American Express Second Quarter EPS From Continuing Operations Up 7% To $1.15

Revenues, Cardmember Spending and Loan Portfolio Grow as Credit Quality Remains Excellent

NEW YORK--()--American Express Company (NYSE: AXP) today reported second-quarter income from continuing operations of $1.3 billion, up 3 percent from a year ago. Diluted earnings per share from continuing operations was $1.15, up 7 percent from $1.07 a year ago.

(Millions, except per share amounts)

 
 

Quarters Ended

June 30,

Percentage

Inc/(Dec)

 

Six Months Ended

June 30,

Percentage

Inc/(Dec)

2012

2011

2012

2011

Total Revenues Net of Interest Expense $ 7,965 $ 7,618 5 % $ 15,579 $ 14,649 6 %
Income From Continuing Operations $ 1,339 $ 1,295 3 % $ 2,595 $ 2,472 5 %

Income From Discontinued Operations1

$ - $ 36 # % $ - $ 36 # %
Net Income $ 1,339 $ 1,331 1 % $ 2,595 $ 2,508 3 %
Earnings Per Common Share – Diluted:

Income From Continuing Operations Attributable to Common Shareholders2

$ 1.15 $ 1.07 7 % $ 2.22 $ 2.04 9 %
Income From Discontinued Operations1 $ - $ 0.03 # % $ - $ 0.03 # %
Net Income Attributable to Common Shareholders2 $ 1.15 $ 1.10 5 % $ 2.22 $ 2.07 7 %
Average Diluted Common Shares Outstanding 1,152 1,197 (4 )% 1,158 1,197 (3 )%
Return on Average Equity 26.6 % 28.2 % 26.6 % 28.2 %

# Denotes a variance of more than 100 percent

Net income, which includes discontinued operations, totaled $1.3 billion, up 1 percent from a year ago. Per-share, net income was $1.15, up 5 percent from $1.10 a year ago.

Consolidated total revenues net of interest expense rose 5 percent to $8.0 billion in the second quarter, from $7.6 billion a year ago. The increase was driven by continuing growth in cardmember spending, higher other revenues and higher net interest income, which primarily reflected growth in the cardmember loan portfolio.

Adjusted for foreign currency translations, consolidated total revenues net of interest expense rose 7 percent, compared to the year ago quarter.3

Consolidated provisions for losses totaled $461 million, up 29 percent from $357 million a year ago. This increase reflects higher reserve releases in the year ago period, partially offset by lower net write-offs in the current quarter. Credit indicators continued to be at historically strong levels.

Consolidated expenses totaled $5.6 billion, up 2 percent from $5.5 billion last year. Year ago expenses were reduced by the receipt of settlement payments from MasterCard and Visa totaling $220 million. The current quarter expenses reflect lower marketing, promotion and rewards expenses, along with lower salaries costs, offset by an increase in other operating expenses.

Adjusted for foreign currency translations, consolidated total expenses grew 4 percent compared to the year ago quarter.3

The effective tax rate was 29 percent, up from 27 percent in the year ago quarter. The current quarter’s tax rate reflects the realization of certain foreign tax credits, while the prior period tax rate reflects the impact of the favorable resolution of certain prior years’ tax items.

The company's return on average equity (ROE) was 26.6 percent, down from 28.2 percent a year ago.

“Consumer, small business and corporate cardmember spending, along with the business volumes generated by our network of bank partners, remained healthy despite a very uneven economy,” said Kenneth I. Chenault, chairman and chief executive officer.

“Overall cardmember spending rose 7 percent, or 9 percent adjusted for foreign currency translations. That’s slower than the increases we’ve seen in the recent quarters, but it comes on top of a very strong performance a year ago, and continues to grow faster than most of our large issuer competitors.

“The cardmember loan portfolio grew 4 percent, and credit indicators, which were excellent at the start of the year, improved even further this quarter.

“Given the uncertain economic outlook, we remained vigilant in managing discretionary expenses but continued to make substantial investments in marketing initiatives and leverage our loyalty programs to connect millions of consumers and businesses around the world. This helped to continue strengthening our relationships with merchants and cardmembers at a time when mobile and digital technologies are opening up a range of new possibilities.”

Segment Results

U.S. Card Services reported second-quarter net income of $718 million, up 8 percent from $665 million a year ago.

Total revenues net of interest expense increased 7 percent to $4.0 billion from $3.8 billion. Revenues reflect higher cardmember spending and a rise in net interest income, driven primarily by the growth in cardmember loans.

Provisions for losses totaled $312 million, up 37 percent from $228 million a year ago. The increase primarily reflects higher reserve releases in the year ago period, partially offset by lower net write-offs in the current quarter.

Total expenses decreased 2 percent from the year ago period, primarily reflecting lower rewards-related costs. Salaries and employee benefits and other operating expenses increased 7 percent from year ago levels.

The effective tax rate was 38 percent compared to 26 percent in the year-ago period. The prior period tax rate includes the impact of the favorable resolution of certain prior years’ tax items.

International Card Services reported second-quarter net income of $178 million, up 11 percent from $161 million a year ago.

Total revenues net of interest expense decreased 4 percent to $1.3 billion from $1.4 billion, primarily reflecting lower net interest income. Adjusted for foreign currency translations, revenues rose 2 percent from the year ago quarter.3

Provisions for losses totaled $94 million, up 21 percent from $78 million a year ago, primarily reflecting a higher level of reserve releases in the year ago period.

Total expenses decreased 2 percent primarily reflecting lower marketing, promotion and rewards costs compared to the year ago quarter. Adjusted for foreign currency translations, expenses grew 4 percent compared to the year ago quarter.3

The effective tax rate was (22) percent compared to 18 percent in the year ago period. The current period tax rate reflects the realization of certain foreign tax credits. In addition, tax rates in both quarters reflect recurring permanent tax benefits allocable to the segment.

Global Commercial Services reported second quarter net income of $219 million, up 24 percent from $177 million a year ago.

Total revenues net of interest expense increased 3 percent to $1.2 billion, reflecting higher cardmember spending. Business travel commissions and fees were unchanged from a year ago. Adjusted for foreign currency translations, revenues rose 6 percent from the year ago quarter.3

Provisions for losses totaled $36 million, increased 3 percent from $35 million a year ago.

Total expenses decreased 1 percent. Salaries and employee benefits and other operating expenses decreased 1 percent, while marketing, promotion, rewards and cardmember services expenses were unchanged from a year ago. Adjusted for foreign currency translations, expenses grew 3 percent compared to the year ago quarter.3

The effective tax rate was 27 percent compared to 33 percent in the year ago period. The current period tax rate reflects the realization of certain foreign tax credits.

Global Network & Merchant Services reported second quarter net income of $372 million, up 15 percent from $324 million a year ago.

Total revenues net of interest expense increased 7 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. Adjusted for foreign currency translations, revenues rose 10 percent from the year ago quarter.3

Provisions for losses totaled $17 million, increased 31 percent from $13 million a year ago.

Total expenses increased 1 percent. An increase in salaries and employee benefits and other operating expenses was partially offset by decreased marketing, promotion, rewards and cardmember services expenses from the year ago quarter. Adjusted for foreign currency translations, expenses grew 3 percent compared to the year ago quarter.3

The effective tax rate was 34 percent compared to 33 percent in the year ago period.

Corporate and Other reported second-quarter net loss of $148 million compared with net loss of $32 million in the year ago period. The year ago period included $220 million ($136 million after-tax) from the receipt of settlement payments from MasterCard and Visa.

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.

Key links to products and services: charge and credit cards, business credit cards, travel services, gift cards, prepaid cards, merchant services, business travel, and corporate card

The 2012 Second Quarter Earnings Supplement will be available today on the American Express web site at http://ir.americanexpress.com. An investor conference call will be held at 5:00 p.m. (ET) today to discuss second-quarter earnings results. Live audio and presentation slides for the investor conference call will be available to the general public at the same web site. A replay of the conference call will be available later today at the same web site 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, 2011, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 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 of $14 million and $15 million for the three months ended June 30, 2012 and 2011, respectively, and $28 million and $30 million for the six months ended June 30, 2012 and 2011, respectively.

3 As reported in this release, FX adjusted information, which constitute non-GAAP financial measures, assume 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 June 30, 2012 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.

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. The Company revised the income statement reporting of card fees on lending products in the first quarter of 2012, increasing Net card fees and reducing Interest on loans. Corresponding amounts in prior periods have been reclassified to conform to the current period presentation. This change does not impact Total revenues net of interest expense in the income statement, or the Net interest yield on cardmember loans, a non-GAAP measure.

(Preliminary)

American Express Company

Consolidated Statements of Income

 
(Millions)
  Quarters Ended     Six Months Ended  
June 30, Percentage June 30, Percentage
2012   2011 Inc/(Dec) 2012   2011 Inc/(Dec)
 
Revenues
Non-interest revenues
Discount revenue $ 4,482 $ 4,278 5

%

 

$ 8,739 $ 8,180 7

%

 

Net card fees 615 613 - 1,225 1,214 1
Travel commissions and fees 521 523 - 972 977 (1 )
Other commissions and fees 575 584 (2 ) 1,158 1,113 4
Other   651   537 21   1,231   1,012 22
Total non-interest revenues   6,844   6,535 5   13,325   12,496 7
Interest income
Interest on loans 1,582 1,543 3 3,193 3,098 3
Interest and dividends on investment securities 67 99 (32 ) 133 187 (29 )
Deposits with banks and other   22   18 22   52   38 37
Total interest income   1,671   1,660 1   3,378   3,323 2
Interest expense
Deposits 115 131 (12 ) 244 268 (9 )
Short-term borrowings 6 1 # 11 1 #
Long-term debt and other   429   445 (4 )   869   901 (4 )
Total interest expense   550   577 (5 )   1,124   1,170 (4 )
Net interest income   1,121   1,083 4   2,254   2,153 5
Total revenues net of interest expense   7,965   7,618 5   15,579   14,649 6
Provisions for losses
Charge card 163 161 1 341 359 (5 )
Cardmember loans 277 176 57 489 56 #
Other   21   20 5   43   39 10
Total provisions for losses   461   357 29   873   454 92
Total revenues net of interest expense after provisions for losses   7,504   7,261 3   14,706   14,195 4
 
Expenses
Marketing and promotion 773 795 (3 ) 1,404 1,504 (7 )
Cardmember rewards 1,462 1,613 (9 ) 2,929 3,190 (8 )
Cardmember services 180 173 4 401 337 19
Salaries and employee benefits 1,536 1,595 (4 ) 3,171 3,117 2
Professional services 711 745 (5 ) 1,402 1,408 -
Occupancy and equipment 446 391 14 884 785 13
Communications 95 92 3 191 187 2
Other, net   422   92 #   672   170 #
Total   5,625   5,496 2   11,054   10,698 3
Pretax income from continuing operations 1,879 1,765 6 3,652 3,497 4
Income tax provision   540   470 15   1,057   1,025 3
Income from continuing operations 1,339 1,295 3 2,595 2,472 5
Income from discontinued operations, net of tax   -   36 #   -   36 #
Net income $ 1,339 $ 1,331 1 $ 2,595 $ 2,508 3
Income from continuing operations attributable to common shareholders (A) $ 1,325 $ 1,280 4 $ 2,567 $ 2,442 5
Net income attributable to common shareholders (A) $ 1,325 $ 1,316 1 $ 2,567 $ 2,478 4

# - 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 of $14 million and $15 million for the three months ended June 30, 2012 and 2011, respectively, and $28 million and $30 million for the six months ended June 30, 2012 and 2011, respectively.

(Preliminary)

American Express Company

Condensed Consolidated Balance Sheets

 
(Billions)
 
  June 30,   December 31,
2012 2011
 
Assets
Cash & cash equivalents $ 22 $ 25
Accounts receivable 44 44
Investment securities 6 7
Loans 60 61
Other assets   16   16
Total assets $ 148 $ 153
 
Liabilities and Shareholders' Equity
Customer deposits $ 36 $ 38
Short-term borrowings 4 4
Long-term debt 56 60
Other liabilities   33   32
Total liabilities   129   134
 
Shareholders' Equity   19   19
Total liabilities and shareholders' equity $ 148 $ 153

(Preliminary)

American Express Company

Financial Summary

(Millions)
  Quarters Ended     Six Months Ended  
June 30, Percentage June 30, Percentage
2012   2011 Inc/(Dec) 2012   2011 Inc/(Dec)
 

Total revenues net of interest expense

U.S. Card Services $ 4,037 $ 3,759 7

%

 

$ 7,921 $ 7,336 8

%

 

International Card Services 1,297 1,351 (4 ) 2,596 2,559 1
Global Commercial Services 1,221 1,191 3 2,378 2,312 3
Global Network & Merchant Services   1,323     1,239   7   2,571     2,376   8
7,878 7,540 4 15,466 14,583 6
Corporate & Other   87     78   12   113     66   71
 
CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE $ 7,965   $ 7,618   5 $ 15,579   $ 14,649   6
 

Pretax income (loss) from continuing operations

U.S. Card Services $ 1,149 $ 900 28 $ 2,329 $ 1,810 29
International Card Services 146 196 (26 ) 342 436 (22 )
Global Commercial Services 299 265 13 543 530 2
Global Network & Merchant Services   562     487   15   1,101     963   14
2,156 1,848 17 4,315 3,739 15
Corporate & Other   (277 )   (83 ) #   (663 )   (242 ) #
 
PRETAX INCOME FROM CONTINUING OPERATIONS $ 1,879   $ 1,765   6 $ 3,652   $ 3,497   4
 

Net income (loss)

U.S. Card Services $ 718 $ 665 8 $ 1,470 $ 1,220 20
International Card Services 178 161 11 375 350 7
Global Commercial Services 219 177 24 396 361 10
Global Network & Merchant Services   372     324   15   729     637   14
1,487 1,327 12 2,970 2,568 16
Corporate & Other   (148 )   (32 ) #   (375 )   (96 ) #
Income from continuing operations 1,339 1,295 3 2,595 2,472 5
Income from discontinued operations, net of tax   -     36   #   -     36   #
NET INCOME $ 1,339   $ 1,331   1 $ 2,595   $ 2,508   3

# - Denotes a variance of more than 100%.

(Preliminary)

American Express Company

Financial Summary (continued)

 
 
  Quarters Ended     Six Months Ended  
June 30, Percentage June 30, Percentage
2012   2011 Inc/(Dec) 2012   2011 Inc/(Dec)
EARNINGS PER COMMON SHARE
 
BASIC
Income from continuing operations attributable to common shareholders $ 1.16 $ 1.08 7

%

 

$ 2.23 $ 2.05 9

%

 

Income from discontinued operations   -     0.03   #   -     0.03   #
Net income attributable to common shareholders $ 1.16   $ 1.11   5

%

 

$ 2.23   $ 2.08   7

%

 

 
Average common shares outstanding (millions)   1,145     1,190   (4

)%

 

  1,151     1,190   (3

)%

 

 
DILUTED
Income from continuing operations attributable to common shareholders $ 1.15 $ 1.07 7

%

 

$ 2.22 $ 2.04 9

%

 

Income from discontinued operations   -     0.03   #   -     0.03   #
Net income attributable to common shareholders $ 1.15   $ 1.10   5

%

 

$ 2.22   $ 2.07   7

%

 

 
Average common shares outstanding (millions)   1,152     1,197   (4

)%

 

  1,158     1,197   (3

)%

 

 
Cash dividends declared per common share $ 0.20   $ 0.18   11

%

 

$ 0.40   $ 0.36   11

%

 

 
 

Selected Statistical Information

 
Quarters Ended Six Months Ended
June 30, Percentage June 30, Percentage
2012 2011 Inc/(Dec) 2012 2011 Inc/(Dec)
 
Return on average equity (A) 26.6 % 28.2 % 26.6 % 28.2 %
Return on average common equity (A) 26.3 % 27.9 % 26.3 % 27.9 %
Return on average tangible common equity (A) 34.1 % 36.1 % 34.1 % 36.1 %
Common shares outstanding (millions) 1,139 1,193 (5

)%

 

1,139 1,193 (5

)%

 

Book value per common share $ 16.92 $ 15.26 11

%

 

$ 16.92 $ 15.26 11

%

 

Shareholders' equity (billions) $ 19.3 $ 18.2 6

%

 

$ 19.3 $ 18.2 6

%

 

# - 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
June 30,   March 31,   December 31,   September 30,   June 30,
2012 2012 2011 2011 2011  
 

ROE

 
Net income $ 5,022 $ 5,014 $ 4,935 $ 4,805 $ 4,663
Average shareholders' equity $ 18,887 $ 18,525 $ 17,842 $ 17,277 $ 16,508
Return on average equity (A) 26.6 % 27.1 % 27.7 % 27.8 % 28.2 %
 

Reconciliation of ROCE and ROTCE

 
Net income $ 5,022 $ 5,014 $ 4,935 $ 4,805 $ 4,663
Earnings allocated to participating share awards and other   57     58     58     56     55  
Net income attributable to common shareholders $ 4,965   $ 4,956   $ 4,877   $ 4,749   $ 4,608  
 
Average shareholders' equity $ 18,887   $ 18,525   $ 17,842   $ 17,277   $ 16,508  
Average common shareholders' equity $ 18,887   $ 18,525   $ 17,842   $ 17,277   $ 16,508  
Average goodwill and other intangibles   4,330     4,380     4,215     3,992     3,744  
Average tangible common shareholders' equity $ 14,557   $ 14,145   $ 13,627   $ 13,285   $ 12,764  
Return on average common equity (A) 26.3 % 26.8 % 27.3 % 27.5 % 27.9 %
Return on average tangible common equity (B) 34.1 % 35.0 % 35.8 % 35.7 % 36.1 %

(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, a non-GAAP measure, 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. 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:
Marina Norville, +1.212.640.2832
marina.h.norville@aexp.com
or
Mike O’Neill, +1.212.640.5951
mike.o'neill@aexp.com
or
Investors/Analysts:
Ken Paukowits, +1.212.640.6348
ken.f.paukowits@aexp.com
or
Rick Petrino, +1.212.640.5574
richard.petrino@aexp.com

Sharing

Contacts

American Express Company
Media:
Marina Norville, +1.212.640.2832
marina.h.norville@aexp.com
or
Mike O’Neill, +1.212.640.5951
mike.o'neill@aexp.com
or
Investors/Analysts:
Ken Paukowits, +1.212.640.6348
ken.f.paukowits@aexp.com
or
Rick Petrino, +1.212.640.5574
richard.petrino@aexp.com