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American Express Third Quarter EPS Up 6% To $1.09; Revenues Rise, Expenses Decline

Stocks in this article: AXP

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 Company

Consolidated Statements of Income

 
(Millions)
Quarters Ended Nine Months Ended
September 30, Percentage September 30, Percentage
2012 2011 Inc/(Dec) 2012 2011 Inc/(Dec)
 
Revenues
Non-interest revenues
Discount revenue $ 4,425 $ 4,218 5 % $ 13,164 $ 12,398 6 %
Net card fees 633 622 2 1,858 1,836 1
Travel commissions and fees 465 480 (3 ) 1,437 1,457 (1 )
Other commissions and fees 581 604 (4 ) 1,739 1,717 1
Other   577     534   8   1,808     1,546   17
Total non-interest revenues   6,681     6,458   3   20,006     18,954   6
Interest income
Interest on loans 1,658 1,587 4 4,851 4,685 4
Interest and dividends on investment securities 60 68 (12 ) 193 255 (24 )
Deposits with banks and other   21     33   (36 )   73     71   3
Total interest income   1,739     1,688   3   5,117     5,011   2
Interest expense
Deposits 118 127 (7 ) 362 395 (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   5
Total revenues net of interest expense   7,862     7,571   4   23,441     22,220   5
Provisions for losses
Charge card 190 174 9 531 533 -
Cardmember loans 264 48 # 753 104 #
Other   25     27   (7 )   68     66   3
Total provisions for losses   479     249   92   1,352     703   92
Total revenues net of interest expense after provisions for losses   7,383     7,322   1   22,089     21,517   3
 
Expenses
Marketing and promotion 764 757 1 2,168 2,261 (4 )
Cardmember rewards 1,496 1,565 (4 ) 4,425 4,755 (7 )
Cardmember services 201 189 6 602 526 14
Salaries and employee benefits 1,516 1,598 (5 ) 4,687 4,715 (1 )
Professional services 690 690 - 2,092 2,098 -
Occupancy and equipment 453 433 5 1,337 1,218 10
Communications 93 93 - 284 280 1
Other, net   300     286   5   972     456   #
Total   5,513     5,611   (2 )   16,567     16,309   2
Pretax income from continuing operations 1,870 1,711 9 5,522 5,208 6
Income tax provision   620     476   30   1,677     1,501   12
Income from continuing operations 1,250 1,235 1 3,845 3,707 4
Income from discontinued operations, net of tax   -     -   -   -     36   #
Net income $ 1,250   $ 1,235   1 $ 3,845   $ 3,743   3
Income from continuing operations attributable to common shareholders (A) $ 1,236   $ 1,220   1 $ 3,803   $ 3,663   4
Net income attributable to common shareholders (A) $ 1,236   $ 1,220   1 $ 3,803   $ 3,699   3
Effective tax rate 33.2 % 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 Company

Condensed Consolidated Balance Sheets

 
(Billions)
 
September 30, December 31,
2012 2011
 
Assets
Cash & cash equivalents $ 25 $ 25
Accounts receivable 45 44
Investment securities 6 7
Loans 61 61
Other assets   16   16
Total assets $ 153 $ 153
 
Liabilities and Shareholders' Equity
Customer deposits $ 37 $ 38
Short-term borrowings 4 4
Long-term debt 56 60
Other liabilities   37   32
Total liabilities   134   134
 
Shareholders' Equity   19   19
Total liabilities and shareholders' equity $ 153 $ 153
 
                         
(Preliminary)
 

American Express Company

Financial Summary

 
(Millions)
Quarters Ended Nine Months Ended
September 30, Percentage September 30, Percentage
2012 2011 Inc/(Dec) 2012 2011 Inc/(Dec)
 

Total revenues net of interest expense

U.S. Card Services $ 4,055 $ 3,838 6 % $ 11,976 $ 11,174 7 %
International Card Services 1,313 1,347 (3 ) 3,909 3,906 -
Global Commercial Services 1,156 1,130 2 3,534 3,442 3
Global Network & Merchant Services   1,310     1,250   5   3,881     3,626   7
7,834 7,565 4 23,300 22,148 5
Corporate & 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 operations

U.S. Card Services $ 1,128 $ 1,151 (2 ) $ 3,457 $ 2,961 17
International Card Services 207 189 10 549 625 (12 )
Global Commercial Services 275 269 2 818 799 2
Global Network & Merchant Services   561     514   9   1,662     1,477   13
2,171 2,123 2 6,486 5,862 11
Corporate & 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 $ 1,953 11
International Card Services 164 221 (26 ) 539 571 (6 )
Global Commercial Services 183 197 (7 ) 579 558 4
Global Network & Merchant Services   360     332   8   1,089     969   12
1,406 1,483 (5 ) 4,376 4,051 8
Corporate & Other   (156 )   (248 ) (37 )   (531 )   (344 ) 54
Income from continuing operations 1,250 1,235 1 3,845 3,707 4
Income 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 Company

Financial Summary (continued)

 
 
Quarters Ended Nine Months Ended
September 30, Percentage September 30, Percentage
2012 2011 Inc/(Dec) 2012 2011 Inc/(Dec)
EARNINGS PER COMMON SHARE
 
BASIC
Income from continuing operations attributable to common shareholders $ 1.10 $ 1.04 6 % $ 3.33 $ 3.09 8 %
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 ) %
 
DILUTED
Income from continuing operations attributable to common shareholders $ 1.09 $ 1.03 6 % $ 3.31 $ 3.08 7 %
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 Ended Nine Months Ended
September 30, Percentage September 30, Percentage
2012 2011 Inc/(Dec) 2012 2011 Inc/(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) 1,122 1,169 (4 ) % 1,122 1,169 (4 ) %
Book value per common share $ 17.37 $ 15.49 12 % $ 17.37 $ 15.49 12 %
Shareholders' equity (billions) $ 19.5 $ 18.1 8 % $ 19.5 $ 18.1 8 %
 
# - 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
September 30, June 30, March 31, December 31, September 30,
2012 2012 2012 2011 2011
 

ROE

 
Net income $ 5,037 $ 5,022 $ 5,014 $ 4,935 $ 4,805
Average shareholders' equity $ 19,145 $ 18,887 $ 18,525 $ 17,842 $ 17,277
Return 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 $ 4,805
Earnings 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.



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