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10.3 Marco Teórico
(c) Total cards-in-force represents the number of cards that are issued and outstanding. Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner and does not include additional supplemental cards issued on that account. Proprietary basic small business and corporate cards-in-force include basic and supplemental cards issued to employee cardmembers. Non-proprietary basic cards-in-force includes all cards that are issued and outstanding under network partnership agreements.
(d) This calculation is designed to approximate merchant pricing. It represents the percentage of billed business (both proprietary and GNS) retained by the Company from merchants it acquires, prior to payments to third parties unrelated to merchant acceptance.
(e) Average basic cardmember spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees, including the amortization of deferred direct acquisition costs, plus card fees included in interest and fees on loans (including related amortization of deferred direct acquisition costs), divided by average worldwide proprietary cards-in-force. The card fees related to cardmember loans included in interest and fees on loans were $186 million, $146 million and $130 million for the years ended December 31, 2009, 2008 and 2007, respectively. The adjusted average fee per card is computed in the same manner, but excludes amortization of deferred direct acquisition costs (a portion of which is charge card related and included in net card fees and a portion of which is lending related and included in interest and fees on loans). The amount of amortization excluded was $243 million, $320 million and $288 million for the years ended December 31, 2009, 2008 and 2007, respectively. The Company presents adjusted average fee per card because management believes that this metric presents a useful indicator of card fee pricing across a range of its proprietary card products.
AMERICAN EXPRESS COMPANY
SELECTED STATISTICAL INFORMATION( a)
As of or for the Years Ended December 31,
(Billions, except percentages
and where indicated) 2009 2008 2007
Worldwide cardmember receivables:
Total receivables $ 33.7 $ 33.0 $ 40.1
Loss reserves (millions):
Beginning balance $ 810 $ 1,149 $ 981 Provision 857 1,363 1,140 Net write-offs(b) (1,131) (1,552) (907) Other 10 (150) (65) Ending balance $ 546 $ 810 $ 1,149 % of receivables 1.6% 2.5% 2.9%
Net write-off rate — USCS(b) 3.8% 3.6% N/A
30 days past due as a % of total — USCS 1.8% 3.7% N/A
Net loss ratio as a % of charge volume — ICS 0.36% 0.24% 0.26%
90 days past billing as a % of total — ICS(c) 2.1% 3.1% 1.8%
Net loss ratio as a % of charge volume — GCS 0.19% 0.13% 0.10%
90 days past billing as a % of total — GCS(c) 1.4% 2.7% 2.1%
Worldwide cardmember lending — owned basis(d):
Total loans $ 32.8 $ 42.2 $ 54.4
30 days past due as a % of total 3.6% 4.4% 2.8%
Loss reserves (millions):
Beginning balance $ 2,570 $ 1,831 $ 1,171
Provision 4,209 4,106 2,615
Net write-offs — principal (2,949) (2,643) (1,636)
Write-offs — interest and fees (448) (580) (354)
Other(e) (114) (144) 35
Ending balance $ 3,268 $ 2,570 $ 1,831
Ending Reserves — principal $ 3,172 $ 2,379 $ 1,691
Ending Reserves — interest and fees $ 96 $ 191 $ 140
% of loans 10.0% 6.1% 3.4%
% of past due 279% 137% 119%
Average loans $ 34.8 $ 47.6 $ 47.1
Net write-off rate 8.5% 5.5% 3.5%
Net interest income divided by average loans(f)(h) 9.0% 7.7% 7.3%
Net interest yield on cardmember loans(f) 9.7% 8.8% 8.9%
Worldwide cardmember lending — managed basis(g):
Total loans $ 61.8 $ 72.0 $ 77.1
30 days past due as a % of total 3.6% 4.6% 2.8%
Net write-offs — principal (millions) $ 5,366 $ 4,065 $ 2,280
Average loans $ 63.8 $ 75.0 $ 68.2
Net write-off rate 8.4% 5.4% 3.3%
Net interest yield on cardmember loans(f) 10.2% 9.2% 9.0%
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(a) See Glossary of Selected Terminology for the definitions of certain key terms and related information.
(b) In the fourth quarter of 2008, the Company revised the time period in which past due cardmember receivables in USCS are written off to 180 days past due, consistent with applicable regulatory guidance. Previously, receivables were written off when 360 days past billing. The net write-offs for 2008 include approximately $341 million resulting from this write-off methodology change, which is not reflected in the net write-off rate for USCS. If the $341 million had been included in USCS write-offs, the net write-off rate would have been 5.4 percent for 2008.
(c) A cardmember account is considered 90 days past billing if payment has not been received within 90 days of the cardmember’s billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated cardmember receivable balance is considered as 90 days past billing. A cardmember account becomes past due if payment is not received within 30 days after the billing statement date.
(d) “Owned,” a GAAP basis measurement, reflects only cardmember loans included on the Company’s Consolidated Balance Sheets.
(e) This amount includes reserves of $160 million for the year ended December 31, 2009, that were removed in connection with securitizations during the period. The offset is in the allocated cost of the associated retained subordinated securities. This amount also includes foreign currency translation adjustments. The prior period included foreign currency translation and other adjustments primarily related to the reclassification of certain waived fee reserves to a contra-cardmember receivable.
(f) See below for calculations of net interest yield on cardmember loans and the ratio of net interest income divided by average loans presented on an owned basis. The Company believes net interest yield on cardmember loans (on both an owned and managed basis) is useful to investors because it provides a measure of profitability of the Company’s cardmember loans portfolio. (g) Includes on-balance sheet cardmember loans and off-balance sheet securitized cardmember loans. The difference between the “owned basis” (GAAP) information and “managed basis”
information is attributable to the effects of securitization activities. Refer to the information set forth under USCS Selected Financial Information for further discussion of the managed basis presentation.
(h) This calculation includes elements of total interest income and total interest expense that are not attributable to the cardmember loan portfolio, and thus is not representative of net interest yield on cardmember loans. The calculation includes interest income and interest expense attributable to investment securities and other interest-bearing deposits as well as to cardmember loans, and interest expense attributable to other activities, including cardmember receivables.
CALCULATION OF NET INTEREST YIELD ON CARDMEMBER LOANS(a)
Years Ended December 31,
(Millions) 2009 2008
Owned Basis:
Net interest income $ 3,124 $ 3,646
Average loans (billions) $ 34.8 $ 47.6
Adjusted net interest income $ 3,392 $ 4,199
Adjusted average loans (billions) $ 34.9 $ 47.7
Net interest income divided by average loans 9.0% 7.7%
Net interest yield on cardmember loans 9.7% 8.8%
Managed Basis:
Net interest income(b) $ 5,977 $ 6,328
Average loans (billions) $ 63.8 $ 75.0
Adjusted net interest income $ 6,500 $ 6,881
Adjusted average loans (billions) $ 63.9 $ 75.0
Net interest yield on cardmember loans 10.2% 9.2%
(a) See Glossary of Selected Terminology for the definitions of certain key terms and related information.
(b) Includes the GAAP to managed basis securitization adjustments to interest income and interest expense as set forth under USCS Selected Financial Information managed basis presentation.
The following discussions regarding Consolidated Results of Operations and Consolidated Liquidity and Capital Resources are presented on a basis consistent with GAAP unless otherwise noted.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2009
The Company’s 2009 consolidated income from continuing operations decreased $734 million or 26 percent to $2.1 billion and diluted EPS from continuing operations declined $0.93 or 38 percent to $1.54. Consolidated income from continuing operations for 2008 decreased $1.3 billion or 30 percent from 2007 and diluted EPS from continuing operations for 2008 declined $0.97 or 28 percent from 2007.
The Company’s 2009 consolidated net income decreased $569 million or 21 percent to $2.1 billion, and diluted EPS decreased $0.78 or 34 percent to $1.54. Consolidated net income for 2008 and 2007 was $2.7 billion and $4.0 billion, respectively. Net income included losses from discontinued operations of $7 million, $172 million and $114 million for 2009, 2008 and 2007, respectively.
The Company’s total revenues net of interest expense, provisions for losses, and total expenses decreased by approximately 14 percent, 8 percent and 14 percent, respectively, in 2009. Assuming no changes in foreign currency exchange rates from 2008 to 2009, total revenues net of interest expense, provisions for losses and total expenses decreased approximately 12 percent, 7 percent and 12
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percent, respectively, in 2009.2 Currency rate changes had a minimal impact on the growth rates in 2008. Results from continuing operations for 2009 included:
• A $180 million ($113 million after-tax) benefit in the third quarter related to the accounting for a net investment in the Company’s consolidated foreign subsidiaries. See also Business Segment Results – Corporate & Other below for further discussion;
• A $211 million ($135 million after-tax) gain in the second quarter of 2009 on the sale of 50 percent of the Company’s equity holdings of Industrial and Commercial Bank of China (ICBC); and
• A $190 million ($125 million after-tax) net charge related to the Company’s reengineering initiatives. Results from continuing operations for 2008 included:
• A $600 million ($374 million after-tax) addition to U.S. lending credit reserves reflecting a deterioration of credit indicators in the second quarter of 2008;
• A $449 million ($291 million after-tax) net charge, primarily reflecting the restructuring costs related to the Company’s reengineering initiatives in the fourth quarter of 2008;
• A $220 million ($138 million after-tax) reduction to the fair market value of the Company’s interest-only strip; and
• A $106 million ($66 million after-tax) charge in the fourth quarter of 2008 to increase the Company’s Membership Rewards liability, in connection with the Company’s extension of its partnership arrangements with Delta.
Results from continuing operations for 2007 included:
• A $1.13 billion ($700 million after-tax) gain for the initial payment due March 31, 2008, from Visa as part of the litigation settlement;
• An $80 million ($50 million after-tax) gain in connection with derivative and hedging instruments;
• A $63 million ($39 million after-tax) gain relating to amendments to the Company’s U.S. pension plans, effective July 1, 2007, that reduced projected pension obligations to plan participants;
2 These currency rate adjustments assume a constant exchange rate between periods for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding year-earlier period against which such results are being compared). Management believes that this presentation is helpful to investors by making it easier to compare the Company’s performance from one period to another without the variability caused by fluctuations in currency exchange rates.
• A $685 million ($430 million after-tax) charge related to enhancements to the method of estimating Membership Rewards liability;
• A $438 million ($274 million after-tax) credit-related charge due to experienced deterioration of credit indicators in the latter part of 2007. This fourth quarter charge was split between USCS cardmember loans and cardmember receivables of $288 million and $96 million, respectively, and included $54 million relating to a reduction in the fair value of the Company’s retained subordinated interest in securitized cardmember loans;
• $211 million ($131 million after-tax) of incremental business-building costs;
• $74 million ($46 million after-tax) of Visa litigation-related costs; and
• A $50 million ($31 million after-tax) contribution to the American Express Charitable Fund.
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U.S. billed business and billed business outside the United States were down 10 percent and 8 percent, respectively, in 2009. The decline in billed business within the United States reflected a decrease in basic cards-in-force and average spending per proprietary basic card. The decline in billed business outside the United States reflected a decrease in average spending per proprietary basic card and decreases within the Company’s consumer card, small business and Corporate Services business.
The table below summarizes selected statistics for billed business and average spend:
2009 2008 Percentage Increase (Decrease) Percentage Increase (Decrease) Assuming No Changes in Foreign Exchange Rates(f) Percentage Increase (Decrease) Percentage Increase (Decrease) Assuming No Changes in Foreign Exchange Rates(f) Worldwide(a) Billed business (9)% (7)% 6% 5%
Proprietary billed business (11) (9) 4 3
GNS volumes(b) 7 11 27 27
Average spending per proprietary basic
card (7) (5) (1) (1)
United States(a)
Billed business (10) 3
Average spending per proprietary basic
card (6) (3)
Proprietary consumer card billed
business(c) (10) (1)
Proprietary small business billed
business(c) (13) 7
Proprietary Corporate Services billed
business(d) (11) 4
Outside the United States(a)
Billed business (8) (1) 13 12
Average spending per proprietary basic
card (9) (3) 6 4
Proprietary consumer and small business
billed business(e) (10) (4) 8 7
Proprietary Corporate Services billed
business(d) (19) (12) 9 8
(a) Captions in the table above not designated as “proprietary” include both proprietary and GNS data. (b) Included in the GNMS segment.
(c) Included in the USCS segment. (d) Included in the GCS segment. (e) Included in the ICS segment.
(f) Refer to footnote 2 on page 34 relating to changes in foreign exchange rates.
Assuming no changes in foreign exchange rates, total billed business outside the United States reflected mid-single digit volume increases in Latin America and Asia Pacific, and mid-single digit declines in Canada and Europe.
During 2008, discount revenue rose $429 million or 3 percent to $15 billion compared to 2007 as a result of a 6 percent increase in worldwide billed business, partially offset by a lower average discount rate, relatively faster growth in billed business related to GNS, and higher cash-back rewards costs and corporate incentive payments, which are reported as reductions to revenue (contra-revenue). The 6 percent increase in worldwide billed business in 2008 reflected growth in proprietary billed business of 4 percent, and a 27 percent increase in billed business related to GNS.
Net card fees in 2009 remained unchanged compared to 2008 as the decline in total proprietary cards in force was offset by an increase in the average fee per card. Net card fees in 2008 of $2.2 billion increased $231 million or 12 percent compared to 2007 due to higher average fee per proprietary card.
Travel commissions and fees decreased $416 million or 21 percent to $1.6 billion in 2009 compared to 2008, primarily reflecting a 28 percent decrease in worldwide travel sales, partially offset by higher sales commission and fee rates.
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Travel commissions and fees in 2008 of $2.0 billion increased $84 million or 4 percent compared to 2007, primarily reflecting a 3 percent increase in worldwide travel sales.
Other commissions and fees decreased $529 million or 23 percent to $1.8 billion in 2009 compared to 2008, due to lower delinquency fees reflecting decreased owned loan balances and the impacts of various customer assistance programs, in addition to reduced spending-related foreign currency conversion revenues. Other commissions and fees decreased $110 million or 5 percent in 2008 to $2.3 billion compared to 2007 due to the reclassification to other revenues in USCS of certain card service-related fees beginning in the first quarter of 2008 and a lower level of fees related to a lower average balance of owned loans, which were partially offset by increased assessment revenues.
Securitization income, net decreased $670 million or 63 percent to $400 million in 2009 compared to 2008, primarily due to lower excess spread, net, driven by increased write-offs and a decrease in interest income on cardmember loans and fee revenues. These unfavorable impacts were partially offset by a decrease in interest expense due to lower coupon rates paid on variable-rate investor certificates, as well as a favorable fair value adjustment of the interest-only strip. Securitization income, net decreased $437 million or 29 percent to $1.1 billion in 2008 compared to 2007, primarily due to lower excess spread, net, driven by increased write-offs, charges to the fair value of the interest-only strip reflecting lower expected future cash flows, and a net loss on sales compared to net gains in the prior year. These impacts were partially offset by higher finance charges and fees due to a greater average balance of securitized loans and lower interest expense due to lower rates paid on investor certificates.
Other revenues in 2009 decreased $70 million or 3 percent to $2.1 billion compared to 2008, primarily reflecting decreased revenues from CPS, due to the migration of clients to the American Express network, and lower publishing revenues, partially offset by the ICBC gain. Other revenues increased $406 million or 23 percent to $2.2 billion in 2008 compared to 2007, primarily reflecting the benefits of the CPS acquisition, higher network and partner-related revenues, a reclassification from other commissions and fees from USCS as discussed above, and greater foreign exchange-related revenues.
Interest income decreased $1.9 billion or 26 percent to $5.3 billion in 2009 compared to 2008. Interest and fees on loans decreased $1.7 billion or 27 percent due to decline in the average owned loan balance, reduced market interest rates and the impact of various customer assistance programs, partially offset by the benefit of certain repricing initiatives. Interest and dividends on investment securities increased $33 million or 4 percent, primarily reflecting increased investment levels partially offset by reduced investment yields. Interest income from deposits with banks and other decreased $212 million or 78 percent, primarily due to a reduced yield and a lower balance of deposits in other banks. During 2008, interest income decreased $223 million or 3 percent to $7.2 billion compared to 2007, reflecting primarily a decrease in interest and fees on loans, which declined $192 million or 3 percent due to a lower portfolio yield, reduced market interest rates on variably priced assets, partially offset by a slightly higher average owned loan balance.
Interest expense decreased $1.3 billion or 38 percent to $2.2 billion in 2009 compared to 2008. Interest expense related to deposits decreased $29 million or 6 percent, primarily due to a lower cost of funds which more than offset increased balances. Interest expense related to short-term borrowings decreased $446 million or 92 percent, due to significantly lower short-term debt levels and a lower cost of funds. Interest expense related to long-term debt and other decreased $873 million or 33 percent, primarily reflecting a lower cost of funds driven by reduced market rates on variably priced debt, as well as a lower average balance of long-term debt outstanding. Interest expense of $3.6 billion in 2008 was $426 million or 11 percent lower than 2007 reflecting a $248 million decrease in interest expense on short-term borrowing, primarily due to a lower cost of funds and a decrease in average short-term debt.
Provisions for Losses
Provisions for losses of $5.3 billion in 2009 decreased $485 million or 8 percent compared to 2008. Charge card provisions for losses decreased $506 million, or 37 percent, primarily driven by improved credit performance. Cardmember loans provisions for losses increased $35 million, or 1 percent, primarily due to a higher cardmember reserve level due to the challenging credit environment, partially offset by a lower owned loan balance.
Provisions for losses of $5.8 billion in 2008 increased $1.7 billion or 41 percent compared to 2007. Charge card provisions for losses increased $223 million or 20 percent in 2008 primarily due to higher loss and delinquency rates compared to 2007, partially offset by the credit-related charge in the fourth quarter of 2007. Cardmember loans provisions for losses increased $1.5 billion or 53 percent due to higher write-off and delinquency rates and higher average owned loan balances.
Expenses
Consolidated expenses for 2009 were $16.4 billion, down $2.6 billion or 14 percent from $19.0 billion in 2008. The decrease in 2009 was primarily driven by lower other, net expenses, reduced salaries and employee benefits expenses, lower marketing and promotion expense and decreased cardmember rewards expense partially offset by greater cardmember services expense. Consolidated expenses for 2008 were $19.0 billion, up $1.2 billion or 7 percent from $17.8 billion in 2007. The increase in 2008 was primarily driven by higher other, net expenses, greater salaries and employee
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benefits expenses, higher occupancy and equipment expenses, increased professional services costs and greater cardmember services expense, partially offset by decreased cardmember rewards expense and lower marketing and promotion expense. Consolidated expenses in 2009, 2008, and 2007 also included $190 million, $449 million and $66 million, respectively, of reengineering costs, of which $185 million, $417 million, and $49 million, respectively, represent restructuring charges. Refer to the discussion earlier regarding the Company’s 2008 and 2009 reengineering initiatives and Note 16 to the Consolidated Financial Statements for restructuring activities for all periods.
Marketing and promotion expenses decreased $516 million or 21 percent to $1.9 billion in 2009 from $2.4 billion in 2008, due to lower spending levels in the