American Express Reports Fourth Quarter EPS of $1.01, Up 15% from a Year Ago; Cardmember Spending at Record Levels; Expense Growth Slows

NEW YORK--()--American Express Company (NYSE: AXP) today reported fourth-quarter net income of $1.2 billion, up 12 percent from $1.1 billion in the year-ago period. Diluted earnings per share was $1.01, up 15 percent from $0.88 a year ago.

(Millions, except per share amounts)

 

  Quarters Ended

December 31,

  Percentage
Inc/(Dec)
  Years Ended

December 31,

  Percentage
Inc/(Dec)
  2011       2010     2011       2010  
Total Revenues Net of Interest Expense $ 7,742 $ 7,244 7 % $ 29,962 $ 27,582 9 %
 
Income From Continuing Operations $ 1,192 $ 1,062 12 % $ 4,899 $ 4,057 21 %
Income From Discontinued Operations, net of tax1 $ - $ - - % $ 36 $ - # %
Net Income $ 1,192 $ 1,062 12 % $ 4,935 $ 4,057 22 %
 
Earnings Per Common Share – Diluted:

Income From Continuing Operations Attributable to

Common Shareholders2

$ 1.01 $ 0.88 15 % $ 4.09 $ 3.35 22 %

Income from Discontinued Operations1

$ - $ - - % $ 0.03 $ - # %

Net Income Attributable to Common Shareholders2

$ 1.01 $ 0.88 15 % $ 4.12 $ 3.35 23 %
Average Diluted Common Shares Outstanding 1,163 1,194 (3 ) % 1,184 1,195 (1 ) %
Return on Average Equity 27.7 % 27.5 % 27.7 % 27.5 %
# Denotes a variance of more than 100 %            

Consolidated total revenues net of interest expense were $7.7 billion in the fourth quarter of 2011, up 7 percent from $7.2 billion in the year-ago period. The increase largely reflected continued strong growth in cardmember spending and higher travel commissions and fees. These increases were partially offset by a slight decrease in net interest income that reflected lower yields on the loan portfolio.

Adjusted for foreign currency translations, consolidated total revenues net of interest expense also rose 7 percent this quarter compared to a 6 percent increase (9 percent before adjustment) in the third quarter of 2011.3

Consolidated provisions for losses totaled $409 million compared to $239 million in the year-ago period. The provision increase reflected a larger reserve release in the year-ago period and higher loans outstanding in the current period, partially offset by lower net write-offs in the current period. Credit indicators continued to be at historically low levels.

Consolidated expenses totaled $5.6 billion, up 1 percent from $5.5 billion in the year-ago period. That increase was a significant reduction from the growth rates of recent quarters and reflected lower marketing and promotion expenses, slower increases in rewards costs and, as planned, slower growth in operating expenses. The current quarter results include $49 million ($32 million after-tax) of restructuring and other reengineering costs compared to $113 million ($74 million after-tax) from the year-ago period.

The effective tax rate was 32 percent, compared to 28 percent in the year-ago quarter.

The company's return on average equity (ROE) was 27.7 percent, up from 27.5 percent a year ago.

“Results for the quarter underscored the ability of our spend-centric model to generate revenue and earnings growth at a time when consumer behavior and regulations are changing the economics of the revolving credit business,” said Kenneth I. Chenault, chairman and chief executive officer, American Express.

“Cardmembers spent a record amount on their American Express cards, continuing a trend that has translated into overall share gains during the last two years. Billed business rose 11 percent, showing broad-based improvements from the strong levels of a year ago. Online spending was strong as we capitalized on the accelerating popularity of digital commerce. Revolving credit balances grew, but at a much slower rate than spending as Cardmembers continued to manage their debt and household finances more cautiously. Credit quality remained excellent, with past-due loans and write-offs at historically low levels.

“While we continued to make substantial investments in the business, we adjusted our budgets to reflect the end of the receipt of litigation-related payments and a diminishing benefit from reserve releases. As planned, operating expense growth declined significantly from the level of prior quarters.

“The overall recovery in the U.S. remains uneven and the environment in Europe continues to pose challenges for the global economy. But, we start 2012 from a position of strength and with a unique network that connects millions of consumers, merchants and businesses around the world. A network based on service, relationships, data and market insights is a tremendous asset for a digital age when the boundaries between online and offline commerce are being quickly redefined.”

Segment Results

U.S. Card Services reported fourth-quarter net income of $727 million, up 4 percent from $700 million in the year-ago period.

Total revenues net of interest expense increased 5 percent to $3.9 billion from $3.7 billion in the year-ago period. The increase was driven by higher cardmember spending and slightly higher net interest income despite lower yields on the loan portfolio.

Provisions for losses totaled $269 million, up from $111 million in the year-ago period. The provision increase reflected a larger reserve release in the year-ago period and higher loans outstanding in the current period, partially offset by lower net write-offs in the current period. Credit indicators continued to be at historically low levels.

Total expenses decreased 4 percent. Marketing, promotion, rewards and cardmember services expenses remained flat to the year-ago period. Higher volume-related rewards and cardmember services costs were offset by lower marketing and promotion costs. Salaries and employee benefits and other operating expenses decreased 10 percent, primarily reflecting higher restructuring and other reengineering costs in the year-ago period.

The effective tax rate was 38 percent compared to 34 percent in the year-ago quarter.

International Card Services reported fourth-quarter net income of $152 million, up 54 percent from $99 million in the year–ago period.

Total revenues net of interest expense increased 8 percent to $1.3 billion. The benefit from higher cardmember spending and revenues related to Loyalty Partner were partially offset by lower net interest income.

Provisions for losses totaled $84 million, up 5 percent from $80 million in the year-ago period.

Total expenses increased 5 percent, primarily reflecting the acquisition of Loyalty Partner earlier in the year. Marketing, promotion, rewards and cardmember services expenses rose 9 percent from year-ago levels, and included increased investments in marketing and promotion and higher volume-related rewards costs. Salaries and employee benefits and other operating expenses increased 3 percent from year-ago levels.

The effective tax rate was (11) percent compared to 3 percent in the year-ago quarter. The decrease in rate in the current period was primarily due to the favorable resolution of certain prior years’ tax items.

Global Commercial Services reported fourth-quarter net income of $180 million, up 75 percent from $103 million in the year–ago period.

Total revenues net of interest expense increased 11 percent to $1.2 billion, from $1.1 billion, reflecting increased spending by corporate cardmembers and higher travel commissions and fees.

Provisions for losses totaled $35 million, up from $30 million in the year-ago period.

Total expenses decreased 3 percent. Marketing, promotion, rewards and cardmember services expenses increased 13 percent from the year-ago period, primarily reflecting higher volume-related rewards costs. Salaries and employee benefits and other operating expenses decreased 5 percent from the year-ago period.

The effective tax rate was 35 percent compared to 26 percent in the year-ago quarter. The tax rate for the prior period reflected the impact of recurring permanent tax benefits in relation to the lower level of pre-tax income.

Global Network & Merchant Services reported fourth quarter net income of $324 million, up 25 percent from $259 million in the year-ago period.

Total revenues net of interest expense increased 12 percent to $1.3 billion, from $1.2 billion, reflecting higher merchant-related revenues driven by an increase in global cardmember spending, as well as an increase in revenues from Global Network Services’ bank partners.

Total expenses increased 2 percent. Marketing, promotion, rewards and cardmember services expenses increased 5 percent from the year-ago period. Salaries and employee benefits and other operating expenses increased 2 percent.

The effective tax rate was 36 percent compared to 32 percent in the year-ago quarter.

Corporate and Other reported fourth-quarter net loss of $191 million compared with a net loss of $99 million in the year-ago period. The result for the current period reflected income of $70 million ($43 million after-tax) for the previously announced settlement of Visa litigation compared to the $220 million ($136 million after-tax) from both MasterCard and Visa settlements a year ago.

About American Express

American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success. Learn more at americanexpress.com and connect with us on facebook.com/americanexpress, foursquare.com/americanexpress, linkedin.com/companies/american-express, twitter.com/americanexpress, and youtube.com/americanexpress.

The 2011 Fourth Quarter/Full Year Earnings Supplement will be available today on the American Express website at http://ir.americanexpress.com. An investor conference call will be held at 5:00 p.m. (ET) today to discuss fourth-quarter earnings results. Live audio and presentation slides for the investor conference call will be available to the general public at the same website. A replay of the conference call will be available later today at the same website address.

This release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the company's expected business and financial performance and are subject to risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements due to a variety of factors, including those contained in the company's Annual Report on Form 10-K for the year ended December 31, 2010, its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2011, and the company’s other filings with the Securities and Exchange Commission. 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.

1   Income from discontinued operations primarily reflects the resolution of certain prior years’ tax items related to American Express Bank Ltd., which was sold to Standard Chartered PLC during Q1’08.
2 Represents income from continuing operations or net income, as applicable, less earnings allocated to participating share awards and other items of $14 million and $12 million for the three months ended December 31, 2011 and 2010, and $58 million and $51 million for the twelve months ended December 31, 2011 and 2010, respectively.
3 This FX adjusted information, which constitutes non-GAAP financial measures, assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the three months ended December 31, 2011 and September 30, 2011 apply to the period(s) against which such results are being compared). The company believes the presentation of information on an F/X adjusted basis is helpful to investors by making it easier to compare the company's performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates. Consolidated total revenues net of interest expense were $7.6 billion in the third quarter of 2011 and $7.0 billion in the third quarter of 2010.

All information in the following tables is presented on a basis prepared in accordance with U.S. generally accepted accounting principles (GAAP), unless otherwise indicated. Prior period amounts were revised in the first quarter of 2011 to reflect various changes associated with the Company's reclassification of certain contractual lump sum payments to partners, previously recognized in Other, net, expenses, as either contra Discount revenue or Marketing and promotion expense. Additionally, the tables reflect changes to the Company's segment allocation methodology due to reorganization of certain businesses, such as Enterprise Growth, across its reportable operating segments.

           
(Preliminary)

American Express Company

Consolidated Statements of Income

 
(Millions)
Quarters Ended Years Ended
December 31, Percentage December 31, Percentage
  2011   2010 Inc/(Dec)     2011   2010 Inc/(Dec)
 
Revenues
Non-interest revenues
Discount revenue $ 4,336 $ 4,017 8 % $ 16,734 $ 14,880 12 %
Net card fees 545 534 2 2,183 2,102 4
Travel commissions and fees 514 471 9 1,971 1,773 11
Other commissions and fees 552 519 6 2,269 2,031 12
Other   618   513 20   2,164   1,927 12
Total non-interest revenues   6,565   6,054 8   25,321   22,713 11
Interest income
Interest and fees on loans 1,654 1,676 (1 ) 6,537 6,783 (4 )
Interest and dividends on investment securities 72 98 (27 ) 327 443 (26 )
Deposits with banks and other   26   21 24   97   66 47
Total interest income   1,752   1,795 (2 )   6,961   7,292 (5 )
Interest expense
Deposits 133 140 (5 ) 528 546 (3 )
Short-term borrowings 5 1 # 11 3 #
Long-term debt and other   437   464 (6 )   1,781   1,874 (5 )
Total interest expense   575   605 (5 )   2,320   2,423 (4 )
Net interest income   1,177   1,190 (1 )   4,641   4,869 (5 )
Total revenues net of interest expense   7,742   7,244 7   29,962   27,582 9
Provisions for losses
Charge card 237 183 30 770 595 29
Cardmember loans 149 37 # 253 1,527 (83 )
Other   23   19 21   89   85 5
Total provisions for losses   409   239 71   1,112   2,207 (50 )
Total revenues net of interest expense after provisions for losses   7,333   7,005 5   28,850   25,375 14
 
Expenses
Marketing and promotion 735 833 (12 ) 2,996 3,147 (5 )
Cardmember rewards 1,463 1,334 10 6,218 5,000 24
Cardmember services 190 166 14 716 591 21
Salaries and employee benefits 1,537 1,570 (2 ) 6,252 5,566 12
Professional services 853 908 (6 ) 2,951 2,806 5
Occupancy and equipment 467 428 9 1,685 1,562 8
Communications 98 99 (1 ) 378 383 (1 )
Other, net   242   190 27   698   356 96
Total   5,585   5,528 1   21,894   19,411 13
Pretax income from continuing operations 1,748 1,477 18 6,956 5,964 17
Income tax provision   556   415 34   2,057   1,907 8
Income from continuing operations 1,192 1,062 12 4,899 4,057 21
Income from discontinued operations, net of tax   -   - -   36   - #
Net income $ 1,192 $ 1,062 12 $ 4,935 $ 4,057 22
Income from continuing operations attributable to common shareholders (A) $ 1,178 $ 1,050 12 $ 4,841 $ 4,006 21
Net income attributable to common shareholders (A) $ 1,178 $ 1,050 12 $ 4,877 $ 4,006 22
# - Denotes a variance of more than 100%.
 
(A) Represents income from continuing operations or net income, as applicable, less earnings allocated to participating share awards and other items of $14 million and $12 million for the three months ended December 31, 2011 and 2010, and $58 million and $51 million for the twelve months ended December 31, 2011 and 2010, respectively.
   
(Preliminary)

American Express Company

Condensed Consolidated Balance Sheets

 
(Billions)
 
December 31, December 31,
2011 2010
 
Assets
Cash $ 25 $ 16
Accounts receivable 44 40
Investment securities 7 14
Loans 61 58
Other assets   16   19
Total assets $ 153 $ 147
 
Liabilities and Shareholders' Equity
Customer deposits $ 38 $ 30
Short-term borrowings 3 3
Long-term debt 60 66
Other liabilities   33   32
Total liabilities   134   131
 
Shareholders' Equity   19   16
Total liabilities and shareholders' equity $ 153 $ 147
           
(Preliminary)

American Express Company

Financial Summary

 
(Millions)
Quarters Ended Years Ended
December 31, Percentage December 31, Percentage
  2011   2010 Inc/(Dec)   2011   2010 Inc/(Dec)
 

Total revenues net of interest expense

U.S. Card Services $ 3,897 $ 3,728 5 % $ 15,071 $ 14,462 4 %
International Card Services 1,333 1,238 8 5,239 4,643 13
Global Commercial Services 1,183 1,067 11 4,625 4,127 12
Global Network & Merchant Services   1,316   1,172 12   4,942   4,305 15
7,729 7,205 7 29,877 27,537 8
 
Corporate & Other   13   39 (67)   85   45 89
 
CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE $ 7,742 $ 7,244 7 $ 29,962 $ 27,582 9
 

Pretax income (loss) from continuing operations

U.S. Card Services $ 1,168 $ 1,059 10 $ 4,129 $ 3,504 18
International Card Services 137 102 34 762 589 29
Global Commercial Services 276 140 97 1,075 723 49
Global Network & Merchant Services   502   381 32   1,979   1,589 25
2,083 1,682 24 7,945 6,405 24
Corporate & Other   (335)   (205) 63   (989)   (441) #
 
PRETAX INCOME FROM CONTINUING OPERATIONS $ 1,748 $ 1,477 18 $ 6,956 $ 5,964 17
 

Net income (loss)

U.S. Card Services $ 727 $ 700 4 $ 2,680 $ 2,225 20
International Card Services 152 99 54 723 537 35
Global Commercial Services 180 103 75 738 450 64
Global Network & Merchant Services   324   259 25   1,293   1,025 26
1,383 1,161 19 5,434 4,237 28
Corporate & Other   (191)   (99) 93   (535)   (180) #
Income from continuing operations 1,192 1,062 12 4,899 4,057 21
Income from discontinued operations, net of tax   -   - -   36   - #
 
 
NET INCOME $ 1,192 $ 1,062 12 $ 4,935 $ 4,057 22
 
# - Denotes a variance of more than 100%.
           
(Preliminary)

American Express Company

Financial Summary (continued)

 
 
Quarters Ended Years Ended
December 31, Percentage December 31, Percentage
2011 2010 Inc/(Dec) 2011 2010 Inc/(Dec)
EARNINGS PER COMMON SHARE
 
BASIC
Income from continuing operations attributable to common shareholders $ 1.02 $ 0.88 16 % $ 4.11 $ 3.37 22 %
Income from discontinued operations   -   - -   0.03   - #
Net income attributable to common shareholders $ 1.02 $ 0.88 16 % $ 4.14 $ 3.37 23 %
 
Average common shares outstanding (millions)   1,157   1,188 (3) %   1,178   1,188 (1) %
 
DILUTED
Income from continuing operations attributable to common shareholders $ 1.01 $ 0.88 15 % $ 4.09 $ 3.35 22 %
Income from discontinued operations   -   - -   0.03   - #
Net income attributable to common shareholders $ 1.01 $ 0.88 15 % $ 4.12 $ 3.35 23 %
 
Average common shares outstanding (millions)   1,163   1,194 (3) %   1,184   1,195 (1) %
 
Cash dividends declared per common share $ 0.18 $ 0.18 - $ 0.72 $ 0.72 -
 
 

Selected Statistical Information

 
Quarters Ended Years Ended
December 31, Percentage December 31, Percentage
  2011   2010 Inc/(Dec)   2011   2010 Inc/(Dec)
 
Return on average equity (A) 27.7% 27.5% 27.7% 27.5%
Return on average common equity (A) 27.3% 27.2% 27.3% 27.2%
Return on average tangible common equity (A) 35.8% 35.1% 35.8% 35.1%
Common shares outstanding (millions) 1,164 1,197 (3) % 1,164 1,197 (3) %
Book value per common share $ 16.15 $ 13.56 19 % $ 16.15 $ 13.56 19 %
Shareholders' equity (billions) $ 18.8 $ 16.2 16 % $ 18.8 $ 16.2 16 %

# - Denotes a variance of more than 100%.

 

(A) Refer to Appendix I for components of return on average equity, return on average common equity and return on average tangible common equity, a non-GAAP measure.

             
(Preliminary)

American Express Company

Components of Return on Average Equity (ROE), Return on Average Common Equity (ROCE),

and Return on Average Tangible Common Equity (ROTCE)

Appendix I

 
(Millions)
For the Twelve Months Ended
December 31, September 30, June 30, March 31, December 31,
  2011       2011       2011     2011     2010  
 

ROE

 
Net income $ 4,935 $ 4,805 $ 4,663 $ 4,349 $ 4,057
Average shareholders' equity $ 17,842 $ 17,277 $ 16,508 $ 15,564 $ 14,755
Return on average equity (A) 27.7 % 27.8 % 28.2 % 27.9 % 27.5 %
 

Reconciliation of ROCE and ROTCE

 
Net income $ 4,935 $ 4,805 $ 4,663 $ 4,349 $ 4,057
Earnings allocated to participating share awards and other   58     56     55     52     51  
Net income attributable to common shareholders $ 4,877   $ 4,749   $ 4,608   $ 4,297   $ 4,006  
 
Average shareholders' equity $ 17,842   $ 17,277   $ 16,508   $ 15,564   $ 14,755  
Average common shareholders' equity $ 17,842   $ 17,277   $ 16,508   $ 15,564   $ 14,755  
Average goodwill and other intangibles   4,215     3,992     3,744     3,487     3,334  
Average tangible common shareholders' equity $ 13,627   $ 13,285   $ 12,764   $ 12,077   $ 11,421  
Return on average common equity (A) 27.3 % 27.5 % 27.9 % 27.6 % 27.2 %
Return on average tangible common equity (B) 35.8 % 35.7 % 36.1 % 35.6 % 35.1 %
(A) Return on average equity and return on average common equity are calculated by dividing one year period net income/net income attributable to common shareholders by one year average total shareholders’ equity/average common shareholders' equity, respectively.
 
(B) Return on average tangible common equity is computed in the same manner as return on average common equity except the computation of average tangible common shareholders' equity, a non-GAAP measure, excludes from average total shareholders' equity, average goodwill and other intangibles of $4.2 billion for the quarter ended December 31, 2011, $4.0 billion for the quarter ended September 30, 2011, $3.7 billion for the quarter ended June 30, 2011, $3.5 billion for the quarter ended March 31, 2011 and $3.3 billion for the quarter ended December 31, 2010. The Company believes that return on average tangible common equity is a useful measure of the profitability of its business.

Contacts

American Express Company
Media:
Susan Korchak, +1-212-640-4953
susan.korchak@aexp.com
or
Mike O’Neill, +1-212-640-5951
mike.o'neill@aexp.com
or
Investors/Analysts:
Toby Willard, +1-212-640-1958
sherwood.s.willardjr@aexp.com
or
Rick Petrino, +1-212-640-5574
richard.petrino@aexp.com

Sharing

Contacts

American Express Company
Media:
Susan Korchak, +1-212-640-4953
susan.korchak@aexp.com
or
Mike O’Neill, +1-212-640-5951
mike.o'neill@aexp.com
or
Investors/Analysts:
Toby Willard, +1-212-640-1958
sherwood.s.willardjr@aexp.com
or
Rick Petrino, +1-212-640-5574
richard.petrino@aexp.com