American Express Reports Fourth Quarter EPS of $0.88, up 47% from a Year Ago; Cardmember Spending at Record Levels and Credit Qu

 
TIDMAMX 
 
 

American Express Company (NYSE: AXP) today reported fourth-quarter net income of $1.1 billion, up 48 percent from $716 million a year ago. Diluted earnings per share was $0.88, up 47 percent from $0.60 a year ago. The results include $113 million ($74 million after-tax) of previously announced restructuring and other reengineering costs. Excluding these costs, adjusted diluted earnings per share was $0.941.

 
(Millions, 
except 
per 
share 
amounts) 
                 Quarters Ended        Percentage   Years Ended             Percentage 
                 December 31,          Inc/(Dec)    December 31,            Inc/(Dec) 
                 2010       2009                    2010        2009 
Total            $ 7,322    $ 6,489    13 %         $ 27,819    $ 24,523    13 % 
Revenues 
Net of 
Interest 
Expense2 
Income           $ 1,062    $ 710      50           $ 4,057     $ 2,137     90 
From 
Continuing 
Operations 
Income           $ -        $ 6        -            $ -         $ (7     )  - 
(Loss) 
From 
Discontinued 
Operations 
Net              $ 1,062    $ 716      48           $ 4,057     $ 2,130     90 
Income 
Earnings 
Per 
Common 
Share 
- 
Diluted: 
Income           $ 0.88     $ 0.59     49           $ 3.35      $ 1.54      # 
From 
Continuing 
Operations 
Attributable 
to 
Common 
Shareholders3 
Income           $ -        $ 0.01     -            $ -         $ -         - 
(Loss) 
From 
Discontinued 
Operations 
Net              $ 0.88     $ 0.60     47           $ 3.35      $ 1.54      # 
Income 
Attributable 
to 
Common 
Shareholders3 
Average            1,194      1,184    1  %           1,195       1,171     2  % 
Diluted 
Common 
Shares 
Outstanding 
Return             27.5  %    14.6  %                 27.5   %    14.6   % 
on 
Average 
Equity 
Return             27.2  %    13.6  %                 27.2   %    13.6   % 
on 
Average 
Common 
Equity 
# 
Denotes 
a 
variance 
of more 
than 
100% 
 
 

Consolidated total revenues net of interest expense were $7.3 billion, up 13 percent from $6.5 billion a year ago. The increase largely reflects the consolidation of securitized cardmember loans and related debt onto the balance sheet in the first quarter4. Revenues also reflect higher cardmember spending and higher travel commissions and fees, partially offset by lower interest income due to a smaller loan portfolio, and lower yields on the portfolio.

Consolidated provisions for losses totaled $239 million compared to $748 million in the year-ago period4, reflecting continued improvement in credit quality.

Consolidated expenses totaled $5.6 billion, up 17 percent from $4.8 billion a year ago, reflecting the decision to invest significantly in business building initiatives, as well as higher volume-related rewards costs and the previously discussed restructuring charges.

The company's return on average equity (ROE) was 27.5 percent, up from 14.6 percent a year ago.

"Continued investments in the business helped to generate higher consumer, small business and corporate card spending while expanding the use of our products online," said Kenneth I. Chenault, chairman and chief executive officer. "With cardmember spending up 15 percent this period, we reached all-time records for the quarter and the full year."

"Credit indicators strengthened and the amount we needed to set aside for problem loans declined significantly from a year ago. Unemployment levels and housing remain a concern, but other aspects of the economy continue to show signs of improvement.

"Against this backdrop, strong billings and credit quality gives us the flexibility to continue with substantial investments in marketing and infrastructure to build revenues and operate more efficiently in a marketplace being transformed by digital technologies.

"While we continue to retain the flexibility to scale back our investments as business conditions change, the progress we made during 2010 has put us in a strong competitive position for the next phase of the economic recovery."

Segment Results

U.S. Card Services reported fourth-quarter net income of $701 million, up 70 percent from $413 million a year ago.

Total revenues net of interest expense increased 18 percent to $3.8 billion from $3.2 billion. The increase largely reflects the consolidation of securitized cardmember loans and related debt onto the balance sheet in the first quarter4.Revenues also reflect higher cardmember spending, partially offset by lower interest income due to a smaller loan portfolio and lower yields on the portfolio.

Provisions for losses totaled $111 million, down 68 percent from $346 million a year ago4. The decline reflects continued improvement in credit quality.

Total expenses increased 18 percent. Marketing, promotion, rewards and cardmember services expenses increased 16 percent from the year-ago period, reflecting increased investments in marketing and promotion and volume-related rewards costs. Salaries and employee benefits and other operating expenses increased 22 percent from year-ago levels, primarily reflecting the previously discussed restructuring and other reengineering costs, and various technology and business building investments.

The effective tax rate was 34 percent compared to 36 percent in the year-ago quarter.

International Card Services reported fourth-quarter net income of $102 million, up 48 percent from $69 million a year ago.

Total revenues net of interest expense increased 2 percent to $1.2 billion reflecting higher cardmember spending, partially offset by lower interest income due to smaller lending balances and yield.

Provisions for losses totaled $80 million, down 75 percent from $324 million a year ago. The decline reflects continued improvement in credit quality.

Total expenses increased 23 percent. Marketing, promotion, rewards and cardmember services expenses increased 22 percent from year-ago levels, reflecting higher volume-related rewards costs and increased investments in marketing and promotion. Salaries and employee benefits and other operating expenses increased 23 percent from year-ago levels, primarily reflecting the previously discussed restructuring and other reengineering costs, and various sales force and business building investments.

The effective tax rate was 6 percent compared to negative 73 percent in the year-ago quarter. The tax rates in both periods primarily reflect the impact of recurring tax benefits on varying levels of performance.

Global Commercial Services reported fourth-quarter net income of $106 million, up 6 percent from $100 million a year ago.

Total revenues net of interest expense increased 7 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 $30 million, down 19 percent from $37 million a year ago.

Total expenses increased 9 percent. Marketing, promotion, rewards and cardmember services expenses increased 14 percent from the year-ago period, primarily reflecting higher volume-related rewards costs. Salaries and employee benefits and other operating expenses increased 9 percent from the year-ago period, primarily reflecting higher volume-related expenses and various business building investments.

The effective tax rate was 27 percent compared to 29 percent in the year-ago quarter.

Global Network & Merchant Services reported fourth quarter net income of $268 million, up 34 percent from $200 million a year ago.

Total revenues net of interest expense increased 15 percent to $1.2 billion, from $1.0 billion, reflecting higher merchant-related revenues driven by an increase in global card billed business, as well as an increase in revenues from Global Network Services' bank partners.

Total expenses increased 16 percent. Marketing, promotion, rewards and cardmember services expenses decreased 17 percent from the year-ago period. Salaries and employee benefits and other operating expenses increased 30 percent, primarily reflecting the previously mentioned restructuring and other reengineering costs, and various technology and business-building investments.

The effective tax rate was 32 percent compared to 38 percent in the year-ago quarter.

Corporate and Other reported fourth-quarter net loss of $115 million compared with net loss of $72 million a year ago. The results for both periods reflect income of $220 million ($136 million after-tax) for the previously announced MasterCard and Visa settlements.

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 www.americanexpress.com and connect with us on www.facebook.com/americanexpress, www.twitter.com/americanexpress and www.youtube.com/americanexpress.

The 2010 Fourth 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 fourth-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.

Cautionary Note Regarding Forward-Looking Statements

This release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. The forward-looking statements, which address the company's expected business and financial performance, among other matters, contain words such as "believe," "expect," "estimate," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update or revise any forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements, include, but are not limited to, the following:

 
 
    -- changes in global economic and business conditions, including consumer 

and business spending, the availability and cost of credit,

unemployment and political conditions, all of which may significantly

affect spending on the Card, delinquency rates, loan balances and

other aspects of our business and results of operations;

 
    -- changes in capital and credit market conditions, which may 

significantly affect the company's ability to meet its liquidity

needs, access to capital and cost of capital, including changes in

interest rates; changes in market conditions affecting the valuation

of our assets; or any reduction in our credit ratings or those of our

subsidiaries, which could materially increase the cost and other terms

of our funding, restrict our access to the capital markets or result

in contingent payments under contracts;

 
    -- litigation, such as class actions or proceedings brought by 

governmental and regulatory agencies (including the lawsuit filed

against the Company by the U.S. Department of Justice and certain

state attorneys general), that could result in (i) the imposition of

behavioral remedies against the Company or the Company's voluntarily

making certain changes to its business practices, the effects of which

in either case could have a material adverse impact on the Company's

financial performance; (ii) the imposition of substantial monetary

damages in private actions against the Company; and/or (iii) damage to

the Company's global reputation and brand;

 
    -- legal and regulatory developments wherever we do business, including 

legislative and regulatory reforms in the United States, such as the

Dodd-Frank Act's stricter regulation of large, interconnected

financial institutions, changes in requirements relating to

securitization and the establishment of the Bureau of Consumer

Financial Protection, which could make fundamental changes to many of

our business practices or materially affect our capital requirements,

results of operations, ability to pay dividends or repurchase our

stock; or actions and potential future actions by the FDIC and credit

rating agencies applicable to securitization trusts, which could

impact the company's ABS program;

 
    -- changes in the substantial and increasing worldwide competition in the 

payments industry, including competitive pressure that may impact the

prices we charge merchants that accept our Cards and the success of

marketing, promotion or rewards programs;

 
    -- changes in technology or in our ability to protect our intellectual 

property (such as copyrights, trademarks, patents and controls on

access and distribution), and invest in and compete at the leading

edge of technological developments across our businesses, including

technology and intellectual property of third parties whom we rely on,

all of which could materially affect our results of operations;

 
    -- data breaches and fraudulent activity, which could damage our brand, 

increase our costs or have regulatory implications, and changes in

regulation affecting privacy and data security under federal, state

and foreign law, which could result in higher compliance and

technology costs to ourselves or our vendors;

 
    -- changes in our ability to attract or retain qualified personnel in the 

management and operation of the company's business, including any

changes that may result from increasing regulatory supervision of

compensation practices;

 
    -- changes in the financial condition and creditworthiness of our 

business partners, such as bankruptcies, restructurings or

consolidations, involving merchants that represent a significant

portion of our business, such as the airline industry, or our partners

in Global Network Services or financial institutions that we rely on

for routine funding and liquidity, which could materially affect our

financial condition or results of operations;

 
    -- uncertainties associated with business acquisitions, including the 

ability to realize anticipated business retention, growth and cost

savings or effectively integrate the acquired business into our

existing operations;

 
    -- changes affecting the success of our reengineering and other cost 

control initiatives, which may result in the company not realizing all

or a significant portion of the benefits that we intend;

 
    -- the actual amount to be spent by the Company on investments in the 

business, including on marketing, promotion, rewards and cardmember

services and certain other operating expenses, which will be based in

part on management's assessment of competitive opportunities and the

Company's performance and the ability to control and manage operating,

infrastructure, advertising and promotion expenses as business expands

or changes;

 
    -- the effectiveness of the company's risk management policies and 

procedures, including credit risk relating to consumer debt, liquidity

risk in meeting business requirements and operational risks;

 
    -- changes affecting our ability to accept or maintain deposits due to 

market demand or regulatory constraints, such as changes in interest

rates and regulatory restrictions on our ability to obtain deposit

funding or offer competitive interest rates, which could affect our

liquidity position and our ability to fund our business; and

 
    -- factors beyond our control such as fire, power loss, disruptions in 

telecommunications, severe weather conditions, natural disasters,

terrorism, "hackers" or fraud, which could affect travel-related

spending or disrupt our global network systems and ability to process

transactions.

A further description of these uncertainties and other risks can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2009, its Quarterly Reports on Form 10-Q for the three months ended March 31, June 30, and September 30, 2010, and the company's other reports filed with the SEC.

1 Management believes the adjusted earnings per share, which is a non-GAAP measure, provides a useful metric to evaluate the ongoing operating performance of the company.

2 Refer to discussion regarding revenue drivers within the earnings release.

3 Represents income from continuing operations or net income, as applicable, less (i) accelerated preferred dividend accretion of $212 million for the twelve months ended December 31, 2009 due to the repurchase of preferred shares from the U.S. Treasury Department, (ii) preferred shares dividends and related accretion of $94 million for the twelve months ended December 31, 2009, and (iii) earnings allocated to participating share awards and other items of $12 million and $9 million for the three months ended December 31, 2010 and 2009, respectively, and $51 million and $22 million for the twelve months ended December 31, 2010 and 2009, respectively.

4 Upon the adoption of new accounting guidance governing the accounting for transfers of financial assets and consolidation of variable interest entities on January 1, 2010, the company began consolidating the assets and liabilities of its previously unconsolidated American Express Credit Account Master Trust (Lending Trust). Among the changes arising from the consolidation of the Lending Trust, expenses related to written-off securitized cardmember loans moved from revenues net of interest expense into provisions for losses.

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.

 
(Preliminary) 
American 
Express 
Company 
Consolidated 
Statements 
of Income 
(Millions) 
                 Quarters Ended                      Years Ended 
                 December 31,          Percentage    December 31,           Percentage 
                 2010      2009        Inc/(Dec)     2010       2009        Inc/(Dec) 
Revenues 
Non-interest 
revenues 
Discount         $ 4,093   $ 3,645     12    %       $ 15,111   $ 13,389    13    % 
revenue 
Net card           534       549       (3  )           2,102      2,151     (2  ) 
fees 
Travel             472       439       8               1,779      1,594     12 
commissions 
and fees 
Other              519       438       18              2,031      1,778     14 
commissions 
and fees 
Securitization     N/A       190       -               N/A        400       - 
income, 
net (A) 
Other              514       518       (1  )           1,927      2,087     (8  ) 
Total              6,132     5,779     6               22,950     21,399    7 
non-interest 
revenues 
Interest 
income 
Interest           1,676     1,036     62              6,783      4,468     52 
and fees 
on loans 
Interest           98        225       (56 )           443        804       (45 ) 
and 
dividends 
on 
investment 
securities 
Deposits           21        11        91              66         59        12 
with 
banks 
and other 
Total              1,795     1,272     41              7,292      5,331     37 
interest 
income 
Interest 
expense 
Deposits           140       126       11              546        425       28 
Short-term         1         1         -               3          37        (92 ) 
borrowings 
Long-term          464       435       7               1,874      1,745     7 
debt 
and other 
Total              605       562       8               2,423      2,207     10 
interest 
expense 
Net                1,190     710       68              4,869      3,124     56 
interest 
income 
Total              7,322     6,489     13              27,819     24,523    13 
revenues 
net of 
interest 
expense 
Provisions 
for 
losses 
Charge             183       141       30              595        857       (31 ) 
card 
Cardmember         37        560       (93 )           1,527      4,266     (64 ) 
loans 
Other              19        47        (60 )           85         190       (55 ) 
Total              239       748       (68 )           2,207      5,313     (58 ) 
provisions 
for 
losses 
Total              7,083     5,741     23              25,612     19,210    33 
revenues 
net of 
interest 
expense 
after 
provisions 
for 
losses 
Expenses 
Marketing          810       713       14              3,054      1,914     60 
and 
promotion 
Cardmember         1,344     1,178     14              5,029      4,036     25 
rewards 
Cardmember         155       143       8               561        517       9 
services 
Salaries           1,570     1,196     31              5,566      5,080     10 
and 
employee 
benefits 
Professional       908       715       27              2,806      2,408     17 
services 
Occupancy          428       495       (14 )           1,562      1,619     (4  ) 
and 
equipment 
Communications     99        99        -               383        414       (7  ) 
Other,             292       241       21              687        381       80 
net 
Total              5,606     4,780     17              19,648     16,369    20 
Pretax             1,477     961       54              5,964      2,841     # 
income 
from 
continuing 
operations 
Income             415       251       65              1,907      704       # 
tax 
provision 
Income             1,062     710       50              4,057      2,137     90 
from 
continuing 
operations 
Income             -         6         -               -          (7     )  - 
(Loss) 
from 
discontinued 
operations, 
net of 
tax 
Net              $ 1,062   $ 716       48            $ 4,057    $ 2,130     90 
income 
Income           $ 1,050   $ 701       50            $ 4,006    $ 1,809     # 
from 
continuing 
operations 
attributable 
to 
common 
shareholders 
(B) 
Net              $ 1,050   $ 707       49            $ 4,006    $ 1,802     # 
income 
attributable 
to 
common 
shareholders 
(B) 
 
 
# - Denotes a variance of more than 100%. 
(A) In accordance with the new GAAP effective 
January 1, 2010,  the Company 
no longer reports securitization income, net in its  income statement. 
(B) Represents income from continuing operations or 
net income,  as applicable, less (i) accelerated 
preferred dividend accretion of  $212 million 
for the twelve months ended December 
31, 2009 due to  the repurchase of $3.39 billion 
of preferred shares issued as part 
of the Capital Purchase Program (CPP), (ii) 
preferred shares  dividends and related 
accretion of $94 million for the twelve months 
ended December 31, 2009, and (iii) earnings 
allocated to  participating share awards and 
other items of $12 million and $9  million 
for the three months ended December 31, 2010 
and 2009,  respectively, and $51 million and 
$22 million for the twelve months  ended December 
31, 2010 and 2009, respectively. 
 
 
(Preliminary) 
American Express Company 
Condensed Consolidated Balance Sheets 
(Billions) 
                                        December 31,    December 31, 
                                        2010            2009 
Assets 
Cash                                    $ 17            $ 17 
Accounts receivable                       40              38 
Investment securities                     14              24 
Loans                                     58              30 
Other assets                              18              16 
Total assets                            $ 147           $ 125 
Liabilities and Shareholders' Equity 
Customer deposits                       $ 30            $ 26 
Short-term borrowings                     3               2 
Long-term debt                            66              52 
Other liabilities                         32              31 
Total liabilities                         131             111 
Shareholders' Equity                      16              14 
Total liabilities and                   $ 147           $ 125 
shareholders' equity 
 
 
(Preliminary) 
American 
Express 
Company 
Financial 
Summary 
(Millions) 
                Quarters Ended                     Years Ended 
                December 31,          Percentage   December 31,            Percentage 
                2010       2009       Inc/(Dec)    2010        2009        Inc/(Dec) 
Total 
revenues 
net of 
interest 
expense 
U.S.            $ 3,769    $ 3,188    18 %         $ 14,616    $ 12,153    20 % 
Card 
Services 
International     1,234      1,215    2              4,650       4,529     3 
Card 
Services 
Global            1,152      1,072    7              4,402       3,983     11 
Commercial 
Services 
Global            1,190      1,031    15             4,373       3,780     16 
Network 
& 
Merchant 
Services 
                  7,345      6,506    13             28,041      24,445    15 
Corporate 
& Other, 
including         (23   )    (17   )  35             (222   )    78        # 
adjustments 
and 
eliminations 
CONSOLIDATED    $ 7,322    $ 6,489    13           $ 27,819    $ 24,523    13 
TOTAL 
REVENUES 
NET 
OF 
INTEREST 
EXPENSE 
Pretax 
income 
(loss) 
from 
continuing 
operations 
U.S.            $ 1,061    $ 646      64           $ 3,537     $ 586       # 
Card 
Services 
International     108        40       #              638         276       # 
Card 
Services 
Global            145        141      3              761         505       51 
Commercial 
Services 
Global            395        322      23             1,649       1,445     14 
Network 
& 
Merchant 
Services 
                  1,709      1,149    49             6,585       2,812     # 
Corporate         (232  )    (188  )  23             (621   )    29        # 
& Other 
PRETAX          $ 1,477    $ 961      54           $ 5,964     $ 2,841     # 
INCOME 
FROM 
CONTINUING 
OPERATIONS 
Net 
income 
(loss) 
U.S.            $ 701      $ 413      70           $ 2,246     $ 411       # 
Card 
Services 
International     102        69       48             566         332       70 
Card 
Services 
Global            106        100      6              474         350       35 
Commercial 
Services 
Global            268        200      34             1,063       937       13 
Network 
& 
Merchant 
Services 
                  1,177      782      51             4,349       2,030     # 
Corporate         (115  )    (72   )  60             (292   )    107       # 
& Other 
Income            1,062      710      50             4,057       2,137     90 
from 
continuing 
operations 
Income            -          6        -              -           (7     )  - 
(Loss) 
from 
discontinued 
operations, 
net of 
tax 
NET             $ 1,062    $ 716      48           $ 4,057     $ 2,130     90 
INCOME 
# 
- Denotes 
a 
variance 
of more 
than 
100%. 
 
 
(Preliminary) 
American 
Express 
Company 
Financial 
Summary 
(continued) 
                Quarters Ended                     Years Ended 
                December 31,          Percentage   December 31,          Percentage 
                2010       2009       Inc/(Dec)    2010       2009       Inc/(Dec) 
EARNINGS 
PER 
COMMON 
SHARE 
BASIC 
Income          $ 0.88     $ 0.59     49 %         $ 3.37     $ 1.55     #  % 
from 
continuing 
operations 
attributable 
to 
common 
shareholders 
Income            -          0.01     -              -          (0.01 )  - 
(Loss) 
from 
discontinued 
operations 
Net             $ 0.88     $ 0.60     47 %         $ 3.37     $ 1.54     #  % 
income 
attributable 
to 
common 
shareholders 
Average           1,188      1,179    1  %           1,188      1,168    2  % 
common 
shares 
outstanding 
(millions) 
DILUTED 
Income          $ 0.88     $ 0.59     49 %         $ 3.35     $ 1.54     #  % 
from 
continuing 
operations 
attributable 
to 
common 
shareholders 
Income            -          0.01     -              -          -        - 
(Loss) 
from 
discontinued 
operations 
Net             $ 0.88     $ 0.60     47 %         $ 3.35     $ 1.54     #  % 
income 
attributable 
to 
common 
shareholders 
Average           1,194      1,184    1  %           1,195      1,171    2  % 
common 
shares 
outstanding 
(millions) 
Cash            $ 0.18     $ 0.18     -  %         $ 0.72     $ 0.72     -  % 
dividends 
declared 
per 
common 
share 
Selected 
Statistical 
Information 
                Quarters Ended                     Years Ended 
                December 31,          Percentage   December 31,          Percentage 
                2010       2009       Inc/(Dec)    2010       2009       Inc/(Dec) 
Return            27.5  %    14.6  %                 27.5  %    14.6  % 
on 
average 
equity 
(A) 
Return            27.2  %    13.6  %                 27.2  %    13.6  % 
on 
average 
common 
equity 
(A) 
Return            35.1  %    17.6  %                 35.1  %    17.6  % 
on 
average 
tangible 
common 
equity 
(A) 
Common            1,197      1,192    -  %           1,197      1,192    -  % 
shares 
outstanding 
(millions) 
Book            $ 13.56    $ 12.08    12 %         $ 13.56    $ 12.08    12 % 
value 
per 
common 
share 
Shareholders'   $ 16.2     $ 14.4     13 %         $ 16.2     $ 14.4     13 % 
equity 
(billions) 
 
 
# - 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. 
 
 
Media: 
Joanna Lambert, 212-640-9668 
[e-mail] 
Mike O'Neill, 212-640-5951 
mike.o'[e-mail] 
or 
Investors/Analysts: 
Toby Willard, 212-640-1958 
[e-mail] 
Ron Stovall, 212-640-5574 
[e-mail]