- -----
Net cash provided (used) by financing activities 1,874 (2,016)
Effect of exchange rate changes on cash (122) (15)
----- -----
Net increase in cash and cash equivalents 1,937 1,684
Cash and cash equivalents at beginning of period 2,677 3,200
----- -----
Cash and cash equivalents at end of period $4,614 $4,884
===== =====
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 in the Annual Report on Form 10-K of American
Express Company (the Company or American Express) for the year ended
December 31, 1996. Certain prior year's amounts have been reclassified
to conform to the current year's presentation. Significant accounting
policies disclosed therein have not changed.
Index options purchased and written by American Express Financial Advisors
are carried at market value and included in Other Assets. Gains or losses
on these options are recognized currently and included in Other Expenses.
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, 1997 and December 31, 1996, the
consolidated results of its operations for the quarter and nine months
ended September 30, 1997 and 1996 and cash flows for the nine months
ended September 30, 1997 and 1996. 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 $154 million and $122 million for the third quarter
of 1997 and 1996, respectively, and $451 million and $373 million for
the nine months ended September 30, 1997 and 1996, respectively.
Interest and Dividends is presented net of interest expense of
$148 million and $128 million for the third quarter of 1997 and 1996,
respectively, and $431 million and $396 million for the nine months
ended September 30, 1997 and 1996, respectively, related to the
Company's international banking operations.
3.The following is a summary of investments:
September 30, December 31,
(In millions) 1997 1996
-------------- -------------
Held to Maturity, at amortized cost
(fair value: 1997, $12,529; 1996,
$13,439) $12,055 $13,063
Available for Sale, at fair value (cost:
1997, $22,061; 1996, $20,366) 22,919 20,978
Investment mortgage loans (fair value:
1997, $3,974; 1996, $3,827) 3,823 3,712
Trading 385 586
-------------- --------------
$39,182 $38,339
============== ==============
4.Net income taxes paid during the nine months ended September 30, 1997
and 1996 were approximately $627 million and $455 million, respectively.
Interest paid during the nine months ended September 30, 1997 and 1996
was approximately $1.8 billion in each period.
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, 1997 and 1996
The Company's consolidated net income rose 14 percent and 15 percent in the
three and nine month periods ended September 30, 1997, respectively. Net
income per share increased 16 percent for the three and nine month periods
ended September 30, 1997. These results met or exceeded the Company's long-
term targets of: 12-15 percent earnings per share growth, with at least 8
percent coming from higher revenues; and a return on equity of 18-20
percent. Consolidated revenues rose 10 percent and 8 percent for the three
and nine months ended September 30, 1997, respectively, as a result of
growth in worldwide billed business and Cardmember loans outstanding, wider
interest margins in the lending portfolio as well as higher management and
distribution fees. Partially offsetting these increases was a decline in
card fees. Consolidated expenses were higher, primarily due to provisions
for losses as well as human resource and operating expenses to support
business expansion and loyalty programs.
Consolidated Liquidity and Capital Resources
In the first nine months of 1997, the Company repurchased 12.8 million
common shares at an average price of $71.70 per share and canceled 19.6
million common shares under the repurchase programs.
Accounting Development
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
which is effective and will be adopted by the Company at December 31, 1997.
No material effect on the earnings per share of the Company is expected.
6
Travel Related Services
Results of Operations For The Three and Nine Months Ended September 30,
1997 and 1996
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- Percentage ------------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
------------------------- ----------------------
Net Revenues:
Discount Revenue $1,422 $1,256 13.3% $4,136 $3,644 13.5%
Net Card Fees 399 418 (4.7) 1,206 1,253 (3.8)
Travel Commissions and Fees 370 354 4.1 1,087 1,041 4.3
Interest and Dividends 150 167 (10.1) 425 568 (25.2)
Other Revenues 540 508 6.6 1,552 1,384 12.3
Lending:
Finance Charge Revenue 472 377 25.3 1,361 1,152 18.1
Interest Expense 154 122 26.5 451 373 20.8
--------------- ---------------
Net Finance Charge
Revenue 318 255 24.7 910 779 16.8
--------------- ---------------
Total Net Revenues 3,199 2,958 8.1 9,316 8,669 7.5
--------------- ---------------
Expenses:
Marketing and Promotion 301 278 8.1 746 730 2.3
Provision for Losses
and Claims:
Charge Card 228 172 32.4 658 630 4.4
Lending 179 107 66.9 577 421 37.0
Other 22 28 (22.9) 66 79 (15.2)
--------------- ---------------
Total 429 307 39.6 1,301 1,130 15.2
--------------- ---------------
Interest Expense:
Charge Card 186 175 6.5 530 513 3.3
Other 50 72 (31.2) 137 282 (51.5)
--------------- ---------------
Total 236 247 (4.5) 667 795 (16.2)
Net Discount Expense 142 128 10.4 458 379 20.8
Human Resources 796 764 4.1 2,328 2,190 6.3
Other Operating Expenses 801 793 1.3 2,379 2,129 11.7
--------------- ---------------
Total Expenses 2,705 2,517 7.5 7,879 7,353 7.2
--------------- ---------------
Pretax Income 494 441 12.0 1,437 1,316 9.2
Income Tax Provision 138 118 17.2 411 384 6.9
--------------- ---------------
Net Income $ 356 $ 323 10.2 $1,026 $ 932 10.1
=============== ===============
The following table, which is presented for analytical purposes only, presents
the impact on the above Statement of Income related to TRS' securitized
receivables and loans. The table includes a pretax gain of $37 million in
the third quarter of 1997 ($24 million after-tax) related to the securitization
of U.S. Cardmember loans. Such gain was recognized in accordance with Statement
of Financial Accounting Standards No. 125 which prescribes the accounting for
securitized receivables and loans. This gain was invested in additional
Marketing and Promotion expenses which have also been included in the table
below, and had no material impact on net income or total expenses in 1997.
(Decrease)Increase Net Card Fees $ (4) $ 4 $ (5) $ 4
Increase Interest & Dividends 5 - 5 -
Increase Other Revenues 55 45 149 120
Decrease Lending Finance
Charge Revenue (76) (43) (171) (76)
Decrease Lending Interest Expense 23 17 57 25
Increase Marketing & Promotion (37) - (37) -
Decrease Provision for Losses
and Claims:
Charge Card 56 51 193 160
Lending 64 11 91 22
Decrease Interest Expense:
Charge Card 56 43 176 124
Increase Net Discount Expense (142) (128) (458) (379)
--------------- ---------------
Pretax Income $ 0 $ 0 $ 0 $ 0
=============== ===============
7
Travel Related Services
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ Percentage ------------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
--------------------------- ------------------------
Total Cards in Force (millions):
United States 29.6 28.4 4.2% 29.6 28.4 4.2%
Outside the United States 12.8 11.9 7.3 12.8 11.9 7.3
------------- -------------
Total 42.4 40.3 5.1 42.4 40.3 5.1
============= =============
Basic Cards in Force (millions):
United States 23.2 21.7 6.5 23.2 21.7 6.5
Outside the United States 9.8 9.4 5.0 9.8 9.4 5.0
------------- -------------
Total 33.0 31.1 6.1 33.0 31.1 6.1
============= =============
Card Billed Business:
United States $ 38.0 $ 32.7 16.4 $ 109.8 $ 94.8 15.8
Outside the United States 14.7 13.2 10.9 42.7 38.4 11.2
------------- -------------
Total $ 52.7 $ 45.9 14.8 $ 152.5 $ 133.2 14.5
============= =============
Average Discount Rate* 2.72% 2.75% - 2.74% 2.76% -
Average Basic Cardmember
Spending (dollars)* $1,616 $1,512 6.9 $ 4,734 $ 4,458 6.2
Average Fee per Card
(dollars)* $ 38 $ 43 (11.6) $ 39 $ 43 (9.3)
Travel Sales $ 4.2 $ 3.8 9.6 $ 12.6 $ 11.5 9.7
Travel Commissions
and Fees/Sales** 8.8% 9.3% - 8.6% 9.1% -
Travelers Cheque:
Sales $ 8.1 $ 8.6 (5.8) $ 19.8 $ 20.5 (3.6)
Average Outstanding $ 6.4 $ 6.6 (3.0) $ 6.0 $ 6.1 (1.6)
Tax Equivalent Yield 9.0% 9.0% - 9.2% 9.4% -
Owned and Managed Charge Card
Receivables:
Total Receivables $ 22.5 $ 20.7 8.9 $ 22.5 $ 20.7 8.9
90 Days Past Due as
a % of Total 3.2% 3.6% - 3.2% 3.6% -
Loss Reserves (millions) $ 970 $ 996 (2.6) $ 970 $ 996 (2.6)
% of Receivables 4.3% 4.8% - 4.3% 4.8% -
% of 90 Days Past Due 133% 134% - 133% 134% -
Net Loss Ratio 0.52% 0.54% - 0.51% 0.52% -
Owned and Managed U.S. Cardmember
Lending:
Total Loans $ 13.5 $ 11.2 20.3 $ 13.5 $ 11.2 20.3
Past Due Loans as a %
of Total:
30-89 Days 2.5% 2.3% - 2.5% 2.3% -
90+ Days 1.1% 0.9% - 1.1% 0.9% -
Loss Reserves (millions):
Beginning Balance $ 534 $ 468 14.1 $ 488 $ 443 10.0
Provision 220 98 # 620 388 59.9
Net Charge-Offs
/Other (198) (139) 42.9 (552) (404) 36.8
------------- -------------
Ending Balance $ 556 $ 427 30.0 $ 556 $ 427 30.0
============= =============
% of Loans 4.1% 3.8% - 4.1% 3.8% -
% of Past Due 115% 119% - 115% 119% -
Average Loans $ 13.4 $ 11.0 21.8 $ 13.1 $ 10.5 24.6
Net Write-Off Rate 6.5% 5.1% - 5.9% 5.1% -
Net Interest Yield 9.4% 8.4% - 9.0% 8.9% -
Note: Owned and managed Cardmember receivables and loans include securitized
assets not reflected in the consolidated balance sheet.
* Computed excluding Cards issued by strategic alliance partners and
independent operators as well as business billed on those Cards.
** Computed from information provided herein.
# Denotes variance of more than 100%.
8
Travel Related Services
Travel Related Services' (TRS) net income rose 10 percent for the three and
nine month periods ended September 30, 1997. Net revenues increased 8
percent and 7 percent for the three and nine months ended September 30,
1997, respectively. This was primarily due to higher worldwide billed
business, greater Cardmember loans outstanding and, in the third quarter,
wider interest margins in the lending portfolio. The growth in revenues
also includes a benefit from increased recognition of recoveries on
abandoned property related to the Travelers Cheque business, which was
largely offset by higher investment spending on business building
initiatives. The third quarter of 1997 included a gain of $37 million
arising from the securitization of U.S. Cardmember loans; this treatment is
required by Statement of Financial Accounting Standards No. 125. This gain
was invested in additional Marketing and Promotion expenses and had no
material impact on net income or total expenses in 1997.
The improvement in discount revenue resulted from higher billed business,
which reflects a greater number of cards outstanding and higher spending
per Cardmember. This was somewhat offset by a small decline in the average
discount rate. Changes in the mix of billed business, the continued shift
to electronic data capture, volume related pricing discounts, and selective
repricing initiatives will probably result in some discount rate erosion
over time.<F1> Cardmember spending increased in part due to the benefits
of rewards programs and expanded merchant coverage. The growth in cards
is largely attributable to the introduction of new consumer and small business
credit card products, consistent with the Company's strategy of building
its lending portfolio through the issuance of low- and no-fee credit cards.
This strategy and a decline in consumer charge cards outstanding led to
5 percent and 4 percent decreases in net card fees for the three and nine
months ended September 30, 1997, respectively.
Interest and dividends decreased primarily as a result of a reduction in
investments related to the consolidation of certain legal entities within
the consumer lending business. This amalgamation resulted in a decline in
both interest and dividends and other interest expense by approximately $8
million and $82 million in the three and nine months ended September 30,
1997, respectively.
Lending net finance charge revenue, excluding securitizations, rose by 32
percent and 23 percent for the three and nine months ended September 30,
1997, respectively. These increases were primarily due to a 21 percent
growth in worldwide lending balances and a widening of interest margins on
the U.S. portfolio, particularly in the third quarter, primarily resulting
from a smaller portion of the portfolio being subject to lower
introductory interest rates, when compared to the prior year.
The charge card provision for losses rose, reflecting higher billed
business and in the third quarter higher loss rates. The lending provision
for losses grew reflecting higher outstanding loans as well as an increase
in loss rates. The increase in the lending provision was partially offset
by the securitization of U.S. Cardmember loans in the third quarter of
1997. Human resource expense rose due to a greater number of employees,
merit increases and contract programmer costs for technology related
projects. Other operating expenses rose due to Cardmember loyalty programs
and business growth.
_______________________________
<F1> This is a forward looking statement which is subject to risks
and uncertainties. Important factors that could cause results to
differ materially from the forward looking statement include, among other
things, unanticipated changes in TRS' mix of business and competitive
pressures.
9
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
---------------------------------
(Unaudited)
(Amounts in billions, except percentages)
September 30, December 31, Percentage September 30, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
------------- ----------- ---------- ------------- ----------
Accounts Receivable,
net $ 19.5 $ 19.5 0.1% $ 17.4 12.4%
Travelers Cheque
Investments $ 5.7 $ 5.6 3.1 $ 5.8 (1.3)
U.S. Cardmember
Loans $ 11.5 $ 11.7 (2.2) $ 10.2 12.5
Total Assets $ 45.4 $ 43.1 5.5 $ 41.7 8.8
Travelers Cheques
Outstanding $ 6.1 $ 5.8 5.1 $ 6.3 (3.1)
Short-term debt $ 19.1 $ 18.4 4.1 $ 16.8 14.0
Long-term debt $ 6.1 $ 5.0 21.1 $ 5.0 21.0
Total Liabilities $ 40.1 $ 38.4 4.6 $ 36.7 9.2
Total Shareholder's
Equity $ 5.3 $ 4.7 12.9 $ 5.0 5.2
Return on Average
Equity* 27.4% 25.6% - 25.1% -
Return on Average
Assets* 3.0% 2.8% - 2.7% -
* Excluding the effect of SFAS #115 and the fourth quarter 1996 restructuring
charge of $125 million after-tax.
In July 1997, $500 million Class A Fixed Rate Accounts Receivable Trust
Certificates matured from the charge card securitization portfolio.
At the beginning of 1997, management responsibility for approximately $300
million of consumer loans sold through American Express Financial Advisors
(AEFA) was transferred to that unit. Therefore, the balances are no longer
reported within TRS.
In August 1997, the American Express Credit Account Master Trust (the
Trust) securitized an additional $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 and Travel revolving credit accounts owned by
American Express Centurion Bank.
In May 1997, American Express Credit Corporation (Credco), a wholly owned
subsidiary of TRS, issued and sold, exclusively outside the United States
to non-U.S. persons, $400 million Floating Rate Notes due 2002 which are
listed on the Luxembourg Stock Exchange. In August 1997, Credco issued and
sold an additional $400 million of 6.5% Fixed Rate Notes due 2002.
In October 1997, Credco filed a registration statement on Form S-3 with the
Securities and Exchange Commission to increase by $1.5 billion the amount
of medium- and long-term debt to be available for issuance under shelf
registrations. This registration statement was declared effective November
3, 1997.
10
American Express Financial Advisors
Results of Operations For The Three and Nine Months Ended September 30,
1997 and 1996
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages and where indicated)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- Percentage ---------------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
------------------------ ---------------------------
Revenues:
Investment Income $ 587 $ 560 4.8% $ 1,744 $1,691 3.1%
Management and Distribution
Fees 391 302 29.2 1,082 878 23.2
Other Revenues 191 159 20.4 570 472 20.8
--------------- ----------------
Total Revenues 1,169 1,021 14.5 3,396 3,041 11.7
--------------- ----------------
Expenses:
Provision for Losses and
Benefits:
Annuities 307 303 1.2 917 898 2.0
Insurance 114 102 11.5 331 312 6.0
Investment Certificates 48 45 5.7 147 147 0.2
--------------- ----------------
Total 469 450 3.9 1,395 1,357 2.8
Human Resources 313 259 21.2 907 757 19.8
Other Operating Expenses 126 82 53.5 332 270 23.1
--------------- ----------------
Total Expenses 908 791 14.7 2,634 2,384 10.5
--------------- ----------------
Pretax Income 261 230 13.7 762 657 16.0
Income Tax Provision 77 74 4.6 238 218 9.0
--------------- ----------------
Net Income $ 184 $ 156 18.1 $ 524 $ 439 19.5
=============== ================
Selected Statistical Information
--------------------------------
Revenues, Net of Provisions $ 701 $ 570 22.9% $ 2,001 $ 1,684 18.9%
Life Insurance in force
(billions) $ 72.8 $ 65.2 11.7 $ 72.8 $ 65.2 11.7
Deferred Annuities in force
(billions) $ 40.6 $ 35.2 15.4 $ 40.6 $ 35.2 15.4
Assets Owned and/or Managed
(billions):
Assets managed for
institutions $ 41.0 $ 35.8 14.5 $ 41.0 $ 35.8 14.5
Assets owned and managed
for individuals:
Owned Assets:
Separate Account Assets 23.2 17.5 32.8 23.2 17.5 32.8
Other Owned Assets 36.0 33.3 8.2 36.0 33.3 8.2
--------------- -----------------
Total Owned Assets 59.2 50.8 16.7 59.2 50.8 16.7
Managed Assets 71.5 56.3 27.0 71.5 56.3 27.0
--------------- -----------------
Total $ 171.7 $ 142.9 20.2 $ 171.7 $ 142.9 20.2
=============== =================
Market Appreciation
(Depreciation) During the Period:
Owned Assets:
Separate Account
Assets $ 1,843 $ 354 - $ 3,559 $ 1,202 -
Other Owned Assets $ 195 $ 56 - $ 216 $ (358) -
Total Managed Assets $ 5,368 $ 2,380 - $12,150 $ 5,799 -
Sales of Selected Products:
Mutual Funds $ 4,496 $ 3,313 35.7 $12,616 $10,644 18.5
Annuities $ 861 $ 946 (9.0) $ 2,678 $ 3,226 (17.0)
Investment Certificates $ 295 $ 182 62.7 $ 771 $ 503 53.2
Life and Other Insurance
Sales $ 103 $ 109 (5.4) $ 306 $ 318 (3.7)
Number of Financial Advisors 8,592 8,092 6.2 8,592 8,092 6.2
Fees from Financial Plans
(thousands) $15,538 $11,660 33.3 $44,101 $34,867 26.5
Product Sales Generated from
Financial Plans as a
Percentage of Total Sales 66.5% 64.7% - 65.8% 63.7% -
11
American Express Financial Advisors
American Express Financial Advisors' (AEFA) revenue and earnings growth for
the three and nine month periods ended September 30, 1997 was due to higher
management fees from increased managed asset levels, including separate
account assets, and greater distribution fees driven by strong mutual fund
sales, particularly in the three month period ended September 30, 1997.
The rise in managed assets resulted from market appreciation and net sales
since the prior year periods.
The increase in investment income reflects higher asset levels, partially
offset by lower investment yields compared with the prior year. Other
revenues benefited from higher life insurance premiums and financial
planning fees.
The increase in provision for annuity benefits reflected greater business
in force partially offset by lower accrual rates. The provision for
insurance benefits rose with higher claims experience in life insurance and
greater policies in force. The provision for investment certificates was
higher in the third quarter compared with prior year due to greater in
force levels offset in part by lower accrual rates.
Human resources expenses rose as a result of volume-driven growth in
advisors' compensation and increased home office expenses. The higher home
office costs are attributable to growth in the number of employees
primarily within the technology and client service organizations.
The growth in other operating expenses reflects costs related to systems
technology and hedging activities designed to reduce the effect of stock
market volatility on management fees.
The lower effective tax rate in 1997 is due to tax credits from low income
housing investments.
12
American Express Financial Advisors
Liquidity and Capital Resources
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages)
September 30, December 31, Percentage September 30, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
-------------- ----------- ---------- ------------- ----------
Investments $ 29.9 $ 28.6 4.4% $ 28.2 6.2%
Separate Account
Assets $ 23.2 $ 18.5 25.3 $ 17.5 32.8
Total Assets $ 59.2 $ 52.7 12.4 $ 50.8 16.7
Client Contract
Reserves $ 29.8 $ 28.9 3.0 $ 28.6 4.3
Total Liabilities $ 55.6 $ 49.5 12.4 $ 47.7 16.5
Total Shareholder's
Equity $ 3.6 $ 3.2 13.0 $ 3.0 19.1
Return on Average
Equity* 21.6% 20.4% - 20.2% -
* Excluding the effect of SFAS #115.
AEFA's total assets rose from prior year end as a result of market
appreciation, net sales and the transfer of approximately $300 million of
consumer loans to AEFA from TRS.
13
American Express Bank
Results of Operations For The Three and Nine Months Ended September 30,
1997 and 1996
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- Percentage -------------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
---------------------- -------------------------
Net Revenues:
Interest Income $ 230 $ 206 11.9% $ 674 $ 619 9.0%
Interest Expense 148 128 15.0 431 396 9.0
-------------- --------------
Net Interest Income 82 78 6.7 243 223 8.9
Commissions, Fees and
Other Revenues 57 57 1.0 163 156 5.0
Foreign Exchange Income 23 16 41.9 63 56 12.3
-------------- --------------
Total Net Revenues 162 151 8.3 469 435 7.9
-------------- --------------
Provision for Credit Losses 7 5 59.8 10 13 (20.0)
-------------- --------------
Expenses:
Human Resources 60 59 3.8 177 168 5.4
Other Operating Expenses 61 59 2.5 183 175 4.5
-------------- --------------
Total Expenses 121 118 3.2 360 343 4.9
-------------- --------------
Pretax Income 34 28 21.6 99 79 25.5
Income Tax Provision 13 10 26.4 37 28 31.0
-------------- --------------
Net Income $ 21 $ 18 18.9 $ 62 $ 51 22.4
============== ==============
The improvement in American Express Bank's (the Bank) earnings for the
three and nine month periods ended September 30, 1997 primarily reflects
higher revenues due to an increase in net interest income on loans and, for
the three month period, strong foreign exchange income, particularly in
Southeast Asia. These were partially offset by growth in operating
expenses, mainly systems technology.
14
American Express Bank
Liquidity and Capital Resources
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages)
September 30, December 31, Percentage September 30, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
-------------- ----------- ---------- ------------- ----------
Investments $ 2.6 $ 2.8 (8.8)% $ 2.5 2.3%
Total Loans $ 6.5 $ 5.9 11.1 $ 5.6 15.8
Reserve for Credit
Losses (millions) $ 127 $ 117 8.7 $ 116 9.9
Reserves as a
Percentage of
Total Loans 1.9% 2.0% - 2.0% -
Total Nonperforming
Loans (millions) $ 60 $ 35 72.8 $ 31 94.8
Other Real Estate
Owned (millions) $ 5 $ 36 (87.0) $ 34 (86.5)
Total Assets $ 12.9 $ 12.3 4.8 $ 12.1 7.0
Deposits $ 9.0 $ 8.7 4.1 $ 8.4 6.8
Total Liabilities $ 12.1 $ 11.6 4.9 $ 11.3 7.1
Total Shareholder's
Equity (millions) $ 819 $ 799 2.5 $ 777 5.5
Risk-Based Capital
Ratios:
Tier 1 8.6% 8.8% - 9.0% -
Total 11.6% 12.5% - 12.8% -
Leverage Ratio 5.4% 5.6% - 6.0% -
Return on Average
Assets* 0.65% 0.55% - 0.62% -
Return on Average
Common Equity* 11.16% 8.89% - 9.61% -
* Excluding the effect of SFAS #115.
The Bank's total assets rose from year end primarily due to commercial,
correspondent and consumer loans. Non-performing loans increased from last
year's lower levels; other real estate owned decreased primarily from a
property sale. The loan loss reserve benefited from an $18 million loan
recovery on Peruvian LDC debt during the first quarter of 1997.
15
Corporate and Other
Corporate and Other reported net expenses of $37 million and $114 million
for the three and nine month periods ended September 30, 1997,
respectively, which were slightly below the same periods a year ago. The
first quarter of 1996 included a $46 million pretax benefit from a revenue
payout by Travelers Inc. related to the sale of the Shearson Lehman
Brothers Division in 1993 which was fully offset by costs associated with
the Company's business building initiatives. 1996 was the last year the
Company was eligible to receive this revenue payout.
16
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, 1997 the related
consolidated statements of income for the three and nine-month periods
ended September 30, 1997 and 1996, and the consolidated statement of cash
flows for the nine-month periods ended September 30, 1997 and 1996. 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,
1996, 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 7, 1997, 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, 1996
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 13, 1997
17
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
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 29, 1997, Item 5, relating to the
registrant's earnings for the quarter ended June 30, 1997.
Form 8-K, dated October 27, 1997, Item 5, relating to the
registrant's earnings for the quarter ended September 30, 1997.
18
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 13, 1997 By /s/ Richard Karl Goeltz
------------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: November 13, 1997 By /s/ Daniel T. Henry
------------------------------
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
19
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
12 Computation in Support of Ratio of Earnings to Fixed Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1