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American Express ( AXP) said its credit book continued to deteriorate in the second quarter, but not as bad as the credit card issuer originally expected.

The New York based company said in its earnings release Friday that on a managed basis, net loans charged off in its U.S. card member business totaled 10%, up from 8.5% in the first quarter and 5.3% a year ago. But the company now expects charge-off rates in the unit to be below 10% for the second half of the year, lower than that outlook offered earlier in the year.

"Although it is still too early to point to any sure signs of an economic recovery, the number of card members who are falling behind in their payments, the volume of bankruptcy filings and the level of loan write-offs were better than we had expected," Chairman and CEO Ken Chenault said in a company statement.

AmEx offered the results in its second-quarter earnings release, in which it said net income from continuing operations fell 48% from the year-earlier period to $342 million, or 9 cents a share. Shares were up fractionally in recent after-hours action to $28.97.

The earnings results include an 18-cents-a-share reduction from the repurchase of preferred shares worth $3.39 billion from the U.S. Treasury Department. Excluding the Troubled Asset relief Program repayment, earnings would have been 27 cents a share, AmEx said, beating consensus estimates by a penny. Revenue, net of interest expense, fell 18% to $6.1 billion.

The company took a $1.6 billion provision for the three months ending June 30, down slightly from the $1.8 billion it took in the first quarter. The provision, which is allocated primarily for its U.S. card services business, reflected "lower average cardmember receivables and loans, offset by higher write-offs and past due loans," the company said.

The second quarter results also included two other previously disclosed items: $182 million, or $118 million after-tax, of net restructuring charges and a $211 million, or $135 million after-tax, gain on the sale of a portion of the company's equity holding in Industrial and Commercial Bank of China (ICBC).

During the second quarter, American Express was determined to not need any additional capital as per the government's stress tests. The company was one of 10 financial firms to pay back government bailout funds in June.

Last week, American Express, along with Capital One ( COF) and Discover Financial Services ( DFS), had issued preliminary data suggesting that early card delinquencies are starting to ever-so-slightly improve.

But the company's U.S. card services business reported a loss of $200 million vs. a profit of $21 million a year earlier. Revenue from the unit dropped 22% to $2.8 billion, fueled by reduced card member spending, lower loan balances and lower securitization income, the firm said.

"Given the cutbacks in discretionary spending among affluent consumers, small businesses and corporations, our overall level of billed business is performing well relative to most of the other major card issuers," Chenault said. "During June, the decline in card member spending moderated slightly from earlier in the quarter."

Chenault said the company's improved outlook will allow it to "use a significant portion of any benefits from this trend improvement on marketing and promotion, investments and other business initiatives." Among the company's priorities, he said is to plan to grow the charge card portfolio and expand its merchant business, as well as expand corporate services and relationships with banks that issue cards on its network.

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