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Press release from Business Wire

American Express Third Quarter EPS up 6% to $1.09; Revenues Rise, Expenses Decline

<p class='bwalignc'> <span class='bwuline'><b>Cardmember Spending and Loan Portfolio Grow as Credit Quality Remains Strong</b></span> </p>

Wednesday, October 17, 2012

American Express Third Quarter EPS up 6% to $1.09; Revenues Rise, Expenses Decline16:05 EDT Wednesday, October 17, 2012 NEW YORK (Business Wire) -- American Express Company (NYSE: AXP) today reported third-quarter net income of $1.3 billion, up 1 percent from a year ago. Diluted earnings per share was $1.09, up 6 percent from $1.03 a year ago. (Millions, except percentages and per share amounts)                 Quarters Ended September 30, Percentage Inc/(Dec) Nine Months Ended September 30, Percentage Inc/(Dec)2012     20112012     2011 Total Revenues Net of Interest Expense $ 7,862 $ 7,571 4 % $ 23,441 $ 22,220 5 % Income From Continuing Operations $ 1,250 $ 1,235 1 % $ 3,845 $ 3,707 4 % Income From Discontinued Operations, net of tax1 - - - - $ 36 # Net Income $ 1,250 $ 1,235 1 % $ 3,845 $ 3,743 3 % Earnings Per Common Share – Diluted:   Income From Continuing Operations Attributable to Common Shareholders2 $ 1.09 $ 1.03 6 % $ 3.31 $ 3.08 7 % Income From Discontinued Operations1 - - - - $ 0.03 # Net Income Attributable to Common Shareholders2 $ 1.09 $ 1.03 6 % $ 3.31 $ 3.11 6 % Average Diluted Common Shares Outstanding 1,132 1,181 (4 )% 1,149 1,191 (4 )% Return on Average Equity 26.3 % 27.8 % 26.3 % 27.8 %   # Denotes a variance of more than 100 percent   Consolidated total revenues net of interest expense rose 4 percent to $7.9 billion in the third quarter, from $7.6 billion a year ago. The increase was driven by a rise in cardmember spending and higher net interest income that reflected growth in the cardmember loan portfolio. Adjusted for foreign currency translations, consolidated total revenues net of interest expense rose 5 percent from a year ago.3 Consolidated provisions for losses totaled $479 million, up 92 percent from $249 million a year ago. This increase reflects substantially lower reserve releases than 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 $5.5 billion, down 2 percent from $5.6 billion last year. The decrease reflects lower salaries and employee benefits costs and lower rewards expenses. Year ago expenses were reduced by the receipt of the Visa settlement totaling $70 million. Adjusted for foreign currency translations, consolidated total expenses are down 1 percent from a year ago.3 The effective tax rate was 33 percent, up from 28 percent in the year ago quarter. The year ago tax rate reflected the realization of certain foreign tax credits. The company's return on average equity (ROE) was 26.3 percent, down from 27.8 percent a year ago. “We generated solid results this quarter against the backdrop of a very uneven global economy,” said Kenneth I. Chenault, chairman and chief executive officer. “Bottom line results were driven by higher revenues and lower expenses, a combination that reflects ongoing efforts to contain operating costs while maintaining a substantial level of investment in our marketing and rewards programs. “Cardmember spending rose 8 percent in the U.S. from a year ago and 6 percent globally (8 percent fx-adjusted). That's a healthy pace in the current environment and an improvement from earlier in the quarter. Nonetheless, it represents slower growth than we were generating earlier in the year, a trend that we're seeing among major card issuers. “Credit quality remained at the historically strong levels, but we didn't have the same benefit from substantial reserve releases as last year when write-offs and delinquencies were declining at a faster rate. “We continue to see many growth opportunities as new technologies drive the migration of global payments from cash and checks towards plastic and digital transactions. We are strengthening traditional products that deliver value to cardmembers and drive business for merchants. At the same time, we are also moving to broadening our franchise with the extension of our Loyalty Partner business into new markets like Mexico and the recently announced partnership with Walmart to reach new segments of the U.S. market that are looking for an alternative to traditional debit cards and checking accounts. “Taking full advantage of these and other opportunities, particularly in a slow growth economy, will continue to require rigorous cost containment to help ensure that we have the investment resources needed to continue to deliver on our growth objectives.” Segment ResultsU.S. Card Services reported third-quarter net income of $699 million, down 5 percent from $733 million a year ago. Total revenues net of interest expense increased 6 percent to $4.1 billion from $3.8 billion. Revenues reflect an 8 percent increase in cardmember spending and a rise in net interest income, driven primarily by a 5 percent growth in average cardmember loans. Provisions for losses totaled $339 million, up from $143 million a year ago. The increase primarily reflects lower reserve releases than the year ago period, partially offset by lower net write-offs in the current quarter. Total expenses increased 2 percent from the year ago period, primarily reflecting higher operating expenses,4 partially offset by lower rewards-related costs. The effective tax rate was 38 percent compared to 36 percent in the year-ago period. International Card Services reported third-quarter net income of $164 million, down 26 percent from $221 million a year ago. Total revenues net of interest expense decreased 3 percent to $1.3 billion. Adjusted for foreign currency translations, revenues rose 2 percent from a year ago.3 Provisions for losses totaled $83 million, down 18 percent from $101 million a year ago. Total expenses decreased 3 percent primarily reflecting lower operating expenses. Adjusted for foreign currency translations, expenses were unchanged from a year ago.3 The effective tax rate was 21 percent compared to (17) percent in the year ago period, which reflected the realization of certain foreign tax credits last year. Global Commercial Services reported third-quarter net income of $183 million, down 7 percent from $197 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 travel commissions and fees. Adjusted for foreign currency translations, revenues rose 5 percent from a year ago.3 Provisions for losses totaled $32 million compared with a credit of $17 million a year ago, which included reserve releases last year. Total expenses decreased 3 percent, reflecting lower operating expenses as well as lower costs for marketing, promotion, rewards and cardmember services expenses. Adjusted for foreign currency translations, expenses were down 1 percent compared to a year ago.3 The effective tax rate was 33 percent compared to 27 percent in the year ago period. The year ago tax rate reflected the realization of certain foreign tax credits. Global Network & Merchant Services reported third-quarter net income of $360 million, up 8 percent from $332 million a year ago. Total revenues net of interest expense increased 5 percent to $1.3 billion, reflecting higher merchant-related revenues driven by an increase in global cardmember spending. Adjusted for foreign currency translations, revenues rose 7 percent from the year ago quarter.3 Total expenses increased 2 percent. An increase in operating expenses was partially offset by lower marketing, promotion, rewards and cardmember services expenses. Adjusted for foreign currency translations, expenses rose 4 percent from a year ago.3 The effective tax rate was 36 percent compared to 35 percent in the year ago period. Corporate and Other reported third-quarter net loss of $156 million compared with net loss of $248 million in the year ago period. The year ago period reflected a number of items including charges related to legal exposures and $70 million ($43 million after-tax) benefit from the Visa settlement. 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 Third 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 third-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 Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 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 September 30, 2012 and 2011, respectively, and $42 million and $44 million for the nine months ended September 30, 2012 and 2011, respectively. 3 As reported in this release, FX adjusted information, which constitute 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 September 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. 4 Operating expenses include salaries and employee benefits, professional services, occupancy and equipment, communications and other, net. 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 CompanyConsolidated Statements of Income   (Millions)Quarters EndedNine Months EndedSeptember 30,PercentageSeptember 30,Percentage20122011Inc/(Dec)20122011Inc/(Dec)   RevenuesNon-interest revenuesDiscount revenue$4,425$4,2185%$13,164$12,3986%Net card fees63362221,8581,8361Travel commissions and fees465480(3)1,4371,457(1)Other commissions and fees581604(4)1,7391,7171Other   577     534   8   1,808     1,546   17Total non-interest revenues   6,681     6,458   3   20,006     18,954   6Interest incomeInterest on loans1,6581,58744,8514,6854Interest and dividends on investment securities6068(12)193255(24)Deposits with banks and other   21     33   (36)   73     71   3Total interest income   1,739     1,688   3   5,117     5,011   2Interest expenseDeposits118127(7)362395(8)Long-term debt and other   440     448   (2)   1,320     1,350   (2)Total interest expense   558     575   (3)   1,682     1,745   (4)Net interest income   1,181     1,113   6   3,435     3,266   5Total revenues net of interest expense   7,862     7,571   4   23,441     22,220   5Provisions for lossesCharge card1901749531533-Cardmember loans26448#753104#Other   25     27   (7)   68     66   3Total provisions for losses   479     249   92   1,352     703   92Total revenues net of interest expense after provisions for losses   7,383     7,322   1   22,089     21,517   3   ExpensesMarketing and promotion76475712,1682,261(4)Cardmember rewards1,4961,565(4)4,4254,755(7)Cardmember services201189660252614Salaries and employee benefits1,5161,598(5)4,6874,715(1)Professional services690690-2,0922,098-Occupancy and equipment45343351,3371,21810Communications9393-2842801Other, net   300     286   5   972     456   #Total   5,513     5,611   (2)   16,567     16,309   2Pretax income from continuing operations1,8701,71195,5225,2086Income tax provision   620     476   30   1,677     1,501   12Income from continuing operations1,2501,23513,8453,7074Income from discontinued operations, net of tax   -     -   -   -     36   #Net income$1,250   $1,235   1$3,845   $3,743   3Income from continuing operations attributable to common shareholders (A)$1,236   $1,220   1$3,803   $3,663   4Net income attributable to common shareholders (A)$1,236   $1,220   1$3,803   $3,699   3Effective tax rate33.2%27.8%30.4%28.8%   # - 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 September 30, 2012 and 2011, respectively, and $42 million and $44 million for the nine months ended September 30, 2012 and 2011, respectively.         (Preliminary)American Express CompanyCondensed Consolidated Balance Sheets   (Billions)   September 30,December 31,20122011   AssetsCash & cash equivalents$25$25Accounts receivable4544Investment securities67Loans6161Other assets   16   16Total assets$153$153   Liabilities and Shareholders' EquityCustomer deposits$37$38Short-term borrowings44Long-term debt5660Other liabilities   37   32Total liabilities   134   134   Shareholders' Equity   19   19Total liabilities and shareholders' equity$153$153                             (Preliminary)   American Express CompanyFinancial Summary   (Millions)Quarters EndedNine Months EndedSeptember 30,PercentageSeptember 30,Percentage20122011Inc/(Dec)20122011Inc/(Dec)   Total revenues net of interest expenseU.S. Card Services$4,055$3,8386%$11,976$11,1747%International Card Services1,3131,347(3)3,9093,906-Global Commercial Services1,1561,13023,5343,4423Global Network & Merchant Services   1,310     1,250   5   3,881     3,626   77,8347,565423,30022,1485Corporate & Other   28     6   #   141     72   96   CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE$7,862   $7,571   4$23,441   $22,220   5   Pretax income (loss) from continuing operationsU.S. Card Services$1,128$1,151(2)$3,457$2,96117International Card Services20718910549625(12)Global Commercial Services27526928187992Global Network & Merchant Services   561     514   9   1,662     1,477   132,1712,12326,4865,86211Corporate & Other   (301)   (412)(27)   (964)   (654)47   PRETAX INCOME FROM CONTINUING OPERATIONS$1,870   $1,711   9$5,522   $5,208   6   Net income (loss)U.S. Card Services$699$733(5)$2,169$1,95311International Card Services164221(26)539571(6)Global Commercial Services183197(7)5795584Global Network & Merchant Services   360     332   8   1,089     969   121,4061,483(5)4,3764,0518Corporate & Other   (156)   (248)(37)   (531)   (344)54Income from continuing operations1,2501,23513,8453,7074Income from discontinued operations, net of tax   -     -   -   -     36   #NET INCOME$1,250   $1,235   1$3,845   $3,743   3   # - Denotes a variance of more than 100%.                             (Preliminary)   American Express CompanyFinancial Summary (continued)     Quarters EndedNine Months EndedSeptember 30,PercentageSeptember 30,Percentage20122011Inc/(Dec)20122011Inc/(Dec)EARNINGS PER COMMON SHARE   BASICIncome from continuing operations attributable to common shareholders$1.10$1.046%$3.33$3.098%Income from discontinued operations   -     -   -   -     0.03   #Net income attributable to common shareholders$1.10   $1.04   6%$3.33   $3.12   7%   Average common shares outstanding (millions)   1,126     1,175   (4)%   1,143     1,184   (3)%   DILUTEDIncome from continuing operations attributable to common shareholders$1.09$1.036%$3.31$3.087%Income from discontinued operations   -     -   -   -     0.03   #Net income attributable to common shareholders$1.09   $1.03   6%$3.31   $3.11   6%   Average common shares outstanding (millions)   1,132     1,181   (4)%   1,149     1,191   (4)%   Cash dividends declared per common share$0.20   $0.18   11%$0.60   $0.54   11%     Selected Statistical Information   Quarters EndedNine Months EndedSeptember 30,PercentageSeptember 30,Percentage20122011Inc/(Dec)20122011Inc/(Dec)   Return on average equity (A)26.3%27.8%26.3%27.8%Return on average common equity (A)26.0%27.5%26.0%27.5%Return on average tangible common equity (A)33.5%35.7%33.5%35.7%Common shares outstanding (millions)1,1221,169(4)%1,1221,169(4)%Book value per common share$17.37$15.4912%$17.37$15.4912%Shareholders' equity (billions)$19.5$18.18%$19.5$18.18%   # - 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 CompanyComponents 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 EndedSeptember 30,June 30,March 31,December 31,September 30,20122012201220112011   ROE   Net income$5,037$5,022$5,014$4,935$4,805Average shareholders' equity$19,145$18,887$18,525$17,842$17,277Return on average equity (A)26.3%26.6%27.1%27.7%27.8%   Reconciliation of ROCE and ROTCE   Net income$5,037$5,022$5,014$4,935$4,805Earnings allocated to participating share awards and other   56     57     58     58     56   Net income attributable to common shareholders$4,981   $4,965   $4,956   $4,877   $4,749     Average shareholders' equity$19,145   $18,887   $18,525   $17,842   $17,277   Average common shareholders' equity$19,145   $18,887   $18,525   $17,842   $17,277   Average goodwill and other intangibles   4,272     4,330     4,380     4,215     3,992   Average tangible common shareholders' equity$14,873   $14,557   $14,145   $13,627   $13,285   Return on average common equity (A)26.0%26.3%26.8%27.3%27.5%Return on average tangible common equity (B)33.5%34.1%35.0%35.8%35.7%   (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. American ExpressMedia:Marina H. Norville, +1-212-640-2832marina.h.norville@aexp.comMike O?Neill, +1-212-640-5951mike.o'neill@aexp.comorInvestors/Analysts:Ken Paukowits, +1-212-640-6348ken.f.paukowits@aexp.comRick Petrino, +1-212-640-5574richard.petrino@aexp.com