News Column

American Express Reports Second Quarter EPS of $1.43, Up 13 Percent from a Year Ago; Revenues, Loans and Card Member Spending Increase; Gain from Business Travel Transaction Largely Reinvested in Business

July 29, 2014

NEW YORK--(BUSINESS WIRE)-- American Express Company (NYSE:AXP) today reported second-quarter net income of $1.5 billion, up from $1.4 billion a year ago. Diluted earnings per share rose 13 percent to $1.43, from $1.27 a year ago.

 

(Millions, except percentages and per share amounts)

 
       

Quarters Ended

June 30,

   

Percentage

Inc/(Dec)

   

Six Months Ended

June 30,

   

Percentage

Inc/(Dec)

2014

   

2013

2014

   

2013

Total Revenues Net of Interest Expense $ 8,657 $ 8,245 5 % $ 16,856 $ 16,126 5 %
Net Income $ 1,529 $ 1,405 9 % $ 2,961 $ 2,685 10 %
Earnings Per Common Share – Diluted:

Net Income Attributable to Common Shareholders1

$ 1.43 $ 1.27 13 % $ 2.77 $ 2.42 14 %
Average Diluted Common Shares Outstanding 1,058 1,097 (4 ) % 1,062 1,101 (4 ) %
Return on Average Equity 28.8 % 23.6 % 28.8 % 23.6 %
 


Net income from the quarter included a gain of $626 million ($409 million after-tax) from the closing of the previously announced joint venture transaction for the company’s business travel operations. As planned, the company used a substantial portion of the gain to fund incremental investments in growth and efficiency initiatives.

Consolidated total revenues net of interest expense rose to $8.7 billion in the quarter, up 5 percent from $8.2 billion a year ago. The increase reflected higher Card Member spending, higher net interest income and higher net card fees.

Consolidated provisions for losses totaled $489 million, down 6 percent from $518 million a year ago. The decrease reflected lower net write-offs in the current quarter, offset, in part, by the effect of a larger reserve release a year ago.

Consolidated expenses totaled $5.9 billion, up 2 percent from $5.7 billion a year ago. Expenses for the period were impacted by increased marketing, which included a significant amount of incremental investments in growth initiatives, and rewards costs. Operating expenses2 were lower due to a gain on the business travel joint venture transaction (which was reported as an expense reduction), partially offset by transaction-related costs of $79 million, as well as the following items:

  • A restructuring charge of $133 million ($90 million after-tax); and
  • A contribution to the American Express Foundation of $40 million ($25 million after-tax).

    The business travel joint venture transaction gain, net of the offsets and incremental investments mentioned above, contributed approximately $0.05 to second-quarter diluted earnings per share. The gain was recognized in the Global Commercial Services segment. The offsetting investments were made across all of the company’s operating segments.

    The effective tax rate for the quarter was 34 percent, up from 30 percent a year ago, which reflected the resolution of certain prior years’ tax items.

    The company’s return on average equity (ROE) was 28.8 percent, up from 23.6 percent a year ago.

    “The strong underlying performance this quarter reflected a continuation of some familiar themes: higher Card Member spending, credit metrics at or near their historic lows, a modest increase in loan balances, continued success in containing operating expenses and a substantial return of capital to our investors through share repurchases,” said Kenneth I. Chenault, chairman and chief executive officer.

    “Card Member spending rose 9 percent from year ago levels, and overall the growth rate accelerated from earlier this year, with higher volumes across each of our businesses in the U.S. and internationally.

    “As noted above, we completed the formation of the joint venture for our business travel operations, which will have additional resources from a new investor group to develop products, create capabilities and attract new customers. We maintain a 50 percent ownership and will continue to have a close working relationship with the business travel joint venture.

    “The gain we recognized on the business travel joint venture transaction gave us the flexibility to substantially increase spending on a number of growth initiatives, including marketing support for products such as the Amex EveryDay Credit Card and American Express Serve. It also offset a restructuring charge we recognized during the quarter. That charge relates to actions that will be taking place over the next year to improve efficiency and contain operating expenses primarily within our Global Corporate Services Group. The restructuring will largely involve positions that do not directly generate revenue.”

    Segment Results

    U.S. Card Services reported second-quarter net income of $770 million, up 4 percent from $743 million a year ago.

    Total revenues net of interest expense increased 6 percent to $4.5 billion from $4.2 billion a year ago. The rise largely reflected a 9 percent increase in Card Member spending and higher net interest income.

    Provisions for losses totaled $339 million, down 5 percent from $356 million a year ago. The decrease reflected lower net write-offs in the current quarter, offset, in part, by a larger reserve release a year ago.

    Total expenses increased 8 percent to $2.9 billion from $2.7 billion a year ago. The increase primarily reflected a portion of the incremental investments in growth initiatives mentioned earlier, along with higher rewards costs.

    The effective tax rate was 36 percent compared to 37 percent a year ago.

    International Card Services reported second-quarter net income of $77 million, down 63 percent from $208 million a year ago.

    Total revenues net of interest expense were $1.4 billion, up 7 percent from $1.3 billion a year ago. The increase primarily reflected higher Card Member spending and higher revenues from the Loyalty Partner business.

    Total expenses were $1.2 billion, up 18 percent from $1.0 billion a year ago. The increase reflected a portion of the incremental investments and restructuring charge mentioned earlier.

    The effective tax rate was (12) percent compared to (33) percent a year ago due to the resolution of certain prior years’ tax items.

    Global Commercial Services reported second-quarter net income of $561 million, up from $226 million a year ago. The increase primarily reflected the joint venture transaction gain.

    Total revenues net of interest expense were $1.3 billion, up 3 percent from $1.2 billion a year ago. The increase primarily reflected higher Card Member spending.

    Total expenses decreased 58 percent to $361 million from $862 million a year ago. The decrease primarily reflected the joint venture transaction gain (which was reported as an expense reduction), partially offset by transaction-related costs and a portion of the incremental investments and restructuring charge mentioned previously.

    The effective tax rate was 35 percent compared to 32 percent from a year ago.

    Global Network & Merchant Services reported second-quarter net income of $373 million, down 9 percent from $412 million a year ago.

    Total revenues net of interest expense increased 5 percent to $1.5 billion from $1.4 billion a year ago. The increase primarily reflected higher merchant-related revenues driven by an increase in global Card Member spending.

    Total expenses increased 20 percent to $859 million from $716 million a year ago. The increase primarily reflected a portion of the incremental investments mentioned earlier.

    The effective tax rate remained unchanged from a year ago at 36 percent.

    Corporate and Other reported second-quarter net loss of $252 million compared with net loss of $184 million in the year-ago period, largely reflecting that portion of the previously-mentioned incremental investments that supported growth initiatives in Enterprise Growth.

    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, corporate card and business travel.

    The 2014 Second Quarter Earnings Supplement will be available today on the American Express website 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 website. A replay of the conference call will be available later today at the same website 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, 2013, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 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 Represents net income less earnings allocated to participating share awards of $12 million and $13 million for the three months ended June 30, 2014 and 2013, respectively, and $24 million for both the six months ended June 30, 2014 and 2013.

    2 Operating expenses represent 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. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

     
    (Preliminary)

    American Express Company

    Consolidated Statements of Income

     
    (Millions)
              Quarters Ended               Six Months Ended    
    June 30,PercentageJune 30,Percentage
    2014       2013Inc/(Dec)2014       2013Inc/(Dec)
       
    Revenues
    Non-interest revenues
    Discount revenue$4,945$4,7295%$9,591$9,1675%
    Net card fees68764761,3611,3005
    Travel commissions and fees5004951923932(1)
    Other commissions and fees62460531,2421,1785
    Other   585     567   3   1,086     1,104   (2)
    Total non-interest revenues   7,341     7,043   4   14,203     13,681   4
    Interest income
    Interest on loans1,6961,62253,4073,3053
    Interest and dividends on investment securities4552(13)91105(13)
    Deposits with banks and other   18     20   (10)   37     46   (20)
    Total interest income   1,759     1,694   4   3,535     3,456   2
    Interest expense
    Deposits91107(15)185221(16)
    Long-term debt and other   352     385   (9)   697     790   (12)
    Total interest expense   443     492   (10)   882     1,011   (13)
    Net interest income   1,316     1,202   9   2,653     2,445   9
    Total revenues net of interest expense   8,657     8,245   5   16,856     16,126   5
    Provisions for losses
    Charge card1831611439831526
    Card Member loans282334(16)532577(8)
    Other   24     23   4   44     42   5
    Total provisions for losses   489     518   (6)   974     934   4
    Total revenues net of interest expense after provisions for losses   8,168     7,727   6   15,882     15,192   5
     
    Expenses
    Marketing and promotion985786251,5981,40714
    Card Member rewards1,7731,601113,3553,1217
    Card Member services and other192193(1)4143828
    Salaries and employee benefits1,6581,54373,1983,1581
    Professional services81776371,5091,4792
    Occupancy and equipment4674602929932-
    Communications10192101941883
    Other, net   (137)   294   #   165     621   (73)
    Total   5,856     5,732   2   11,362     11,288   1
    Pretax income2,3121,995164,5203,90416
    Income tax provision   783     590   33   1,559     1,219   28
    Net income$1,529   $1,405   9$2,961   $2,685   10

    Net income attributable to common shareholders (A)

    $1,517   $1,392   9$2,937   $2,661   10
    Effective tax rate33.9%29.6%34.5%31.2%
     
    # - Denotes a variance of more than 100 percent.
     

    (A) Represents net income, less earnings allocated to participating share awards of $12 million and $13 million for the three months ended June 30, 2014 and 2013, respectively, and $24 million for both the six months ended June 30, 2013 and 2012, respectively.



     
    (Preliminary)

    American Express Company

    Condensed Consolidated Balance Sheets

                   
    (Billions)
     
    June 30,December 31,

             2014         

    2013
     
    Assets
    Cash & cash equivalents$18$19
    Accounts receivable4947
    Investment securities55
    Loans6667
    Other assets   14   15
    Total assets$152$153
     
    Liabilities and Shareholders' Equity
    Customer deposits$42$42
    Short-term borrowings35
    Long-term debt5555
    Other liabilities   32   32
    Total liabilities   132   134
     
    Shareholders' Equity   20   19
    Total liabilities and shareholders' equity$152$153
     
     
    (Preliminary)

    American Express Company

    Financial Summary

    (Millions)        
      Quarters Ended               Six Months Ended    
    June 30,PercentageJune 30,Percentage
    2014       2013Inc/(Dec)2014       2013Inc/(Dec)
     

    Total revenues net of interest expense

    U.S. Card Services$4,477$4,2396%$8,767$8,3215%
    International Card Services1,3911,29972,7432,6165
    Global Commercial Services1,2691,23132,4632,3943
    Global Network & Merchant Services   1,455     1,384   5   2,820     2,687   5
    8,5928,153516,79316,0185
    Corporate & Other   65     92   (29)   63     108   (42)
     
    CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE$8,657   $8,245   5$16,856   $16,126   5
     

    Pretax income (loss)

    U.S. Card Services$1,200$1,1752$2,606$2,4457
    International Card Services69156(56)272349(22)
    Global Commercial Services865333#1,15061687
    Global Network & Merchant Services   578     647   (11)   1,280     1,229   4
    2,7122,311175,3084,63914
    Corporate & Other   (400)   (316)27   (788)   (735)7
     
    PRETAX INCOME$2,312   $1,995   16$4,520   $3,904   16
     

    Net income (loss)

    U.S. Card Services$770$7434$1,646$1,5476
    International Card Services77208(63)236386(39)
    Global Commercial Services561226#74541779
    Global Network & Merchant Services   373     412   (9)   816     785   4
    1,7811,589123,4433,13510
    Corporate & Other   (252)   (184)37   (482)   (450)7
     
    NET INCOME$1,529   $1,405   9$2,961   $2,685   10
     
    # - Denotes a variance of more than 100 percent.
     
     
    (Preliminary)

    American Express Company

    Financial Summary (continued)

     
     
            Quarters Ended               Six Months Ended    
    June 30,PercentageJune 30,Percentage
    2014       2013Inc/(Dec)   2014       2013Inc/(Dec)
    EARNINGS PER COMMON SHARE
     
    BASIC
    Net income attributable to common shareholders$1.44   $1.28   13$2.78   $2.43   14%
     
    Average common shares outstanding (millions)   1,052     1,090   (3)%   1,056     1,094   (3)%
     
    DILUTED
    Net income attributable to common shareholders$1.43   $1.27   13$2.77   $2.42   14%
     
    Average common shares outstanding (millions)   1,058     1,097   (4)%   1,062     1,101   (4)%
     
    Cash dividends declared per common share$0.26   $0.23   13%$0.49   $0.43   14%
     
     

     

    Selected Statistical Information

     
    Quarters EndedSix Months Ended
    June 30,PercentageJune 30,Percentage
    20142013Inc/(Dec)20142013Inc/(Dec)
     
    Return on average equity (A)28.8%23.6%28.8%23.6%
    Return on average common equity (A)28.5%23.4%28.5%23.4%
    Return on average tangible common equity (A)35.8%29.7%35.8%29.7%
    Common shares outstanding (millions)1,0461,084(3)%1,0461,084(3)%
    Book value per common share$19.32$17.5710%$19.32$17.5710%
    Shareholders' equity (billions)$20.2$19.06%$20.2$19.06%
     
    # - Denotes a variance of more than 100 percent.
     

    (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,
    20142014201320132013
     

    ROE

     
    Net income$5,635$5,511$5,359$4,688$4,572
    Average shareholders' equity$19,591$19,442$19,254$19,289$19,372
    Return on average equity (A)28.8%28.3%27.8%24.3%23.6%
     

    Reconciliation of ROCE and ROTCE

     
    Net income$5,635$5,511$5,359$4,688$4,572
    Earnings allocated to participating share awards and other   47     48     47     43     45  
    Net income attributable to common shareholders$5,588   $5,463   $5,312   $4,645   $4,527  
     
    Average shareholders' equity$19,591   $19,442   $19,254   $19,289   $19,372  
    Average common shareholders' equity$19,591   $19,442   $19,254   $19,289   $19,372  
    Average goodwill and other intangibles   3,994     4,012     4,055     4,091     4,128  
    Average tangible common shareholders' equity$15,597   $15,430   $15,199   $15,198   $15,244  
    Return on average common equity (A)28.5%28.1%27.6%24.1%23.4%

    Return on average tangible common equity (B)

    35.8%35.4%34.9%30.6%29.7%
     

    (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.






    Media Contacts:

    Marina H. 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 Contacts:

    Ken Paukowits, +1-212-640-6348

    ken.f.paukowits@aexp.com

    or

    Rick Petrino, +1-212-640-5574

    richard.petrino@aexp.com


    Source: American Express Company


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