-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I7F7mFHDo0kvdcNfCmLAB6N94ugEkAxalS3h9M0O06yGWooJ3jOvgPWA1xV7roR/ vWUr3cr3dUX+aQZ7hMbeXg== 0000004962-04-000111.txt : 20040422 0000004962-04-000111.hdr.sgml : 20040422 20040422133539 ACCESSION NUMBER: 0000004962-04-000111 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040422 ITEM INFORMATION: ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20040422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 134922250 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07657 FILM NUMBER: 04747680 BUSINESS ADDRESS: STREET 1: 200 VESEY STREET STREET 2: 50TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2126402000 MAIL ADDRESS: STREET 1: 200 VESEY STREET STREET 2: 50TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 8-K 1 aexp8k.txt AMERICAN EXPRESS COMPANY'S FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------- Date of Report (Date of earliest event reported): April 22, 2004 -------------------------- AMERICAN EXPRESS COMPANY (Exact name of registrant as specified in its charter) -------------------------- New York 1-7657 13-4922250 - ----------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation or Identification No.) organization) 200 Vesey Street, World Financial Center New York, New York 10285 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 640-2000 --------------------------------------------------- (Former name or former address, if changed since last report) ================================================================================ ITEM 9. REGULATION FD DISCLOSURE; AND ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following information is furnished under Item 9 - Regulation FD Disclosure and Item 12 - Results of Operations and Financial Condition: On April 22, 2004, American Express Company issued a press release announcing its financial results for the first quarter of 2004. A copy of such press release is attached to this report as Exhibit 99.1 and is hereby incorporated herein by reference. In addition, in conjunction with the announcement of its financial results, American Express Company distributed additional financial information relating to its 2004 first quarter financial results and a 2004 First Quarter Earnings Supplement. Such additional financial information and the 2004 First Quarter Supplement are attached to this report as Exhibits 99.2 and 99.3, respectively, and each is hereby incorporated by reference. EXHIBIT 99.1 Press Release, dated April 22, 2004, of American Express Company announcing its financial results for the first quarter of 2004. 99.2 Additional financial information relating to the financial results of American Express Company for the first quarter of 2004. 99.3 2004 First Quarter Earnings Supplement of American Express Company. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN EXPRESS COMPANY (REGISTRANT) By: /s/ Stephen P. Norman --------------------- Name: Stephen P. Norman Title: Secretary DATE: April 22, 2004 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press Release, dated April 22, 2004, of American Express Company announcing its financial results for the fist quarter of 2004. 99.2 Additional financial information relating to the financial results of American Express Company for the first quarter of 2004. 99.3 2004 First Quarter Earnings Supplement of American Express Company. EX-99 3 press.txt EXHIBIT 99.1 - PRESS RELEASE EXHIBIT 99.1 News Release News Release News Release News Release [LOGO OF AMERICAN EXPRESS] Contacts: Tony Mitchell Michael J. O'Neill 212-640-9668 212-640-5951 anthony.a.mitchell@aexp.com mike.o'neill@aexp.com FOR IMMEDIATE RELEASE - -------------------------------------------------------------------------------- AMERICAN EXPRESS REPORTS RECORD EARNINGS IN FIRST QUARTER INCOME BEFORE ACCOUNTING CHANGE RISES 25 PERCENT ON STRONG REVENUE GROWTH AND EXCELLENT CREDIT QUALITY
(Dollars in millions, except per share amounts) Quarters Ended Percentage March 31 Inc/(Dec) -------- ----------- 2004 2003 ---- ---- Revenues $ 6,910 $ 6,023 15% Income Before Accounting Change $ 865 $ 692 25% Net Income $ 794* $ 692 15% Earnings Per Common Share - Basic: Income Before Accounting Change $ 0.68 $ 0.53 28% Net Income $ 0.62* $ 0.53 17% Earnings Per Common Share - Diluted: Income Before Accounting Change $ 0.66 $ 0.53 25% Net Income $ 0.61* $ 0.53 15% Average Common Shares Outstanding Basic 1,277 1,297 (2%) Diluted 1,305 1,305 - Return on Average Total Shareholders' Equity** 20.7% 20.0% -
- -------------------------------------------------------------------------------- *Reflects a $109 million non-cash pretax charge ($71 million after-tax), or $0.06 on a basic per share basis and $0.05 on a diluted per share basis, relating to the January 1, 2004 adoption of Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (SOP 03-1). **Computed on a trailing 12-month basis using total Shareholders' Equity as included in the Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (GAAP). 2 New York - April 22, 2004 - AMERICAN EXPRESS COMPANY today reported first quarter income before accounting change of $865 million, up 25 percent from $692 million a year ago. Net income was a record $794 million, up 15 percent. Diluted earnings per share (EPS) before accounting change rose to $0.66, up 25 percent from $0.53 a year ago. EPS after accounting change was $0.61, up 15 percent. The company's return on equity was 20.7 percent. Revenues totaled $6.9 billion, up 15 percent from $6.0 billion a year ago. This growth reflects a significant rise in cardmember spending and cards-in-force, stronger financial advisor sales and higher client asset levels. Consolidated expenses totaled $5.7 billion, up 13 percent from $5.0 billion a year ago. This increase reflects higher expenses for marketing, promotion, rewards and cardmember services, human resources and other operating expenses. "We started the year in excellent position thanks to the flexibility we've built into our business," said Kenneth I. Chenault, Chairman and CEO. "During the quarter, we took full advantage of competitive opportunities and a strengthening economy to generate outstanding results in each of our major businesses." "Total revenue rose at the highest rate in more than a decade with both our card and financial services businesses delivering historically strong performance. Credit quality remained outstanding and we continued to build momentum during the quarter." The accounting change noted above (SOP 03-1) resulted in a one-time non-cash charge of $109 million ($71 million after-tax) at American Express Financial Advisors (AEFA). This charge primarily relates to the establishment of reserves to cover the anticipated future costs of death benefits and other guarantees offered as part of certain insurance and annuity contracts. Previously, these costs had been recognized in the quarter in which they were incurred. - more - 3 FIRST QUARTER 2004 RESULTS The first quarter revenue growth reflected 13 percent growth at Travel Related Services (TRS), 22 percent growth at AEFA and 7 percent growth at American Express Bank (AEB). More specifically, o Discount revenue increased 20 percent, reflecting a 21 percent rise in cardmember spending. o Management and distribution fees rose 50 percent due to higher asset and sales levels at AEFA. o Travel commissions and fees increased 23 percent as a result of higher travel sales. o Insurance and annuity-related revenues rose 16 percent. The acquisitions of Threadneedle Asset Management and Rosenbluth International in the second half of last year contributed approximately 2 percentage points to the company's overall revenue growth of 15 percent. The overall rise in first quarter expenses reflected increases of 12 percent at TRS and 14 percent at AEFA, partially offset by a 3 percent decline at AEB. More specifically, o Marketing, promotion, rewards and cardmember services expenses increased 35 percent, driven by a 35 percent increase at TRS. o Human resources expense increased 19 percent partially as a consequence of expensing stock options and a related rise in management incentives as the company scaled back the use of options. First quarter expenses also reflect the impact of merit increases and employee benefits. o Other operating expenses rose 13 percent, including an 11 percent increase at TRS. - more - 4 These items were partially offset by an 8 percent decrease in provision for losses, including a 10 percent decline at TRS, and a 12 percent decline in interest expense. TRAVEL RELATED SERVICES (TRS) reported record quarterly net income of $665 million, up 14 percent from $584 million a year ago. The following discussion of first quarter results presents TRS segment results on a "managed basis," as if there had been no cardmember lending securitization transactions. This is the basis used by management to evaluate operations and is consistent with industry practice. For further information about managed basis and reconciliation of GAAP and managed TRS information, see the "Managed Basis" section below. The AEFA, AEB and Corporate and Other sections below are presented on a GAAP basis. Total net revenues rose 12 percent from the year-ago period, reflecting strong growth in spending on American Express Cards and increased travel revenues. Discount revenue grew 20 percent reflecting a 21 percent increase in billed business. These sharp increases were driven by higher average cardmember spending, the continued benefit of rewards programs and a net addition of approximately 4 million cards-in-force. The higher business volumes also reflected continuing growth in the retail and everyday spending categories and significant improvement in travel and entertainment spending. Travel commissions and fees grew 23 percent reflecting a 30 percent increase in travel sales, including the benefits of the Rosenbluth acquisition. Net card fees increased 5 percent as a result of a higher number of cards-in-force. Total expenses increased 12 percent reflecting higher marketing, promotion, rewards and cardmember services expenses, greater human resources expense and higher other operating costs. These increases were partially offset by - more - 5 reduced provisions for losses, lower charge card interest costs and the benefits of cost-control initiatives. Marketing, promotion, rewards and cardmember services expenses increased 39 percent over the year-ago period primarily reflecting continued expansion of card-acquisition and cardmember loyalty programs, in part related to the company's assessment of competitive opportunities in the card market. Human resources expense increased 16 percent largely due to merit increases, higher management incentives and employee benefits in addition to the Rosenbluth acquisition. Other operating expenses increased 13 percent. Credit quality remained excellent in both the charge and credit card portfolios. The total provision for losses declined 9 percent, reflecting a decline of 10 percent in the lending provision and a 5 percent decrease in the charge card provision. Reserve coverage ratios remained at historically strong levels despite higher loan and receivable balances. Charge card interest expense decreased 19 percent largely due to lower funding costs partially offset by higher average receivable balances. AMERICAN EXPRESS FINANCIAL ADVISORS (AEFA) reported first quarter income before accounting change of $228 million, up 71 percent from $133 million a year ago. Net income after the accounting change rose to $157 million, up 18 percent. Total revenues increased 22 percent. Management and distribution fees increased 50 percent, reflecting substantially higher assets under management and stronger product sales. This improvement reflected the third quarter 2003 Threadneedle acquisition, improved advisor activity, stronger equity markets during the quarter and net asset inflows. Investment income was unchanged from year-ago levels. Owned investments increased due to the cumulative benefit of - more - 6 sales of annuities, insurance, and certificate products during the past two years. Overall, credit quality within the portfolio continued to improve as default rates declined throughout the past year. Investment income was negatively affected by a decision to further improve AEFA's investment portfolio risk profile by liquidating a structured investment before maturity. This resulted in a charge of $49 million ($32 million after-tax). Other revenues rose from last year reflecting strong performance in the property-casualty business. Provisions for benefits and losses decreased slightly, reflecting lower interest crediting rates, partially offset by higher levels of annuities, insurance and certificate products. Human resources and other operating expenses rose a combined 25 percent from year-ago levels. The increase reflected the Threadneedle acquisition, higher sales compensation-related expenses and legal costs. This increase was partially offset by a $66 million ($43 million after-tax) benefit to deferred acquisition costs that reflected lengthening amortization periods for certain insurance and annuity products in conjunction with the adoption of SOP 03-1. AMERICAN EXPRESS BANK (AEB) reported net income for the first quarter of $30 million, up 55 percent from $19 million a year ago. AEB's results included substantially lower provision for losses, reflecting lower loan volumes and an improvement in bankruptcy-related write-offs in the unsecured consumer-lending portfolio. The results also reflected higher fees, client-related foreign exchange and other revenues in Private Banking and the Financial Institutions Group. These benefits were partially offset by higher operating expenses, which included $8 million after-tax associated with reengineering selected operations. - more - 7 CORPORATE AND OTHER reported first quarter net expenses of $58 million in 2004 compared with $44 million in 2003. *** 8 MANAGED BASIS - TRS Managed basis means the presentation assumes there have been no securitization transactions, i.e. all securitized cardmember loans and related income effects are reflected as if they were in the company's balance sheet and income statements, respectively. The company presents TRS information on a managed basis because that is the way the company's management views and manages the business. Management believes that a full picture of trends in the company's cardmember lending business can only be derived by evaluating the performance of both securitized and non-securitized cardmember loans. Asset securitization is just one of several ways for the company to fund cardmember loans. Use of a managed basis presentation, including non-securitized and securitized cardmember loans, presents a more accurate picture of the key dynamics of the cardmember lending business, avoiding distortions due to the mix of funding sources at any particular point in time. For example, irrespective of the funding mix, it is important for management and investors to see metrics, such as changes in delinquencies and write-off rates, for the entire cardmember lending portfolio because they are more representative of the economics of the aggregate cardmember relationships and ongoing business performance and trends over time. It is also important for investors to see the overall growth of cardmember loans and related revenue and changes in market share, which are all significant metrics in evaluating the company's performance and which can only be properly assessed when all non-securitized and securitized cardmember loans are viewed together on a managed basis. The Consolidated Section of this press release and attachments provide the GAAP presentation for items described on a managed basis. *** 9 The following table reconciles the GAAP-basis TRS income statements to the managed-basis information. Travel Related Services Selected Financial Information
Effect of Securitizations (unaudited) Securitization (preliminary, millions) GAAP Basis (unaudited) Effect Managed Basis ------------------------------------------------------------------------------------- Percentage Percentage Quarters Ended March 31, 2004 2003 Inc/(Dec) 2004 2003 2004 2003 Inc/(Dec) ---------- ---------- ------------ --------- ------- --------- --------- ---------- Net revenues: Discount revenue $ 2,368 $ 1,976 19.8% Net card fees 472 451 4.7 Lending: Finance charge revenue 668 681 (1.8) $ 539 $ 489 $ 1,207 $ 1,170 3.3% Interest expense 127 129 (1.7) 83 64 210 193 8.9 ---------- ---------- ---------- -------- ---------- ---------- Net finance charge revenue 541 552 (1.8) 456 425 997 977 2.1 Travel commissions and fees 417 340 22.6 Other commissions and fees 510 464 10.0 53 50 563 514 9.6 Travelers Cheque investment income 93 92 1.3 Securitization income, net 230 211 8.6 (230) (211) - - - Other revenues 419 400 4.5 ---------- ---------- ---------- -------- ----------- --------- Total net revenues 5,050 4,486 12.6 279 264 5,329 4,750 12.2 Expenses: Marketing, promotion, rewards and cardmember services 1,023 761 34.5 (4) (26) 1,019 735 38.6 Provision for losses and claims: Charge card 198 208 (5.2) Lending 287 331 (13.5) 287 307 574 638 (10.0) Other 29 31 (2.4) ----------- --------- ---------- -------- ----------- --------- Total 514 570 (9.9) 287 307 801 877 (8.6) Charge card interest expense 168 209 (19.5) Human resources 1,065 916 16.2 Other operating expenses Restructuring charges 1,307 1,172 11.4 (4) (17) 1,303 1,155 12.8 ----------- --------- --------- --------- ----------- --------- Total expenses 4,077 3,628 12.4 $ 279 $ 264 $ 4,356 $ 3,892 11.9 ----------- --------- ---------- -------- ----------- --------- Pretax income 973 858 13.4 Income tax provision 308 274 12.6 ----------- ----------- Net income $ 665 $ 584 13.8 =========== ===========
American Express Company (www.americanexpress.com), founded in 1850, is a global travel, financial and network services provider. *** - more - 10 Note: The 2004 First Quarter Earnings Supplement, as well as CFO Gary Crittenden's presentation from the investor conference call referred to below, will be available today on the American Express web site at http://ir.americanexpress.com. An investor conference call to discuss first quarter earnings results, operating performance and other topics that may be raised during the discussion will be held at 5:00 p.m. (ET) today. Live audio of the conference call will be accessible to the general public on the American Express web site at http://ir.americanexpress.com. A replay of the conference call also will be available today at the same web site address. *** This release includes forward-looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," and similar expressions are intended to identify forward-looking statements. 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. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: the company's ability to successfully implement a business model that allows for significant earnings growth based on revenue growth that is lower than historical levels, including the ability to improve its operating expense to revenue ratio both in the short-term and over time, which will depend in part on the effectiveness of reengineering and other cost-control initiatives, as well as factors impacting the company's revenues; the company's ability to cost effectively manage and expand cardmember benefits, including containing the growth of its marketing, promotion, rewards and cardmember services expenses; the company's ability to accurately estimate the provision for the cost of the Membership Rewards program; the company's ability to grow its business and meet or exceed its return on shareholders' equity target by reinvesting approximately 35% of annually-generated capital, and returning approximately 65% of such capital to shareholders, over time, which will depend on the company's ability to manage its capital needs and the effect of business mix, acquisitions and rating agency requirements; the ability of the company to generate sufficient revenues for expanded investment spending and to actually spend such funds to the extent available, and the ability to capitalize on such investments to improve business metrics; credit risk related to consumer debt, business loans, merchant bankruptcies and other credit exposures both in the U.S. and internationally; volatility in the valuation assumptions for the interest only (I/O) strip relating to TRS's lending securitizations; fluctuation in the equity and fixed income markets, which can affect the amount and types of investment products sold by AEFA, the market value of its managed assets, and management, distribution and other fees received based on the value of those assets; AEFA's ability to recover Deferred Acquisition Costs (DAC), as well as the timing of such DAC amortization, in connection with the sale - more - 11 of annuity, insurance and certain mutual fund products; changes in assumptions relating to DAC, which could impact the amount of DAC amortization; the ability to improve investment performance in AEFA's businesses, including attracting and retaining high-quality personnel; the success, timeliness and financial impact, including costs, cost savings and other benefits including increased revenues, of reengineering initiatives being implemented or considered by the company, including cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation, outsourcing (including, among others, technologies operations), relocating certain functions to lower-cost overseas locations, moving internal and external functions to the Internet to save costs, and planned staff reductions relating to certain of such reengineering actions; the ability to control and manage operating, infrastructure, advertising and promotion and other expenses as business expands or changes, including balancing the need for longer-term investment spending; the potential negative effect on the company's businesses and infrastructure, including information technology, of terrorist attacks, disasters or other catastrophic events in the future; the impact on the company's businesses resulting from continuing geopolitical uncertainty; the overall level of consumer confidence; consumer and business spending on the company's travel related services products, particularly credit and charge cards and growth in card lending balances, which depend in part on the ability to issue new and enhanced card products and increase revenues from such products, attract new cardholders, capture a greater share of existing cardholders' spending, sustain premium discount rates, increase merchant coverage, retain cardmembers after low introductory lending rates have expired, and expand the global network services business; the triggering of obligations to make payments to certain co-brand partners, merchants, vendors and customers under contractual arrangements with such parties under certain circumstances; successfully cross-selling financial, travel, card and other products and services to the company's customer base, both in the United States and internationally; a downturn in the company's businesses and/or negative changes in the company's and its subsidiaries' credit ratings, which could result in contingent payments under contracts, decreased liquidity and higher borrowing costs; fluctuations in interest rates, which impact the company's borrowing costs, return on lending products and spreads in the investment and insurance businesses; credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept the company's card products and returns on the company's investment portfolios; fluctuations in foreign currency exchange rates; political or economic instability in certain regions or countries, which could affect lending and other commercial activities, among other businesses, or restrictions on convertibility of certain currencies; changes in laws or government regulations; the costs and integration of acquisitions; and outcomes and costs associated with litigation and compliance and regulatory matters. A further description of these and other risks and uncertainties can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2003, and its other reports filed with the SEC. - more - 12 All information in the following tables is presented on a basis prepared in accordance with accounting principles generally accepted in the United States (GAAP), unless otherwise indicated. (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended March 31, ------------------ Percentage 2004 2003 Inc/(Dec) ------ ------ ---------- Revenues Discount revenue $ 2,368 $ 1,976 19.8 % Management and distribution fees 779 520 49.9 Net investment income 741 767 (3.4) Cardmember lending net finance charge revenue 541 552 (1.8) Net card fees 472 451 4.7 Travel commissions and fees 417 340 22.6 Other commissions and fees 529 477 10.8 Insurance and annuity revenues 364 314 15.6 Securitization income, net 230 211 8.6 Other 469 415 13.3 ------ ------ Total revenues 6,910 6,023 14.7 Expenses Human resources 1,779 1,490 19.4 Provision for losses and benefits 1,022 1,110 (8.0) Marketing, promotion, rewards and cardmember services 1,047 775 35.0 Interest 203 230 (11.8) Other operating expenses 1,611 1,422 13.4 ------ ------ Total expenses 5,662 5,027 12.6 ------ ------ Pretax income before accounting change 1,248 996 25.3 Income tax provision 383 304 26.5 ------ ------ Income before accounting change 865 692 24.8 Cumulative effect of accounting change, net of tax (A) (71) - - ------ ------ Net income $ 794 $ 692 14.7 ====== ======
Note: Certain prior period amounts have been reclassified to conform to current year presentation. (A) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. 13 (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Billions) March 31, December 31, 2004 2003 ------------ ------------ Assets Cash and cash equivalents $ 5 $ 6 Accounts receivable 31 31 Investments 61 57 Loans 31 32 Separate account assets 32 31 Other assets 18 18 ------------ ------------ Total assets $ 178 $ 175 ============ ============ Liabilities and Shareholders' Equity Separate account liabilities $ 32 $ 31 Short-term debt 16 19 Long-term debt 24 21 Other liabilities 90 89 ------------ ------------ Total liabilities 162 160 ------------ ------------ Shareholders' Equity 16 15 ------------ ------------ Total liabilities and shareholders' equity $ 178 $ 175 ============ ============
14 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (Unaudited)
(Millions) Quarters Ended March 31, ------------------ Percentage 2004 2003 Inc/(Dec) ------ ------ ---------- REVENUES (A) Travel Related Services $ 5,050 $ 4,486 13 % American Express Financial Advisors 1,728 1,411 22 American Express Bank 210 197 7 ------ ------ 6,988 6,094 15 Corporate and other, including adjustments and eliminations (78) (71) (9) ------ ------ CONSOLIDATED REVENUES $ 6,910 $ 6,023 15 ====== ====== PRETAX INCOME (LOSS) BEFORE ACCOUNTING CHANGE Travel Related Services $ 973 $ 858 13 American Express Financial Advisors 317 178 78 American Express Bank 48 29 62 ------ ------ 1,338 1,065 26 Corporate and other (90) (69) (28) ------ ------ PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,248 $ 996 25 ====== ====== NET INCOME (LOSS) Travel Related Services $ 665 $ 584 14 American Express Financial Advisors 157(B) 133 18 American Express Bank 30 19 55 ------ ------ 852 736 14 Corporate and other (58) (44) (31) ------ ------ NET INCOME $ 794(B) $ 692 15 ====== ======
(A) Managed net revenues are reported net of American Express Financial Advisors' provision for losses and benefits and exclude the effect of TRS' securitization activities. The following table reconciles consolidated GAAP revenues to Managed Basis net revenues:
GAAP revenues $ 6,910 $ 6,023 15 % Effect of TRS securitizations 279 264 Effect of AEFA provisions (501) (506) ------ ------ Managed net revenues $ 6,688 $ 5,781 16 ====== ======
(B) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. 15 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (UNAUDITED)
Quarters Ended March 31, ---------------- Percentage 2004 2003 Inc/(Dec) ------ ------ ---------- EARNINGS PER SHARE BASIC Income before accounting change $ 0.68 $ 0.53 28 % Net income $ 0.62(A) $ 0.53 17 % ====== ====== Average common shares outstanding (millions) 1,277 1,297 (2)% ====== ====== DILUTED Income before accounting change $ 0.66 $ 0.53 25 % Net income $ 0.61(A) $ 0.53 15 % ====== ====== Average common shares outstanding (millions) 1,305 1,305 - ====== ====== Cash dividends declared per common share $ 0.10 $ 0.08 25 % ====== ======
16 SELECTED STATISTICAL INFORMATION (Unaudited)
Quarters Ended March 31, ---------------- Percentage 2004 2003 Inc/(Dec) ------ ------ ---------- Return on average total shareholders' equity (B) 20.7% 20.0% Common shares outstanding (millions) 1,281 1,298 (1)% Book value per common share $ 12.30 $ 10.84 13 % Shareholders' equity (billions) $ 15.8 $ 14.1 12 %
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax), or $0.06 on a basic per share basis and $0.05 on a diluted per share basis, related to the January 1, 2004 adoption of SOP 03-1. (B) Computed on a trailing 12-month basis using total shareholders' equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. EX-99 4 financ.txt EXHIBIT 99.2 - FINANCIALS EXHIBIT 99.2 ALL INFORMATION IN THE FOLLOWING TABLES IS PRESENTED ON A BASIS PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (GAAP), UNLESS OTHERWISE INDICATED. (PRELIMINARY) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED MARCH 31, ------------------------------ PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- REVENUES DISCOUNT REVENUE $ 2,368 $ 1,976 19.8% MANAGEMENT AND DISTRIBUTION FEES 779 520 49.9 NET INVESTMENT INCOME 741 767 (3.4) CARDMEMBER LENDING NET FINANCE CHARGE REVENUE 541 552 (1.8) NET CARD FEES 472 451 4.7 TRAVEL COMMISSIONS AND FEES 417 340 22.6 OTHER COMMISSIONS AND FEES 529 477 10.8 INSURANCE AND ANNUITY REVENUES 364 314 15.6 SECURITIZATION INCOME, NET 230 211 8.6 OTHER 469 415 13.3 ------------- ------------- TOTAL REVENUES 6,910 6,023 14.7 EXPENSES HUMAN RESOURCES 1,779 1,490 19.4 PROVISION FOR LOSSES AND BENEFITS 1,022 1,110 (8.0) MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,047 775 35.0 INTEREST 203 230 (11.8) OTHER OPERATING EXPENSES 1,611 1,422 13.4 ------------- ------------- TOTAL EXPENSES 5,662 5,027 12.6 ------------- ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE 1,248 996 25.3 INCOME TAX PROVISION 383 304 26.5 ------------- ------------- INCOME BEFORE ACCOUNTING CHANGE 865 692 24.8 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (A) (71) - - ------------- ------------- NET INCOME $ 794 $ 692 14.7 ============= =============
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. (A) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX) RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. 1 (PRELIMINARY) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (BILLIONS)
MARCH 31, DECEMBER 31, 2004 2003 ------------- ------------- ASSETS CASH AND CASH EQUIVALENTS $ 5 $ 6 ACCOUNTS RECEIVABLE 31 31 INVESTMENTS 61 57 LOANS 31 32 SEPARATE ACCOUNT ASSETS 32 31 OTHER ASSETS 18 18 ------------- ------------- TOTAL ASSETS $ 178 $ 175 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY SEPARATE ACCOUNT LIABILITIES $ 32 $ 31 SHORT-TERM DEBT 16 19 LONG-TERM DEBT 24 21 OTHER LIABILITIES 90 89 ------------- ------------- TOTAL LIABILITIES 162 160 ------------- ------------- SHAREHOLDERS' EQUITY 16 15 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 178 $ 175 ============= =============
2 (PRELIMINARY) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (UNAUDITED) (MILLIONS)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- REVENUES (A) TRAVEL RELATED SERVICES $ 5,050 $ 4,486 13% AMERICAN EXPRESS FINANCIAL ADVISORS 1,728 1,411 22 AMERICAN EXPRESS BANK 210 197 7 ------------- ------------- 6,988 6,094 15 CORPORATE AND OTHER, INCLUDING ADJUSTMENTS AND ELIMINATIONS (78) (71) (9) ------------- ------------- CONSOLIDATED REVENUES $ 6,910 $ 6,023 15 ============= ============= PRETAX INCOME (LOSS) BEFORE ACCOUNTING CHANGE TRAVEL RELATED SERVICES $ 973 $ 858 13 AMERICAN EXPRESS FINANCIAL ADVISORS 317 178 78 AMERICAN EXPRESS BANK 48 29 62 ------------- ------------- 1,338 1,065 26 CORPORATE AND OTHER (90) (69) (28) ------------- ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,248 $ 996 25 ============= ============= NET INCOME (LOSS) TRAVEL RELATED SERVICES $ 665 $ 584 14 AMERICAN EXPRESS FINANCIAL ADVISORS 157 (B) 133 18 AMERICAN EXPRESS BANK 30 19 55 ------------- ------------- 852 736 14 CORPORATE AND OTHER (58) (44) (31) ------------- ------------- NET INCOME $ 794 (B) $ 692 15 ============= =============
(A) MANAGED NET REVENUES ARE REPORTED NET OF AMERICAN EXPRESS FINANCIAL ADVISORS' PROVISION FOR LOSSES AND BENEFITS AND EXCLUDE THE EFFECT OF TRS' SECURITIZATION ACTIVITIES. THE FOLLOWING TABLE RECONCILES CONSOLIDATED GAAP REVENUES TO MANAGED BASIS NET REVENUES: GAAP REVENUES $ 6,910 $ 6,023 15% EFFECT OF TRS SECURITIZATIONS 279 264 EFFECT OF AEFA PROVISIONS (501) (506) ------------- ------------- MANAGED NET REVENUES $ 6,688 $ 5,781 16 ============= =============
(B) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX) RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. 3 (PRELIMINARY) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (UNAUDITED)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- EARNINGS PER SHARE BASIC INCOME BEFORE ACCOUNTING CHANGE $ 0.68 $ 0.53 28% NET INCOME $ 0.62 (A) $ 0.53 17% ============= ============= AVERAGE COMMON SHARES OUTSTANDING (MILLIONS) 1,277 1,297 (2)% ============= ============= DILUTED INCOME BEFORE ACCOUNTING CHANGE $ 0.66 $ 0.53 25% NET INCOME $ 0.61 (A) $ 0.53 15% ============= ============= AVERAGE COMMON SHARES OUTSTANDING (MILLIONS) 1,305 1,305 - ============= ============= CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.10 $ 0.08 25% ============= =============
SELECTED STATISTICAL INFORMATION (UNAUDITED)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- RETURN ON AVERAGE TOTAL SHAREHOLDERS' EQUITY (B) 20.7% 20.0% COMMON SHARES OUTSTANDING (MILLIONS) 1,281 1,298 (1)% BOOK VALUE PER COMMON SHARE $ 12.30 $ 10.84 13% SHAREHOLDERS' EQUITY (BILLIONS) $ 15.8 $ 14.1 12%
(A) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX), OR $0.06 ON A BASIC PER SHARE BASIS AND $0.05 ON A DILUTED PER SHARE BASIS, RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. (B) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDERS' EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. 4 (PRELIMINARY) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED ---------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- REVENUES DISCOUNT REVENUE $ 2,368 $ 2,432 $ 2,221 $ 2,152 $ 1,976 MANAGEMENT AND DISTRIBUTION FEES 779 758 603 569 520 NET INVESTMENT INCOME 741 786 730 780 767 CARDMEMBER LENDING NET FINANCE CHARGE REVENUE 541 531 476 483 552 NET CARD FEES 472 467 462 455 451 TRAVEL COMMISSIONS AND FEES 417 445 349 373 340 OTHER COMMISSIONS AND FEES 529 531 486 466 477 INSURANCE AND ANNUITY REVENUES 364 366 345 341 314 SECURITIZATION INCOME, NET 230 293 301 345 211 OTHER 469 459 446 392 415 ------------- ------------- ------------- ------------- ------------- TOTAL REVENUES 6,910 7,068 6,419 6,356 6,023 EXPENSES HUMAN RESOURCES 1,779 1,708 1,559 1,576 1,490 PROVISION FOR LOSSES AND BENEFITS 1,022 1,164 1,080 1,075 1,110 MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,047 1,166 1,016 944 775 INTEREST 203 205 239 231 230 OTHER OPERATING EXPENSES 1,611 1,735 1,463 1,433 1,422 RESTRUCTURING CHARGES - - (2) - - ------------- ------------- ------------- ------------- ------------- TOTAL EXPENSES 5,662 5,978 5,355 5,259 5,027 ------------- ------------- ------------- ------------- ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE 1,248 1,090 1,064 1,097 996 INCOME TAX PROVISION 383 314 294 335 304 ------------- ------------- ------------- ------------- ------------- INCOME BEFORE ACCOUNTING CHANGE 865 776 770 762 692 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (71) (A) (13) (B) - - - ------------- ------------- ------------- ------------- ------------- NET INCOME $ 794 $ 763 $ 770 $ 762 $ 692 ============= ============= ============= ============= =============
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. (A) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX) RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. (B) REFLECTS A $20 MILLION NON-CASH PRETAX CHARGE ($13 MILLION AFTER-TAX) RELATED TO THE DECEMBER 31, 2003 ADOPTION OF FIN 46, AS REVISED. 5 (PRELIMINARY) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (UNAUDITED) (MILLIONS)
QUARTERS ENDED ---------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- REVENUES (A) TRAVEL RELATED SERVICES $ 5,050 $ 5,211 $ 4,758 $ 4,734 $ 4,486 AMERICAN EXPRESS FINANCIAL ADVISORS 1,728 1,740 1,525 1,496 1,411 AMERICAN EXPRESS BANK 210 205 199 200 197 ------------- ------------- ------------- ------------- ------------- 6,988 7,156 6,482 6,430 6,094 CORPORATE AND OTHER, INCLUDING ADJUSTMENTS AND ELIMINATIONS (78) (88) (63) (74) (71) ------------- ------------- ------------- ------------- ------------- CONSOLIDATED REVENUES $ 6,910 $ 7,068 $ 6,419 $ 6,356 $ 6,023 ============= ============= ============= ============= ============= PRETAX INCOME (LOSS) BEFORE ACCOUNTING CHANGE TRAVEL RELATED SERVICES $ 973 $ 884 $ 892 $ 937 $ 858 AMERICAN EXPRESS FINANCIAL ADVISORS 317 248 224 209 178 AMERICAN EXPRESS BANK 48 42 41 39 29 ------------- ------------- ------------- ------------- ------------- 1,338 1,174 1,157 1,185 1,065 CORPORATE AND OTHER (90) (84) (93) (88) (69) ------------- ------------- ------------- ------------- ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,248 $ 1,090 $ 1,064 $ 1,097 $ 996 ============= ============= ============= ============= ============= NET INCOME (LOSS) TRAVEL RELATED SERVICES $ 665 $ 606 $ 606 $ 634 $ 584 AMERICAN EXPRESS FINANCIAL ADVISORS 157 (B) 182 (C) 197 157 133 AMERICAN EXPRESS BANK 30 29 27 27 19 ------------- ------------- ------------- ------------- ------------- 852 817 830 818 736 CORPORATE AND OTHER (58) (54) (60) (56) (44) ------------- ------------- ------------- ------------- ------------- NET INCOME $ 794 (B) $ 763 (C) $ 770 $ 762 $ 692 ============= ============= ============= ============= =============
(A) MANAGED NET REVENUES ARE REPORTED NET OF AMERICAN EXPRESS FINANCIAL ADVISORS' PROVISION FOR LOSSES AND BENEFITS AND EXCLUDE THE EFFECT OF TRS' SECURITIZATION ACTIVITIES. THE FOLLOWING TABLE RECONCILES CONSOLIDATED GAAP REVENUES TO MANAGED BASIS NET REVENUES: GAAP REVENUES $ 6,910 $ 7,068 $ 6,419 $ 6,356 $ 6,023 EFFECT OF TRS SECURITIZATIONS 279 208 255 216 264 EFFECT OF AEFA PROVISIONS (501) (555) (535) (526) (506) ------------- ------------- ------------- ------------- ------------- MANAGED NET REVENUES $ 6,688 $ 6,721 $ 6,139 $ 6,046 $ 5,781 ============= ============= ============= ============= =============
(B) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX) RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. (C) REFLECTS A $20 MILLION NON-CASH PRETAX CHARGE ($13 MILLION AFTER-TAX) RELATED TO THE DECEMBER 31, 2003 ADOPTION OF FIN 46, AS REVISED. 6 (PRELIMINARY) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (UNAUDITED)
QUARTERS ENDED ---------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- EARNINGS PER SHARE BASIC INCOME BEFORE ACCOUNTING CHANGE $ 0.68 $ 0.61 $ 0.60 $ 0.59 $ 0.53 NET INCOME $ 0.62 (A) $ 0.60 (B) $ 0.60 $ 0.59 $ 0.53 ============= ============= ============= ============= ============= AVERAGE COMMON SHARES OUTSTANDING (MILLIONS) 1,277 1,277 1,278 1,283 1,297 ============= ============= ============= ============= ============= DILUTED INCOME BEFORE ACCOUNTING CHANGE $ 0.66 $ 0.60 $ 0.59 $ 0.59 $ 0.53 NET INCOME $ 0.61 (A) $ 0.59 (B) $ 0.59 $ 0.59 $ 0.53 ============= ============= ============= ============= ============= AVERAGE COMMON SHARES OUTSTANDING (MILLIONS) 1,305 1,299 1,297 1,295 1,305 ============= ============= ============= ============= ============= CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.08 ============= ============= ============= ============= =============
SELECTED STATISTICAL INFORMATION (UNAUDITED)
QUARTERS ENDED ---------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- RETURN ON AVERAGE TOTAL SHAREHOLDERS' EQUITY (C) 20.7% 20.6% 20.4% 20.1% 20.0% COMMON SHARES OUTSTANDING (MILLIONS) 1,281 1,284 1,285 1,286 1,298 BOOK VALUE PER COMMON SHARE $ 12.30 $ 11.93 $ 11.54 $ 11.27 $ 10.84 SHAREHOLDERS' EQUITY (BILLIONS) $ 15.8 $ 15.3 $ 14.8 $ 14.5 $ 14.1
(A) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX), OR $0.06 ON A BASIC PER SHARE BASIS AND $0.05 ON A DILUTED PER SHARE BASIS, RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. (B) REFLECTS A $20 MILLION NON-CASH PRETAX CHARGE ($13 MILLION AFTER-TAX), OR $0.01 PER SHARE ON BOTH A BASIC AND DILUTED BASIS, RELATED TO THE DECEMBER 31, 2003 ADOPTION OF FIN 46, AS REVISED. (C) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDERS' EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. 7 (PRELIMINARY) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED MARCH 31, ----------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ----------- NET REVENUES: DISCOUNT REVENUE $ 2,368 $ 1,976 19.8% NET CARD FEES 472 451 4.7 LENDING: FINANCE CHARGE REVENUE 668 681 (1.8) INTEREST EXPENSE 127 129 (1.7) ------------- ------------- NET FINANCE CHARGE REVENUE 541 552 (1.8) TRAVEL COMMISSIONS AND FEES 417 340 22.6 OTHER COMMISSIONS AND FEES 510 464 10.0 TRAVELERS CHEQUE INVESTMENT INCOME 93 92 1.3 SECURITIZATION INCOME, NET 230 211 8.6 OTHER REVENUES 419 400 4.5 ------------- ------------- TOTAL NET REVENUES 5,050 4,486 12.6 ------------- ------------- EXPENSES: MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,023 761 34.5 PROVISION FOR LOSSES AND CLAIMS: CHARGE CARD 198 208 (5.2) LENDING 287 331 (13.5) OTHER 29 31 (2.4) ------------- ------------- TOTAL 514 570 (9.9) CHARGE CARD INTEREST EXPENSE 168 209 (19.5) HUMAN RESOURCES 1,065 916 16.2 OTHER OPERATING EXPENSES 1,307 1,172 11.4 ------------- ------------- TOTAL EXPENSES 4,077 3,628 12.4 ------------- ------------- PRETAX INCOME 973 858 13.4 INCOME TAX PROVISION 308 274 12.6 ------------- ------------- NET INCOME $ 665 $ 584 13.8 ============= =============
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. 8 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED FINANCIAL INFORMATION (UNAUDITED) QUARTERS ENDED MARCH 31, (MILLIONS)
GAAP BASIS SECURITIZATION EFFECT ----------------------------- PERCENTAGE ------------------------------ 2004 2003 INC/(DEC) 2004 2003 ------------- ------------- ------------- ------------- ------------- NET REVENUES: DISCOUNT REVENUE $ 2,368 $ 1,976 19.8% NET CARD FEES 472 451 4.7 LENDING: FINANCE CHARGE REVENUE 668 681 (1.8) $ 539 $ 489 INTEREST EXPENSE 127 129 (1.7) 83 64 ------------- ------------- ------------- ------------- NET FINANCE CHARGE REVENUE 541 552 (1.8) 456 425 TRAVEL COMMISSIONS AND FEES 417 340 22.6 OTHER COMMISSIONS AND FEES 510 464 10.0 53 50 TRAVELERS CHEQUE INVESTMENT INCOME 93 92 1.3 SECURITIZATION INCOME, NET 230 211 8.6 (230) (211) OTHER REVENUES 419 400 4.5 ------------- ------------- ------------- ------------- TOTAL NET REVENUES 5,050 4,486 12.6 279 264 ------------- ------------- ------------- ------------- EXPENSES: MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,023 761 34.5 (4) (26) PROVISION FOR LOSSES AND CLAIMS: CHARGE CARD 198 208 (5.2) LENDING 287 331 (13.5) 287 307 OTHER 29 31 (2.4) ------------- ------------- ------------- ------------- TOTAL 514 570 (9.9) 287 307 CHARGE CARD INTEREST EXPENSE 168 209 (19.5) HUMAN RESOURCES 1,065 916 16.2 OTHER OPERATING EXPENSES 1,307 1,172 11.4 (4) (17) ------------- ------------- ------------- ------------- TOTAL EXPENSES 4,077 3,628 12.4 $ 279 $ 264 ------------- ------------- ------------- ------------- PRETAX INCOME 973 858 13.4 INCOME TAX PROVISION 308 274 12.6 ------------- ------------- NET INCOME $ 665 $ 584 13.8 ============= ============= MANAGED BASIS ----------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- NET REVENUES: DISCOUNT REVENUE NET CARD FEES LENDING: FINANCE CHARGE REVENUE $ 1,207 $ 1,170 3.3% INTEREST EXPENSE 210 193 8.9 ------------- ------------- NET FINANCE CHARGE REVENUE 997 977 2.1 TRAVEL COMMISSIONS AND FEES OTHER COMMISSIONS AND FEES 563 514 9.6 TRAVELERS CHEQUE INVESTMENT INCOME SECURITIZATION INCOME, NET - - - OTHER REVENUES ------------- ------------- TOTAL NET REVENUES 5,329 4,750 12.2 ------------- ------------- EXPENSES: MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,019 735 38.6 PROVISION FOR LOSSES AND CLAIMS: CHARGE CARD LENDING 574 638 (10.0) OTHER ------------- ------------- TOTAL 801 877 (8.6) CHARGE CARD INTEREST EXPENSE HUMAN RESOURCES OTHER OPERATING EXPENSES 1,303 1,155 12.8 ------------- ------------- TOTAL EXPENSES $ 4,356 $ 3,892 11.9 ------------- -------------
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. SECURITIZATION INCOME, NET REPRESENTS REVENUE RELATED TO THE COMPANY'S SECURITIZED LOAN RECEIVABLES, WHICH INCLUDES GAINS RECORDED AT THE TIME OF SECURITIZATION, NET FINANCE CHARGE REVENUE ON RETAINED INTERESTS IN SECURITIZED LOANS AND SERVICING INCOME NET OF RELATED DISCOUNTS. MANAGEMENT VIEWS THE GAINS FROM SECURITIZATIONS AS DISCRETIONARY BENEFITS TO BE USED FOR CARD ACQUISITION EXPENSES, WHICH ARE REFLECTED IN MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES AND OTHER OPERATING EXPENSES. CONSEQUENTLY, THE ABOVE MANAGED SELECTED FINANCIAL INFORMATION FOR THE QUARTERS ENDED MARCH 31, 2004 AND MARCH 31, 2003 ASSUME THAT NET ACTIVITY OF $8 MILLION AND $43 MILLION, RESPECTIVELY, FROM LENDING SECURITIZATIONS WAS OFFSET BY HIGHER MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES OF $4 MILLION AND $26 MILLION, RESPECTIVELY, AND OTHER OPERATING EXPENSES OF $4 MILLION AND $17 MILLION, RESPECTIVELY. ACCORDINGLY, THE INCREMENTAL EXPENSES, AS WELL AS THE NET ACTIVITY, HAVE BEEN ELIMINATED. 9 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED FINANCIAL INFORMATION (UNAUDITED) QUARTERS ENDED (MILLIONS)
GAAP BASIS SECURITIZATION EFFECT -------------------------------------------- ----------------------------------------------- DECEMBER 31, SEPTEMBER 30, JUNE 30, DECEMBER 31, SEPTEMBER 30, JUNE 30, 2003 2003 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- ------------- NET REVENUES: DISCOUNT REVENUE $ 2,432 $ 2,221 $ 2,152 NET CARD FEES 467 462 455 LENDING: FINANCE CHARGE REVENUE 654 592 598 $ 532 $ 585 $ 566 INTEREST EXPENSE 123 116 115 84 74 50 ------------- ------------- ------------- ------------- ------------- ------------- NET FINANCE CHARGE REVENUE 531 476 483 448 511 516 TRAVEL COMMISSIONS AND FEES 445 349 373 OTHER COMMISSIONS AND FEES 515 465 457 53 45 45 TRAVELERS CHEQUE INVESTMENT INCOME 93 90 92 SECURITIZATION INCOME, NET 293 301 345 (293) (301) (345) OTHER REVENUES 435 394 377 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL NET REVENUES 5,211 4,758 4,734 208 255 216 ------------- ------------- ------------- ------------- ------------- ------------- EXPENSES: MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,141 994 918 - - (48) PROVISION FOR LOSSES AND CLAIMS: CHARGE CARD 227 213 205 LENDING 330 279 278 208 255 297 OTHER 28 31 37 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL 585 523 520 208 255 297 CHARGE CARD INTEREST EXPENSE 187 186 204 HUMAN RESOURCES 1,003 938 965 OTHER OPERATING EXPENSES 1,411 1,225 1,190 - - (33) ------------- ------------- ------------- ------------- ------------- ------------- TOTAL EXPENSES 4,327 3,866 3,797 $ 208 $ 255 $ 216 ------------- ------------- ------------- ------------- ------------- ------------- PRETAX INCOME 884 892 937 INCOME TAX PROVISION 278 286 303 ------------- ------------- ------------- NET INCOME $ 606 $ 606 $ 634 ============= ============= ============= MANAGED BASIS --------------------------------------------- DECEMBER 31, SEPTEMBER 30, JUNE 30, 2003 2003 2003 ------------- ------------- ------------- NET REVENUES: DISCOUNT REVENUE NET CARD FEES LENDING: FINANCE CHARGE REVENUE $ 1,186 $ 1,177 $ 1,164 INTEREST EXPENSE 207 190 165 ------------- ------------- ------------- NET FINANCE CHARGE REVENUE 979 987 999 TRAVEL COMMISSIONS AND FEES OTHER COMMISSIONS AND FEES 568 510 502 TRAVELERS CHEQUE INVESTMENT INCOME SECURITIZATION INCOME, NET - - - OTHER REVENUES ------------- ------------- ------------- TOTAL NET REVENUES 5,419 5,013 4,950 ------------- ------------- ------------- EXPENSES: MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,141 994 870 PROVISION FOR LOSSES AND CLAIMS: CHARGE CARD LENDING 538 534 575 OTHER ------------- ------------- ------------- TOTAL 793 778 817 CHARGE CARD INTEREST EXPENSE HUMAN RESOURCES OTHER OPERATING EXPENSES 1,411 1,225 1,157 ------------- ------------- ------------- TOTAL EXPENSES $ 4,535 $ 4,121 $ 4,013 ------------- ------------- -------------
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. SECURITIZATION INCOME, NET REPRESENTS REVENUE RELATED TO THE COMPANY'S SECURITIZED LOAN RECEIVABLES, WHICH INCLUDES GAINS RECORDED AT THE TIME OF SECURITIZATION, NET FINANCE CHARGE REVENUE ON RETAINED INTERESTS IN SECURITIZED LOANS AND SERVICING INCOME NET OF RELATED DISCOUNTS. MANAGEMENT VIEWS THE GAINS FROM SECURITIZATIONS AS DISCRETIONARY BENEFITS TO BE USED FOR CARD ACQUISITION EXPENSES, WHICH ARE REFLECTED IN MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES AND OTHER OPERATING EXPENSES. CONSEQUENTLY, THE ABOVE MANAGED SELECTED FINANCIAL INFORMATION FOR THE QUARTER ENDED JUNE 30, 2003 ASSUMES THAT NET ACTIVITY OF $81 MILLION FROM LENDING SECURITIZATIONS WAS OFFSET BY HIGHER MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES OF $48 MILLION AND OTHER OPERATING EXPENSES OF $33 MILLION. ACCORDINGLY, THE INCREMENTAL EXPENSES, AS WELL AS THE NET ACTIVITY, HAVE BEEN ELIMINATED. 10 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (UNAUDITED) (BILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED MARCH 31, ------------------------------ PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- TOTAL CARDS-IN-FORCE (MILLIONS) (A): UNITED STATES 37.0 35.2 5.4% OUTSIDE THE UNITED STATES 24.6 22.4 9.7 ------------- ------------- TOTAL 61.6 57.6 7.1 ============= ============= BASIC CARDS-IN-FORCE (MILLIONS): UNITED STATES 28.1 27.1 3.8% OUTSIDE THE UNITED STATES 20.4 18.5 10.2 ------------- ------------- TOTAL 48.5 45.6 6.4 ============= ============= CARD BILLED BUSINESS: UNITED STATES $ 70.1 $ 58.9 19.1% OUTSIDE THE UNITED STATES 25.3 19.9 27.0 ------------- ------------- TOTAL $ 95.4 $ 78.8 21.1 ============= ============= AVERAGE DISCOUNT RATE (A) 2.59% 2.60% AVERAGE BASIC CARDMEMBER SPENDING (DOLLARS) (A) $ 2,202 $ 1,894 16.3% AVERAGE FEE PER CARD - MANAGED (DOLLARS) (A) $ 35 $ 35 - NON-AMEX BRAND (B): CARDS-IN-FORCE (MILLIONS) 0.7 0.7 1.1% BILLED BUSINESS $ 1.0 $ 0.9 8.5% TRAVEL SALES $ 4.8 $ 3.7 30.3% TRAVEL COMMISSIONS AND FEES/SALES (C) 8.7% 9.3% TRAVELERS CHEQUE AND PREPAID PRODUCTS: SALES $ 4.4 $ 4.1 6.1% AVERAGE OUTSTANDING $ 6.8 $ 6.5 5.2% AVERAGE INVESTMENTS $ 7.3 $ 6.9 6.4% INVESTMENT YIELD 5.4% 5.6% TAX EQUIVALENT YIELD 8.3% 8.6% TOTAL DEBT $ 38.7 $ 34.1 13.7% SHAREHOLDER'S EQUITY $ 8.1 $ 7.5 8.2% RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY (D) 31.7% 31.3% RETURN ON AVERAGE TOTAL ASSETS (E) 3.4% 3.3%
(A) CARDS-IN-FORCE INCLUDE PROPRIETARY CARDS AND CARDS ISSUED UNDER NETWORK PARTNERSHIP AGREEMENTS OUTSIDE THE UNITED STATES. AVERAGE DISCOUNT RATE, AVERAGE BASIC CARDMEMBER SPENDING AND AVERAGE FEE PER CARD ARE COMPUTED FROM PROPRIETARY CARD ACTIVITIES ONLY. (B) THESE DATA RELATE TO VISA AND EUROCARDS ISSUED IN CONNECTION WITH JOINT VENTURE ACTIVITIES. (C) COMPUTED FROM INFORMATION PROVIDED HEREIN. (D) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDER'S EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (E) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL ASSETS AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. 11 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (CONTINUED) (UNAUDITED) (BILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED MARCH 31, ------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- WORLDWIDE CHARGE CARD RECEIVABLES: TOTAL RECEIVABLES $ 27.9 $ 24.3 14.5% 90 DAYS PAST DUE AS A % OF TOTAL 2.0% 2.4% LOSS RESERVES (MILLIONS) $ 896 $ 923 (2.9)% % OF RECEIVABLES 3.2% 3.8% % OF 90 DAYS PAST DUE 164% 159% NET LOSS RATIO AS A % OF CHARGE VOLUME 0.26% 0.28% WORLDWIDE LENDING - OWNED BASIS: TOTAL LOANS $ 24.5 $ 22.0 11.2% PAST DUE LOANS AS A % OF TOTAL: 30-89 DAYS 1.7% 1.8% 90+ DAYS 1.1% 1.2% LOSS RESERVES (MILLIONS): BEGINNING BALANCE $ 998 $ 1,030 (3.1)% PROVISION 257 300 (14.1) NET CHARGE-OFFS (264) (309) (14.4) OTHER 3 4 (33.5) ------------- ------------- ENDING BALANCE $ 994 $ 1,025 (3.0) ============= ============= % OF LOANS 4.1% 4.7% % OF PAST DUE 145% 153% AVERAGE LOANS $ 25.1 $ 22.2 13.2% NET WRITE-OFF RATE 4.2% 5.6% NET INTEREST YIELD 9.4% 11.0% WORLDWIDE LENDING - MANAGED BASIS: TOTAL LOANS $ 44.8 $ 40.1 11.7% PAST DUE LOANS AS A % OF TOTAL: 30-89 DAYS 1.7% 1.9% 90+ DAYS 1.0% 1.1% LOSS RESERVES (MILLIONS): BEGINNING BALANCE $ 1,541 $ 1,529 0.8% PROVISION 545 607 (10.2) NET CHARGE-OFFS (519) (558) (7.0) OTHER 3 4 (33.5) ------------- ------------- ENDING BALANCE $ 1,570 $ 1,582 (0.7) ============= ============= % OF LOANS 3.5% 3.9% % OF PAST DUE 128% 130% AVERAGE LOANS $ 44.8 $ 39.8 12.6% NET WRITE-OFF RATE 4.6% 5.6% NET INTEREST YIELD 8.7% 9.7%
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECOMPUTED TO CONFORM TO CURRENT YEAR PRESENTATION. 12 (PRELIMINARY) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED ----------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- NET REVENUES: DISCOUNT REVENUE $ 2,368 $ 2,432 $ 2,221 $ 2,152 $ 1,976 NET CARD FEES 472 467 462 455 451 LENDING: FINANCE CHARGE REVENUE 668 654 592 598 681 INTEREST EXPENSE 127 123 116 115 129 ------------- ------------- ------------- ------------- ------------- NET FINANCE CHARGE REVENUE 541 531 476 483 552 TRAVEL COMMISSIONS AND FEES 417 445 349 373 340 OTHER COMMISSIONS AND FEES 510 515 465 457 464 TRAVELERS CHEQUE INVESTMENT INCOME 93 93 90 92 92 SECURITIZATION INCOME, NET 230 293 301 345 211 OTHER REVENUES 419 435 394 377 400 ------------- ------------- ------------- ------------- ------------- TOTAL NET REVENUES 5,050 5,211 4,758 4,734 4,486 ------------- ------------- ------------- ------------- ------------- EXPENSES: MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,023 1,141 994 918 761 PROVISION FOR LOSSES AND CLAIMS: CHARGE CARD 198 227 213 205 208 LENDING 287 330 279 278 331 OTHER 29 28 31 37 31 ------------- ------------- ------------- ------------- ------------- TOTAL 514 585 523 520 570 CHARGE CARD INTEREST EXPENSE 168 187 186 204 209 HUMAN RESOURCES 1,065 1,003 938 965 916 OTHER OPERATING EXPENSES 1,307 1,411 1,225 1,190 1,172 ------------- ------------- ------------- ------------- ------------- TOTAL EXPENSES 4,077 4,327 3,866 3,797 3,628 ------------- ------------- ------------- ------------- ------------- PRETAX INCOME 973 884 892 937 858 INCOME TAX PROVISION 308 278 286 303 274 ------------- ------------- ------------- ------------- ------------- NET INCOME $ 665 $ 606 $ 606 $ 634 $ 584 ============= ============= ============= ============= =============
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. 13 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED MANAGED BASIS INFORMATION (UNAUDITED) (MILLIONS)
QUARTERS ENDED ----------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- LENDING FINANCE CHARGE REVENUE $ 1,207 $ 1,186 $ 1,177 $ 1,164 $ 1,170 LENDING INTEREST EXPENSE 210 207 190 165 193 OTHER COMMISSIONS AND FEES 563 568 510 502 514 MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES 1,019 1,141 994 870 735 LENDING PROVISION 574 538 534 575 638 OTHER OPERATING EXPENSES 1,303 1,411 1,225 1,157 1,155
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT YEAR PRESENTATION. SEE PRIOR PAGE FOR COMPARABLE GAAP MEASURES. 14 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (UNAUDITED) (BILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED ----------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- TOTAL CARDS-IN-FORCE (MILLIONS) (A): UNITED STATES 37.0 36.4 35.9 35.4 35.2 OUTSIDE THE UNITED STATES 24.6 24.1 23.4 22.9 22.4 ------------- ------------- ------------- ------------- ------------- TOTAL 61.6 60.5 59.3 58.3 57.6 ============= ============= ============= ============= ============= BASIC CARDS-IN-FORCE (MILLIONS): UNITED STATES 28.1 27.7 27.3 27.3 27.1 OUTSIDE THE UNITED STATES 20.4 19.9 19.3 18.9 18.5 ------------- ------------- ------------- ------------- ------------- TOTAL 48.5 47.6 46.6 46.2 45.6 ============= ============= ============= ============= ============= CARD BILLED BUSINESS: UNITED STATES $ 70.1 $ 72.3 $ 66.3 $ 64.6 $ 58.9 OUTSIDE THE UNITED STATES 25.3 26.2 22.5 21.5 19.9 ------------- ------------- ------------- ------------- ------------- TOTAL $ 95.4 $ 98.5 $ 88.8 $ 86.1 $ 78.8 ============= ============= ============= ============= ============= AVERAGE DISCOUNT RATE (A) 2.59% 2.56% 2.60% 2.59% 2.60% AVERAGE BASIC CARDMEMBER SPENDING (DOLLARS) (A) $ 2,202 $ 2,314 $ 2,101 $ 2,054 $ 1,894 AVERAGE FEE PER CARD - MANAGED (DOLLARS) (A) $ 35 $ 35 $ 35 $ 34 $ 35 NON-AMEX BRAND (B): CARDS-IN-FORCE (MILLIONS) 0.7 0.7 0.7 0.7 0.7 BILLED BUSINESS $ 1.0 $ 1.1 $ 1.0 $ 1.0 $ 0.9 TRAVEL SALES $ 4.8 $ 4.7 $ 3.7 $ 3.9 $ 3.7 TRAVEL COMMISSIONS AND FEES/SALES (C) 8.7% 9.5% 9.3% 9.6% 9.3% TRAVELERS CHEQUE AND PREPAID PRODUCTS: SALES $ 4.4 $ 4.7 $ 6.0 $ 4.4 $ 4.1 AVERAGE OUTSTANDING $ 6.8 $ 6.6 $ 7.0 $ 6.4 $ 6.5 AVERAGE INVESTMENTS $ 7.3 $ 7.1 $ 7.4 $ 6.9 $ 6.9 INVESTMENT YIELD 5.4% 5.5% 5.2% 5.5% 5.6% TAX EQUIVALENT YIELD 8.3% 8.4% 8.0% 8.4% 8.6% TOTAL DEBT $ 38.7 $ 38.4 $ 33.3 $ 34.2 $ 34.1 SHAREHOLDER'S EQUITY $ 8.1 $ 7.9 $ 8.0 $ 7.8 $ 7.5 RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY (D) 31.7% 31.3% 31.2% 31.5% 31.3% RETURN ON AVERAGE TOTAL ASSETS (E) 3.4% 3.4% 3.4% 3.4% 3.3%
(A) CARDS-IN-FORCE INCLUDE PROPRIETARY CARDS AND CARDS ISSUED UNDER NETWORK PARTNERSHIP AGREEMENTS OUTSIDE THE UNITED STATES. AVERAGE DISCOUNT RATE, AVERAGE BASIC CARDMEMBER SPENDING AND AVERAGE FEE PER CARD ARE COMPUTED FROM PROPRIETARY CARD ACTIVITIES ONLY. (B) THESE DATA RELATE TO VISA AND EUROCARDS ISSUED IN CONNECTION WITH JOINT VENTURE ACTIVITIES. (C) COMPUTED FROM INFORMATION PROVIDED HEREIN. (D) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDER'S EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (E) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL ASSETS AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. 15 (PRELIMINARY) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (CONTINUED) (UNAUDITED) (BILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED ----------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- WORLDWIDE CHARGE CARD RECEIVABLES: TOTAL RECEIVABLES $ 27.9 $ 28.4 $ 26.4 $ 26.0 $ 24.3 90 DAYS PAST DUE AS A % OF TOTAL 2.0% 1.9% 2.0% 2.1% 2.4% LOSS RESERVES (MILLIONS) $ 896 $ 916 $ 921 $ 943 $ 923 % OF RECEIVABLES 3.2% 3.2% 3.5% 3.6% 3.8% % OF 90 DAYS PAST DUE 164% 171% 174% 171% 159% NET LOSS RATIO AS A % OF CHARGE VOLUME 0.26% 0.27% 0.28% 0.29% 0.28% WORLDWIDE LENDING - OWNED BASIS: TOTAL LOANS $ 24.5 $ 25.8 $ 22.6 $ 22.6 $ 22.0 PAST DUE LOANS AS A % OF TOTAL: 30-89 DAYS 1.7% 1.6% 1.7% 1.6% 1.8% 90+ DAYS 1.1% 1.1% 1.1% 1.2% 1.2% LOSS RESERVES (MILLIONS): BEGINNING BALANCE $ 998 $ 938 $ 1,017 $ 1,025 $ 1,030 PROVISION 257 304 261 256 300 NET CHARGE-OFFS (264) (275) (282) (282) (309) OTHER 3 31 (58) 18 4 ------------- ------------- ------------- ------------- ------------- ENDING BALANCE $ 994 $ 998 $ 938 $ 1,017 $ 1,025 ============= ============= ============= ============= ============= % OF LOANS 4.1% 3.9% 4.2% 4.5% 4.7% % OF PAST DUE 145% 146% 150% 161% 153% AVERAGE LOANS $ 25.1 $ 23.8 $ 22.5 $ 22.0 $ 22.2 NET WRITE-OFF RATE 4.2% 4.6% 5.0% 5.1% 5.6% NET INTEREST YIELD 9.4% 9.6% 9.2% 9.7% 11.0% WORLDWIDE LENDING - MANAGED BASIS: TOTAL LOANS $ 44.8 $ 45.3 $ 42.1 $ 42.1 $ 40.1 PAST DUE LOANS AS A % OF TOTAL: 30-89 DAYS 1.7% 1.6% 1.7% 1.7% 1.9% 90+ DAYS 1.0% 1.1% 1.1% 1.1% 1.1% LOSS RESERVES (MILLIONS): BEGINNING BALANCE $ 1,541 $ 1,519 $ 1,594 $ 1,582 $ 1,529 PROVISION 545 511 518 552 607 NET CHARGE-OFFS (519) (520) (535) (558) (558) OTHER 3 31 (58) 18 4 ------------- ------------- ------------- ------------- ------------- ENDING BALANCE $ 1,570 $ 1,541 $ 1,519 $ 1,594 $ 1,582 ============= ============= ============= ============= ============= % OF LOANS 3.5% 3.4% 3.6% 3.8% 3.9% % OF PAST DUE 128% 127% 128% 137% 130% AVERAGE LOANS $ 44.8 $ 43.3 $ 42.1 $ 41.2 $ 39.8 NET WRITE-OFF RATE 4.6% 4.8% 5.1% 5.4% 5.6% NET INTEREST YIELD 8.7% 8.7% 9.0% 9.5% 9.7%
NOTE: CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECOMPUTED TO CONFORM TO CURRENT YEAR PRESENTATION. 16 (PRELIMINARY) AMERICAN EXPRESS FINANCIAL ADVISORS STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- REVENUES: INVESTMENT INCOME $ 556 $ 558 (0.3)% MANAGEMENT AND DISTRIBUTION FEES 781 522 49.8 OTHER REVENUES 391 331 17.7 ------------- ------------- TOTAL REVENUES 1,728 1,411 22.4 ------------- ------------- EXPENSES: PROVISION FOR LOSSES AND BENEFITS: ANNUITIES 255 273 (6.5) INSURANCE 201 192 5.2 INVESTMENT CERTIFICATES 45 41 7.9 ------------- ------------- TOTAL 501 506 (0.9) HUMAN RESOURCES 603 479 25.7 OTHER OPERATING EXPENSES 307 248 23.8 ------------- ------------- TOTAL EXPENSES 1,411 1,233 14.4 ------------- ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE 317 178 77.9 INCOME TAX PROVISION 89 45 99.0 ------------- ------------- INCOME BEFORE ACCOUNTING CHANGE 228 133 70.9 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (71)(A) - - ------------- ------------- NET INCOME $ 157 $ 133 18.0 ============= =============
(A) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX) RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS TO CONFORM TO AEFA'S CURRENT PERIOD PRESENTATION AS A RESULT OF ADOPTING SOP 03-1 WERE NOT MATERIAL. 17 (PRELIMINARY) AMERICAN EXPRESS FINANCIAL ADVISORS SELECTED STATISTICAL INFORMATION (UNAUDITED) (MILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- INVESTMENTS (BILLIONS) (A) $ 43.4 $ 40.3 7.8% CLIENT CONTRACT RESERVES (BILLIONS) $ 41.6 $ 38.6 7.6% SHAREHOLDER'S EQUITY (BILLIONS) $ 7.4 $ 6.3 17.6% RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY BEFORE ACCOUNTING CHANGE (B) 11.5% 9.8% RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY (B) 10.2% 9.8% LIFE INSURANCE INFORCE (BILLIONS) $ 135.0 $ 121.4 11.3% ASSETS OWNED, MANAGED OR ADMINISTERED (BILLIONS): ASSETS MANAGED FOR INSTITUTIONS (C) $ 123.4 $ 41.4 # ASSETS OWNED, MANAGED OR ADMINISTERED FOR INDIVIDUALS: OWNED ASSETS: SEPARATE ACCOUNT ASSETS (C) 32.4 21.3 52.5% OTHER OWNED ASSETS (C) 58.9 51.5 14.2 ------------- ------------- TOTAL OWNED ASSETS 91.3 72.8 25.4 MANAGED ASSETS (C) 109.3 79.9 36.8 ADMINISTERED ASSETS (D) 54.4 34.0 60.0 ------------- ------------- TOTAL $ 378.4 $ 228.1 65.9 ============= ============= MARKET APPRECIATION (DEPRECIATION) DURING THE PERIOD: OWNED ASSETS: SEPARATE ACCOUNT ASSETS $ 756 $ (471) # OTHER OWNED ASSETS $ 713 $ 20 # MANAGED ASSETS $ 5,453 $ (1,145) # CASH SALES: MUTUAL FUNDS $ 9,799 $ 6,800 44.1% ANNUITIES 2,255 2,205 2.3 INVESTMENT CERTIFICATES 1,324 1,067 24.1 LIFE AND OTHER INSURANCE PRODUCTS 218 162 34.7 INSTITUTIONAL 1,415 692 # OTHER 1,292 1,683 (23.3) ------------- ------------- TOTAL CASH SALES $ 16,303 $ 12,609 29.3 ============= ============= NUMBER OF FINANCIAL ADVISORS 12,070 11,606 4.0% FEES FROM FINANCIAL PLANS AND ADVICE SERVICES $ 33.2 $ 31.7 4.9% PERCENTAGE OF TOTAL SALES FROM FINANCIAL PLANS AND ADVICE SERVICES 75.3% 75.6%
# - DENOTES A VARIANCE OF MORE THAN 100%. (A) EXCLUDES CASH, DERIVATIVES, SHORT-TERM AND OTHER INVESTMENTS. (B) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDER'S EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (C) AT MARCH 31, 2004, AMOUNTS REFLECT SEPTEMBER 30, 2003 THREADNEEDLE ACQUISITION BALANCES OF $73.2 BILLION OF ASSETS MANAGED FOR INSTITUTIONS, $2.6 BILLION OF SEPARATE ACCOUNT ASSETS, $1.0 BILLION OF OTHER OWNED ASSETS AND $7.9 BILLION OF ASSETS MANAGED FOR INDIVIDUALS. (D) EXCLUDES NON-BRANDED ADMINISTERED ASSETS OF $3.8 BILLION AT MARCH 31, 2003. ASSUMING SUCH ASSETS HAD BEEN INCLUDED, THE INCREASE IN ADMINISTERED ASSETS WOULD HAVE BEEN 43.9%. 18 (PRELIMINARY) AMERICAN EXPRESS FINANCIAL ADVISORS STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED ------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- REVENUES: INVESTMENT INCOME $ 556 $ 599 $ 551 $ 571 $ 558 MANAGEMENT AND DISTRIBUTION FEES 781 759 606 571 522 OTHER REVENUES 391 382 368 354 331 ------------- ------------- ------------- ------------- ------------- TOTAL REVENUES 1,728 1,740 1,525 1,496 1,411 ------------- ------------- ------------- ------------- ------------- EXPENSES: PROVISION FOR LOSSES AND BENEFITS: ANNUITIES 255 274 277 280 273 INSURANCE 201 226 212 187 192 INVESTMENT CERTIFICATES 45 55 46 59 41 ------------- ------------- ------------- ------------- ------------- TOTAL 501 555 535 526 506 HUMAN RESOURCES 603 592 511 508 479 OTHER OPERATING EXPENSES 307 345 255 253 248 ------------- ------------- ------------- ------------- ------------- TOTAL EXPENSES 1,411 1,492 1,301 1,287 1,233 ------------- ------------- ------------- ------------- ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE 317 248 224 209 178 INCOME TAX PROVISION 89 53 27 52 45 ------------- ------------- ------------- ------------- ------------- INCOME BEFORE ACCOUNTING CHANGE 228 195 197 157 133 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (71)(A) (13)(B) - - - ------------- ------------- ------------- ------------- ------------- NET INCOME $ 157 $ 182 $ 197 $ 157 $ 133 ============= ============= ============= ============= =============
(A) REFLECTS A $109 MILLION NON-CASH PRETAX CHARGE ($71 MILLION AFTER-TAX) RELATED TO THE JANUARY 1, 2004 ADOPTION OF SOP 03-1. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS TO CONFORM TO AEFA'S CURRENT PERIOD PRESENTATION AS A RESULT OF ADOPTING SOP 03-1 WERE NOT MATERIAL. (B) REFLECTS A $20 MILLION NON-CASH PRETAX CHARGE ($13 MILLION AFTER-TAX) RELATED TO THE DECEMBER 31, 2003 ADOPTION OF FIN 46, AS REVISED. 19 (PRELIMINARY) AMERICAN EXPRESS FINANCIAL ADVISORS SELECTED STATISTICAL INFORMATION (UNAUDITED) (MILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED ------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- INVESTMENTS (BILLIONS) (A) $ 43.4 $ 42.1 $ 42.3 $ 42.4 $ 40.3 CLIENT CONTRACT RESERVES (BILLIONS) $ 41.6 $ 41.2 $ 40.8 $ 40.2 $ 38.6 SHAREHOLDER'S EQUITY (BILLIONS) $ 7.4 $ 7.1 $ 7.1 $ 6.7 $ 6.3 RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY BEFORE ACCOUNTING CHANGE (B) 11.5% 10.4% 10.1% 9.6% 9.8% RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY (B) 10.2% 10.2% 10.1% 9.6% 9.8% LIFE INSURANCE INFORCE (BILLIONS) $ 135.0 $ 131.4 $ 127.5 $ 124.4 $ 121.4 ASSETS OWNED, MANAGED OR ADMINISTERED (BILLIONS): ASSETS MANAGED FOR INSTITUTIONS (C) $ 123.4 $ 116.4(F) $ 116.7 $ 43.8 $ 41.4 ASSETS OWNED, MANAGED OR ADMINISTERED FOR INDIVIDUALS: OWNED ASSETS: SEPARATE ACCOUNT ASSETS (C) 32.4 30.8 27.6 24.1 21.3 OTHER OWNED ASSETS (C) 58.9 53.8(E) 53.3 52.2 51.5 ------------- ------------- ------------- ------------- ------------- TOTAL OWNED ASSETS 91.3 84.6 80.9 76.3 72.8 MANAGED ASSETS (C) 109.3 110.2 96.6 87.3 79.9 ADMINISTERED ASSETS (D) 54.4 54.1 45.6 37.4 34.0 ------------- ------------- ------------- ------------- ------------- TOTAL $ 378.4 $ 365.3 $ 339.8 $ 244.8 $ 228.1 ============= ============= ============= ============= ============= MARKET APPRECIATION (DEPRECIATION) DURING THE PERIOD: OWNED ASSETS: SEPARATE ACCOUNT ASSETS $ 756 $ 2,752 $ 613 $ 2,620 $ (471) OTHER OWNED ASSETS $ 713 $ (275) $ (388) $ 399 $ 20 MANAGED ASSETS $ 5,453 $ 15,767 $ 2,134 $ 9,457 $ (1,145) CASH SALES: MUTUAL FUNDS $ 9,799 $ 9,096 $ 7,361 $ 7,150 $ 6,800 ANNUITIES 2,255 1,683 1,866 2,581 2,205 INVESTMENT CERTIFICATES 1,324 1,520 1,542 1,607 1,067 LIFE AND OTHER INSURANCE PRODUCTS 218 212 198 188 162 INSTITUTIONAL 1,415 939 680 722 692 OTHER 1,292 978 1,595 1,531 1,683 ------------- ------------- ------------- ------------- ------------- TOTAL CASH SALES $ 16,303 $ 14,428 $ 13,242 $ 13,779 $ 12,609 ============= ============= ============= ============= ============= NUMBER OF FINANCIAL ADVISORS 12,070 12,121 11,742 11,667 11,606 FEES FROM FINANCIAL PLANS AND ADVICE SERVICES $ 33.2 $ 20.6 $ 34.9 $ 33.5 $ 31.7 PERCENTAGE OF TOTAL SALES FROM FINANCIAL PLANS AND ADVICE SERVICES 75.3% 74.6% 75.0% 74.0% 75.6%
(A) EXCLUDES CASH, DERIVATIVES, SHORT-TERM AND OTHER INVESTMENTS. (B) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDER'S EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (C) AT SEPTEMBER 30, 2003, INCLUDES $73.2 BILLION OF ASSETS MANAGED FOR INSTITUTIONS, $2.6 BILLION OF SEPARATE ACCOUNT ASSETS, $1.0 BILLION OF OTHER OWNED ASSETS AND $7.9 BILLION OF ASSETS MANAGED FOR INDIVIDUALS RELATED TO THE SEPTEMBER 30, 2003 THREADNEEDLE ACQUISITION. (D) EXCLUDES NON-BRANDED ADMINISTERED ASSETS OF $5.4 BILLION AND $3.8 BILLION FOR THE QUARTERS ENDED JUNE 30, 2003 AND MARCH 31, 2003, RESPECTIVELY. (E) AS A RESULT OF AEFA'S DECEMBER 31, 2003 ADOPTION OF FIN 46, AS REVISED, $0.5 BILLION OF ADDITIONAL ASSETS WERE CONSOLIDATED. (F) AS A RESULT OF AEFA'S DECEMBER 31, 2003 ADOPTION OF FIN 46, AS REVISED, MANAGED ASSETS DECREASED BY $3.8 BILLION. 20 (PRELIMINARY) AMERICAN EXPRESS BANK STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- NET REVENUES: INTEREST INCOME $ 134 $ 149 (9.7)% INTEREST EXPENSE 53 60 (11.6) ------------- ------------- NET INTEREST INCOME 81 89 (8.5) COMMISSIONS AND FEES 70 55 27.0 FOREIGN EXCHANGE INCOME & OTHER REVENUES 59 53 10.7 ------------- ------------- TOTAL NET REVENUES 210 197 6.6 ------------- ------------- EXPENSES: HUMAN RESOURCES 75 61 24.3 OTHER OPERATING EXPENSES 81 73 10.8 PROVISION FOR LOSSES 6 34 (82.3) ------------- ------------- TOTAL EXPENSES 162 168 (3.2) ------------- ------------- PRETAX INCOME 48 29 62.3 INCOME TAX PROVISION 18 10 76.4 ------------- ------------- NET INCOME $ 30 $ 19 55.0 ============= =============
21 (PRELIMINARY) AMERICAN EXPRESS BANK SELECTED STATISTICAL INFORMATION (UNAUDITED) (BILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED MARCH 31, --------------------------------- PERCENTAGE 2004 2003 INC/(DEC) ------------- ------------- ------------- TOTAL SHAREHOLDER'S EQUITY (MILLIONS) $ 992 $ 918 8.1% RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY (A) 11.9% 10.0% RETURN ON AVERAGE TOTAL ASSETS (B) 0.81% 0.71% TOTAL LOANS $ 6.4 $ 5.7 11.1% TOTAL NON-PERFORMING LOANS (MILLIONS) (C) $ 69 $ 106 (35.4)% OTHER NON-PERFORMING ASSETS (MILLIONS) $ 10 $ 15 (31.2)% RESERVE FOR CREDIT LOSSES (MILLIONS) (D) $ 113 $ 155 (26.9)% LOAN LOSS RESERVE AS A % OF TOTAL LOANS 1.7% 2.5% TOTAL PERSONAL FINANCIAL SERVICES (PFS) LOANS $ 1.3 $ 1.5 (12.2)% 30+ DAYS PAST DUE PFS LOANS AS A % OF TOTAL PFS LOANS 5.5% 5.0% DEPOSITS $ 10.7 $ 9.5 12.9% ASSETS MANAGED (E) / ADMINISTERED $ 16.8 $ 13.1 28.3% ASSETS OF NON-CONSOLIDATED JOINT VENTURES $ 1.8 $ 1.7 2.0% RISK-BASED CAPITAL RATIOS (F): TIER 1 11.7% 10.8% TOTAL 11.5% 11.0% LEVERAGE RATIO 5.7% 5.5%
(A) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDER'S EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (B) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL ASSETS AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (C) AEB DEFINES NON-PERFORMING LOANS AS LOANS (OTHER THAN CERTAIN SMALLER-BALANCE LOANS) ON WHICH THE ACCRUAL OF INTEREST IS DISCONTINUED BECAUSE THE CONTRACTUAL PAYMENT OF PRINCIPAL OR INTEREST HAS BECOME 90 DAYS PAST DUE OR IF, IN MANAGEMENT'S OPINION, THE BORROWER IS UNLIKELY TO MEET ITS CONTRACTUAL OBLIGATIONS. FOR SMALLER-BALANCE LOANS, MANAGEMENT ESTABLISHES RESERVES IT BELIEVES TO BE ADEQUATE TO ABSORB CREDIT LOSSES INHERENT IN THE PORTFOLIO. GENERALLY, THESE LOANS ARE WRITTEN OFF IN FULL WHEN AN IMPAIRMENT IS DETERMINED OR WHEN THE LOAN BECOMES 120 OR 180 DAYS PAST DUE, DEPENDING ON LOAN TYPE. (D) ALLOCATION OF RESERVES (MILLIONS): LOANS $ 106 $ 145 OTHER ASSETS, PRIMARILY MATURED FOREIGN EXCHANGE AND OTHER DERIVATIVE CONTRACTS 6 5 OTHER CREDIT-RELATED COMMITMENTS 1 5 ------------- ------------- TOTAL RESERVE FOR CREDIT LOSSES $ 113 $ 155 ============= =============
(E) INCLUDES ASSETS MANAGED BY AMERICAN EXPRESS FINANCIAL ADVISORS. (F) BASED ON LEGAL ENTITY FINANCIAL INFORMATION. 22 (PRELIMINARY) AMERICAN EXPRESS BANK STATEMENTS OF INCOME (UNAUDITED) (MILLIONS)
QUARTERS ENDED ----------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- NET REVENUES: INTEREST INCOME $ 134 $ 139 $ 139 $ 148 $ 149 INTEREST EXPENSE 53 57 52 57 60 ------------- ------------- ------------- ------------- ------------- NET INTEREST INCOME 81 82 87 91 89 COMMISSIONS AND FEES 70 68 58 57 55 FOREIGN EXCHANGE INCOME & OTHER REVENUES 59 55 54 52 53 ------------- ------------- ------------- ------------- ------------- TOTAL NET REVENUES 210 205 199 200 197 ------------- ------------- ------------- ------------- ------------- EXPENSES: HUMAN RESOURCES 75 75 71 64 61 OTHER OPERATING EXPENSES 81 67 69 70 73 PROVISION FOR LOSSES 6 21 20 27 34 RESTRUCTURING CHARGES - - (2) - - ------------- ------------- ------------- ------------- ------------- TOTAL EXPENSES 162 163 158 161 168 ------------- ------------- ------------- ------------- ------------- PRETAX INCOME 48 42 41 39 29 INCOME TAX PROVISION 18 13 14 12 10 ------------- ------------- ------------- ------------- ------------- NET INCOME $ 30 $ 29 $ 27 $ 27 $ 19 ============= ============= ============= ============= =============
23 (PRELIMINARY) AMERICAN EXPRESS BANK SELECTED STATISTICAL INFORMATION (UNAUDITED) (BILLIONS, EXCEPT PERCENTAGES AND WHERE INDICATED)
QUARTERS ENDED --------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2004 2003 2003 2003 2003 ------------- ------------- ------------- ------------- ------------- TOTAL SHAREHOLDER'S EQUITY (MILLIONS) $ 992 $ 949 $ 952 $ 955 $ 918 RETURN ON AVERAGE TOTAL SHAREHOLDER'S EQUITY (A) 11.9% 10.8% 10.4% 10.5% 10.0% RETURN ON AVERAGE TOTAL ASSETS (B) 0.81% 0.74% 0.74% 0.75% 0.71% TOTAL LOANS $ 6.4 $ 6.5 $ 6.2 $ 5.8 $ 5.7 TOTAL NON-PERFORMING LOANS (MILLIONS) (C) $ 69 $ 78 $ 84 $ 102 $ 106 OTHER NON-PERFORMING ASSETS (MILLIONS) $ 10 $ 15 $ 15 $ 16 $ 15 RESERVE FOR CREDIT LOSSES (MILLIONS) (D) $ 113 $ 121 $ 125 $ 151 $ 155 LOAN LOSS RESERVE AS A % OF TOTAL LOANS 1.7% 1.7% 1.9% 2.4% 2.5% TOTAL PERSONAL FINANCIAL SERVICES (PFS) LOANS $ 1.3 $ 1.4 $ 1.4 $ 1.5 $ 1.5 30+ DAYS PAST DUE PFS LOANS AS A % OF TOTAL PFS LOANS 5.5% 6.6% 5.3% 5.5% 5.0% DEPOSITS $ 10.7 $ 10.8 $ 10.6 $ 10.1 $ 9.5 ASSETS MANAGED (E) / ADMINISTERED $ 16.8 $ 16.2 $ 15.0 $ 14.1 $ 13.1 ASSETS OF NON-CONSOLIDATED JOINT VENTURES $ 1.8 $ 1.7 $ 1.7 $ 1.8 $ 1.7 RISK-BASED CAPITAL RATIOS (F): TIER 1 11.7% 11.4% 10.5% 10.5% 10.8% TOTAL 11.5% 11.3% 10.8% 10.7% 11.0% LEVERAGE RATIO 5.7% 5.5% 6.0% 5.5% 5.5%
(A) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL SHAREHOLDER'S EQUITY AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (B) COMPUTED ON A TRAILING 12-MONTH BASIS USING TOTAL ASSETS AS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP. (C) AEB DEFINES NON-PERFORMING LOANS AS LOANS (OTHER THAN CERTAIN SMALLER-BALANCE LOANS) ON WHICH THE ACCRUAL OF INTEREST IS DISCONTINUED BECAUSE THE CONTRACTUAL PAYMENT OF PRINCIPAL OR INTEREST HAS BECOME 90 DAYS PAST DUE OR IF, IN MANAGEMENT'S OPINION, THE BORROWER IS UNLIKELY TO MEET ITS CONTRACTUAL OBLIGATIONS. FOR SMALLER-BALANCE LOANS, MANAGEMENT ESTABLISHES RESERVES IT BELIEVES TO BE ADEQUATE TO ABSORB CREDIT LOSSES INHERENT IN THE PORTFOLIO. GENERALLY, THESE LOANS ARE WRITTEN OFF IN FULL WHEN AN IMPAIRMENT IS DETERMINED OR WHEN THE LOAN BECOMES 120 OR 180 DAYS PAST DUE, DEPENDING ON LOAN TYPE. (D) ALLOCATION OF RESERVES (MILLIONS): LOANS $ 106 $ 113 $ 117 $ 142 $ 145 OTHER ASSETS, PRIMARILY MATURED FOREIGN EXCHANGE AND OTHER DERIVATIVE CONTRACTS 6 6 6 5 5 OTHER CREDIT-RELATED COMMITMENTS 1 2 2 4 5 ------------- ------------- ------------- ------------- ------------- TOTAL RESERVE FOR CREDIT LOSSES $ 113 $ 121 $ 125 $ 151 $ 155 ============= ============= ============= ============= =============
(E) INCLUDES ASSETS MANAGED BY AMERICAN EXPRESS FINANCIAL ADVISORS. (F) BASED ON LEGAL ENTITY FINANCIAL INFORMATION. 24 EX-99 5 earnsupp.txt EXHIBIT 99.3 - EARNINGS SUPPLEMENT EXHIBIT 99.3 [LOGO OF AMERICAN EXPRESS COMPANY] 2004 FIRST QUARTER EARNINGS SUPPLEMENT THE ENCLOSED SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE TEXT AND STATISTICAL TABLES INCLUDED IN AMERICAN EXPRESS COMPANY'S (THE "COMPANY" OR "AXP") FIRST QUARTER 2004 EARNINGS RELEASE. - -------------------------------------------------------------------------------- THIS SUMMARY CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES AND SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS, INCLUDING THE COMPANY'S FINANCIAL AND OTHER GOALS, ARE SET FORTH ON PAGE 16 HEREIN AND IN THE COMPANY'S 2003 10-K ANNUAL REPORT, AND OTHER REPORTS, ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. - -------------------------------------------------------------------------------- AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 HIGHLIGHTS o First quarter diluted EPS, before the accounting change, of $0.66 increased 25% versus $0.53 last year. First quarter diluted EPS on a net income basis of $0.61 increased 15%. GAAP revenues rose 15%. For the trailing 12 months, ROE was 21%. - 1Q '04 included: -- The adoption of the American Institute of Certified Public Accountants Statement of Position 03-1 (SOP 03-1) resulting in a below-the-line non-cash charge at AEFA of $71MM after-tax, or $0.05 per diluted share; -- A DAC valuation benefit at AEFA of $66MM ($43MM after-tax) reflecting the lengthening of amortization periods for certain insurance and annuity products in conjunction with the adoption of SOP 03-1; -- A $49MM ($32MM after-tax) charge at AEFA related to management's decision to further improve the investment portfolio's risk profile through the early liquidation of a secured loan trust managed by AEFA; -- A $31MM ($20MM after-tax) reduction in securitization income for TRS' lending securitizations' I/O strip reflecting changes in I/O assumption factors, principally higher paydown rates on consumer loans; and -- $11MM ($8MM after-tax) of costs at AEB reflecting the decision to further rationalize certain New York and Asian activities. o Compared with the first quarter of 2003: - Worldwide billed business increased 21% on continued strong consumer and small business volumes and further improvement in Corporate Services spending growth. A comparatively weaker U.S. dollar benefited the reported growth rate by 4%; -- Worldwide average spending per basic card in force increased 16% versus last year (up 13% adjusted for foreign exchange translation); - TRS' worldwide lending balances on an owned basis of $24.5B increased 11%, while on a managed basis, worldwide lending balances of $44.8B were up 12% (see discussion of "managed basis" on page 6); - Card credit quality continued to be well controlled and reserve coverage ratios remained strong; - Worldwide cards in force of 61.6MM increased 7%, up 4.0MM from last year and 1.1MM during 1Q `04; and, - AEFA assets owned, managed and administered of $378B were up 66% vs. last year reflecting the benefit of $85B of Threadneedle owned and managed assets acquired effective 9/30/03, market appreciation and asset inflows. Excluding the Threadneedle assets acquired at 9/30/03, AEFA assets owned, managed and administered rose 29%. o Additional items of note included: - Marketing, promotion, rewards and cardmember services costs increased 35% versus 1Q '03 as a result of the continuation of proactive business building activities, higher charge volumes and greater rewards program participation and penetration. Improved metric performance during the quarter reflected the benefits of the increased spending over the last two years. Growth in marketing, promotion, rewards and cardmember services expenses is now expected to continue at relatively high levels throughout 2004, in part, related to our assessment of competitive opportunities in the card market. - Lower funding costs continued to provide benefits, although to a lesser extent than last year's benefits. - The Company's reengineering initiatives are on track to deliver $1B of additional benefits this year, including significant carry-over benefits from certain initiatives begun in prior periods. During the first quarter, reengineering initiatives continued to provide substantial year-over-year expense comparison benefits. In addition, revenue-related reengineering activities are driving a growing proportion of the total benefits, and represented over 30% of the benefits delivered in 1Q `04. -- Compared with last year, the total employee count of 78,500 rose 4% due to the 3Q '03 and 4Q `03 addition of 3,700 Threadneedle and Rosenbluth employees, and was flat versus last quarter. Excluding these acquisitions, the number of total employees was down 1% versus last year despite substantial volume increases; compared with 12/31/01, the total employee count was down 9,400, or 11%. - As previously disclosed, the Company decided to expense stock options beginning in 1Q '03 and use restricted stock awards in place of stock options for middle management. As a result, the 1Q '04 impacts of incremental annual option grant expense, increased levels of restricted stock awards and other related compensation changes contributed to the increase in human resources expense. - In April, as part of the Company's ongoing funding activities, American Express Credit Corporation (Credco), American Express Centurion Bank, American Express Bank, FSB and the Parent Company renewed their committed credit line facilities. Total available credit lines are $10.75B, including $2.1B allocated to the Parent Company and $8.0B allocated to Credco. Credco has the right to borrow up to a maximum amount of $10.1B, with a commensurate reduction in the amount available to the Parent Company. The remainder of the credit lines is allocated to American Express Centurion Bank and American Express Bank, FSB. These facilities expire in increments from 2005 through 2009. 1 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 HIGHLIGHTS (Cont'd) o During the quarter, American Express continued to invest in growth opportunities through expanded products and services. - At TRS, we: -- Announced an agreement with MBNA to become the first major bank in the United States to issue American Express branded credit cards; -- Signed an agreement with Industrial & Commercial Bank of China to issue the first American Express branded credit cards in China, denominated in both local Chinese currency and U.S. dollars; -- Signed an agreement with CorpBanca in Chile to issue American Express-branded Gold charge cards and Gold credit cards denominated in Chilean pesos and U.S. dollars; -- Signed an agreement with HSBC Bank International Limited to deliver HSBC-branded American Express International Currency Gold and Platinum charge cards in both U.S. dollars and Euro to HSBC's offshore banking customers; -- Announced a partnership with Westpac Banking in Australia to issue the co-branded Altitude American Express Credit Card, a companion card to qualified Westpac Altitude cardholders; -- Introduced Generation, a new supplementary credit card aimed at the youth market in Ecuador through Banco de Guayaquil; -- Launched two new SN Brussels Airlines American Express charge cards from SN Brussels Airlines and Alpha card (a Belgian joint venture company between American Express and Fortis Bank), combining the features of the American Express card with the benefits of SN Brussels Airlines' frequent flyer program, "Privilege"; -- Launched the Centurion Card in Australia; -- Launched a new American Express Credit Card in Thailand; -- Launched three co-branded American Express AeroplanPlus charge cards in Canada, designed to help consumers earn Aeroplan Miles more rapidly; -- Partnered with travel management company TQ3 to offer American Express corporate and business cards to TQ3's clients, the first formal distribution deal with another travel management company; and -- Launched the Membership Rewards Direct Ticket in New Zealand, dramatically lowering the amount of money cardmembers need to spend in order to earn free travel. - At AEFA, we: -- Launched eight new mutual fund products: six AXP(R) Portfolio Builder Series mutual funds -- a collection of strategic asset allocation funds of mutual funds that address multiple investment needs, a real estate mutual fund, and an inflation protected securities mutual fund -- that offer broad diversification by accessing multiple portfolio managers, investment styles and asset classes of the underlying funds; -- Announced the creation of a global fund of hedge funds platform through the integration of American Express Bank's and American Express Financial Corporation's fund of hedge fund businesses, resulting in a combined entity with total assets under management of approximately $1 billion; and - At AEB, we: -- Signed a strategic alliance deal in Taiwan with Shanghai Commercial & Savings Bank Ltd. to distribute product and service offerings of AEB, Threadneedle, and AEFA. o ACCOUNTING CHANGE: In July 2003, the American Institute of Certified Public Accountants issued SOP 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts", with an effective date of January 1, 2004. SOP 03-1 requires insurance enterprises to establish additional liabilities for benefits that may become payable under variable annuity death benefit guarantees or other insurance or annuity contract provisions. Previously, these costs were expensed when incurred. The impact of applying SOP 03-1 at AEFA was a non-cash charge of $109MM, which resulted in a reduction of 1Q `04 net income of $71MM, or $0.05 per diluted share. 2 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW CONSOLIDATED (Preliminary) Condensed Statements of Income (Unaudited, GAAP basis)
Quarters Ended Percentage (millions) March 31, Inc/(Dec) ------------------- ---------- 2004 2003 ---- ---- Revenues: Discount revenue $2,368 $1,976 20% Management and distribution fees 779 520 50 Net investment income 741 767 (3) Cardmember lending net finance charge revenue 541 552 (2) Net card fees 472 451 5 Travel commissions and fees 417 340 23 Other commissions and fees 529 477 11 Insurance and annuity revenues 364 314 16 Securitization income, net 230 211 9 Other 469 415 13 ---- ---- --- Total revenues 6,910 6,023 15 ----- ----- Expenses: Human resources 1,779 1,490 19 Provision for losses and benefits 1,022 1,110 (8) Marketing, promotion, rewards and cardmember services 1,047 775 35 Interest 203 230 (12) Other operating expenses 1,611 1,422 13 ----- ----- Total expenses 5,662 5,027 13 ----- ----- Pre-tax income before accounting change 1,248 996 25 Income tax provision 383 304 26 ----- ----- Income before accounting change 865 692 25 Cumulative effect of accounting change, net of tax (71) - - ----- ---- Net income $794 $692 15 ==== ==== EPS: Income before accounting change - Basic $0.68 $0.53 28 ===== ===== Net Income - Basic $0.62 $0.53 17 ===== ===== Income before accounting change - Diluted $0.66 $0.53 25 ===== ===== Net Income - Diluted $0.61 $0.53 15 ===== =====
Note: Certain prior period amounts have been reclassified to conform to the current year presentation. o Income before accounting change increased 25%. Net income increased 15%. o CONSOLIDATED REVENUES: Revenues increased 15% due to greater discount revenues, higher management and distribution fees, greater travel and commission fees, larger insurance and annuity revenues, higher net card fees, higher net securitization income and greater other revenue. The Threadneedle and Rosenbluth acquisitions contributed approximately 2% to the revenue growth rate; the effect on net income was not material. Consolidated revenue growth versus last year reflected 13% growth at TRS, 22% growth at AEFA, and 7% growth at AEB. Translation of foreign currency revenues contributed approximately 3% of the 15% revenue growth rate. o CONSOLIDATED EXPENSES: Expenses were up 13%, reflecting higher marketing, promotion, rewards and cardmember services expense, greater human resources costs and increased other operating expenses. These increases were partially offset by lower funding costs, lower provisions for losses and the benefits of reengineering activities and expense control initiatives. Consolidated expenses reflected increases versus last year of 12% at TRS and 14% at AEFA, and a 3% decline at AEB. Translation of foreign currency expenses contributed approximately 3% of the 13% expense growth rate. o The pre-tax margin was 18.1% in 1Q '04 versus 15.4% in 4Q '03 and 16.5% in 1Q '03. o The effective tax rate was 31% in 1Q '04 versus 29% in 4Q '03 and 31% in 1Q '03. 3 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW CONSOLIDATED (Cont'd) o Share Repurchases: During 1Q '04, 20MM shares were repurchased. Since the inception of repurchase programs in September 1994, 446MM shares have been acquired under cumulative Board authorizations to repurchase up to 570MM shares, including purchases made under agreements with third parties.
Millions of Shares ------------------------------------------------ - Average shares: 1Q `04 4Q `03 1Q `03 --------------- ------ ------ ------ Basic 1,277 1,277 1,297 ====== ====== ====== Diluted 1,305 1,299 1,305 ====== ====== ===== - Actual shares: Shares outstanding - beginning of period 1,284 1,285 1,305 Repurchase of common shares (7) (20) (3) Prepayments - 3rd party share purchase agreements - - (6) Net settlements - 3rd party share purchase agreements - - 1 Employee benefit plans, compensation and other 5 ----- ------ ----- 17* 2 ------ ------ ----- Shares outstanding - end of period 1,281 1,284 1,298 ====== ====== =====
* Includes 13MM net shares issued through employee stock option exercises. o SUPPLEMENTAL INFORMATION - MANAGED NET REVENUES: The following supplemental revenue information is presented on the basis used by management to evaluate operations. It differs in two respects from the GAAP basis revenues, which are prepared in accordance with accounting principles generally accepted in the United States (GAAP). First, revenues are presented as if there had been no asset securitizations at TRS. This format is generally termed on a "managed basis", as further discussed in the TRS section of this Earnings Supplement. Second, revenues are considered net of AEFA's provisions for losses and benefits for annuities, insurance and investment certificate products, which are essentially spread businesses, as further discussed in the AEFA section of this Earnings Supplement. A reconciliation of consolidated revenues from a GAAP to a net managed basis is as follows:
(millions) Percentage 1Q `04 1Q `03 Inc/(Dec) -------- -------- ---------- GAAP revenues $ 6,910 $ 6,023 15% Effect of TRS securitizations 279 264 Effect of AEFA provisions (501) (506) -------- -------- Managed net revenues $ 6,688 $ 5,781 16% ======== ========
- Consolidated net revenues on a managed basis increased 16% versus last year due to greater discount revenues, increased management and distribution fees, higher travel commissions and fees, larger insurance and annuity revenues, higher net card fees, greater cardmember loan balances and increased other revenues. CORPORATE AND OTHER o The net expense was $58MM in 1Q '04 compared with $54MM in 4Q '03 and $44MM in 1Q '03. The increase versus last year reflects higher interest expense related to additional corporate debt issuances during the second half of 2003. 4 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Preliminary) STATEMENTS OF INCOME (UNAUDITED, GAAP BASIS)
Quarters Ended Percentage (millions) March 31, Inc/(Dec) ------------------------- ------------ 2004 2003 ---- ---- Net revenues: Discount revenue $2,368 $1,976 20% Net card fees 472 451 5 Lending: Finance charge revenue 668 681 (2) Interest expense 127 129 (2) ----- ---- Net finance charge revenue 541 552 (2) Travel commissions and fees 417 340 23 Other commissions and fees 510 464 10 TC investment income 93 92 1 Securitization income, net 230 211 9 Other revenues 419 400 5 ---- ----- Total net revenues 5,050 4,486 13 ----- ----- Expenses: Marketing, promotion, rewards and cardmember services 1,023 761 35 Provision for losses and claims: Charge card 198 208 (5) Lending 287 331 (13) Other 29 31 (2) ----- ----- Total 514 570 (10) ----- ----- Charge card interest expense 168 209 (19) Human resources 1,065 916 16 Other operating expenses 1,307 1,172 11 ----- ----- Total expenses 4,077 3,628 12 ----- ----- Pre-tax income 973 858 13 Income tax provision 308 274 13 ----- ----- Net income $665 $584 14 ===== =====
Note: Certain prior period amounts have been reclassified to conform to the current year presentation. o Net income increased 14%. - The Rosenbluth acquisition, which was completed in October, had a minimal impact on net revenues and net income. o The pre-tax margin was 19.3% in 1Q `04 versus 17.0% in 4Q `03 and 19.1% in 1Q '03. o The effective tax rate was 32% in 1Q '04 versus 31% in 4Q '03 and 32% in 1Q '03. o IMPACT OF SECURITIZATIONS: During 1Q '04 and 1Q '03, TRS recognized pre-tax gains of $39MM ($25MM after-tax) and $43MM ($28MM after-tax), respectively, related to the securitization of $0.8B and $0.9B, respectively, of U.S. lending receivables, and additionally in 1Q '04, a $31MM ($20MM after-tax) reduction in securitization income. This reduction relates to changes in I/O assumption factors, principally higher paydown rates on consumer loans. Including the reduction, the net pretax securitization activity in 1Q '04 was $8MM ($5MM after-tax). The average balance of cardmember lending securitizations was $19.6B in 1Q '04 versus $17.4B in 1Q '03. - SECURITIZATION INCOME, NET increased 9%. -- Securitization income, net represents revenue related to the Company's securitized loan receivables, which includes gains on securitizations, net finance charge revenue on retained interests in securitized loans and servicing income net of related discounts. - NET FINANCE CHARGE REVENUE decreased 2%, reflecting a lower yield, offset by an increase in the average balance of the owned lending portfolio for the period. - OTHER REVENUES increased 5% as a result of higher insurance premiums, greater merchant-related revenues, and higher publishing revenue, partially offset by lower interest income on investment and liquidity pools held within card funding vehicles and lower ATM revenues. - THE LENDING PROVISION declined 13% reflecting strong credit quality in the lending portfolio. - The above GAAP basis items relating to net finance charge revenue, other revenues, and lending provision reflect the owned portfolio only. "Owned basis" credit quality statistics are available in the First Quarter 2004 Earnings Release on the TRS Selected Statistical Information pages. 5 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) SUPPLEMENTAL INFORMATION - MANAGED BASIS: The following supplemental table includes information on both a GAAP basis and a "managed" basis. The managed basis presentation assumes there have been no securitization transactions, i.e., all securitized Cardmember loans and related income effects are reflected as if they were in the Company's balance sheet and income statement, respectively. The Company presents TRS information on a managed basis because that is the way the Company's management views and manages the business. Management believes that a full picture of trends in the Company's Cardmember lending business can only be derived by evaluating the performance of both securitized and non-securitized Cardmember loans. Asset securitization is just one of several ways for the Company to fund Cardmember loans. Use of a managed basis presentation, including non-securitized and securitized Cardmember loans, presents a more accurate picture of the key dynamics of the Cardmember lending business, avoiding distortions due to the mix of funding sources at any particular point in time. For example, irrespective of the mix, it is important for management and investors to see metrics, such as changes in delinquencies and write-off rates, for the entire Cardmember lending portfolio because it is more representative of the economics of the aggregate Cardmember relationships and ongoing business performance and trends over time. It is also important for investors to see the overall growth of Cardmember loans and related revenue and changes in market share, which are all significant metrics in evaluating the Company's performance and which can only be properly assessed when all non-securitized and securitized Cardmember loans are viewed together on a managed basis. Management views the gains from securitizations as discretionary benefits to be used for card acquisition expenses, which are reflected in both marketing, promotion, rewards and cardmember services and other operating expenses. Consequently, the managed basis presentation assumes that during 1Q '04 and 1Q `03 the net lending securitization activity was offset by higher marketing, promotion, rewards and cardmember services expenses of $4MM and $26MM, respectively, and other operating expense of $4MM and $17MM, respectively. Accordingly, the incremental expenses, as well as the net gains, have been eliminated. The following table compares and reconciles the GAAP basis TRS income statements to the managed basis information, where different.
Effect of Securitizations (unaudited) ------------------------------------------------------- (preliminary, millions) GAAP Basis (unaudited) Securitization Effect Managed Basis - ------------------------------------------------------------------------- ------------------------------------------------------- Percentage Percentage Quarters Ended March 31, 2004 2003 Inc/(Dec) 2004 2003 2004 2003 Inc/(Dec) --------------------------------- ------------------------------------------------------- Net revenues: Discount revenue $2,368 $1,976 20% Net card fees 472 451 5 Lending: Finance charge revenue 668 681 (2) $539 $489 $1,207 $1,170 3% Interest expense 127 129 (2) 83 64 210 193 9 - ------------------------------------------------------------------------- ------------------------------------------------------- Net finance charge revenue 541 552 (2) 456 425 997 977 2 Travel commissions and fees 417 340 23 Other commissions and fees 510 464 10 53 50 563 514 10 TC investment income 93 92 1 Securitization income, net 230 211 9 (230) (211) - - - Other revenues 419 400 5 - ------------------------------------------------------------------------- ------------------------------------------------------- Total net revenues 5,050 4,486 13 279 264 5,329 4,750 12 - ------------------------------------------------------------------------- ------------------------------------------------------- Expenses: Marketing, promotion, rewards and cardmember services 1,023 761 35 (4) (26) 1,019 735 39 Provision for losses and claims: Charge card 198 208 (5) Lending 287 331 (13) 287 307 574 638 (10) Other 29 31 (2) - ------------------------------------------------------------------------- ------------------------------------------------------- Total 514 570 (10) 287 307 801 877 (9) Charge card interest expense 168 209 (19) Human resources 1,065 916 16 Other operating expenses 1,307 1,172 11 (4) (17) 1,303 1,155 13 - ------------------------------------------------------------------------- ------------------------------------------------------- Total expenses 4,077 3,628 12 $279 $264 $4,356 $3,892 12 - ------------------------------------------------------------------------- ------------------------------------------------------- Pre-tax income 973 858 13 Income tax provision 308 274 13 - ------------------------------------------------------------------------- Net income $665 $584 14 - -------------------------------------------------------------------------
The following discussion addresses results on a managed basis. o Managed basis net revenue rose 12% from higher Cardmember spending, greater travel and other commissions and fees, larger lending balances and increased cards in force. 6 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) o The 12% higher managed basis expenses reflect substantially higher marketing, promotion, rewards and cardmember services costs, greater human resources expenses and increased other operating expenses, partially offset by lower interest costs, reduced provisions for losses and cost control initiatives. o DISCOUNT REVENUE: A 21% increase in billed business, partially offset by a lower discount rate, yielded a 20% increase in discount revenue. - The average discount rate was 2.59% in 1Q `04 versus 2.56% in 4Q `03 and 2.60% in 1Q `03. The decrease versus last year primarily reflects the cumulative impact of stronger than average growth in the lower rate retail and other "everyday spend" merchant categories (e.g., supermarkets, discounters, etc.). The increase versus 4Q '03 reflects the relatively higher proportion of 1Q '04 travel-related merchant activity. -- We believe the AXP value proposition is strong. However, as indicated in prior quarters, continued changes in the mix of business, volume related pricing discounts and selective repricing initiatives will probably continue to result in some average rate erosion over time.
Quarters Ended Percentage March 31, Inc/(Dec) --------------------------------- -------------- 2004 2003 ---- ---- Card billed business (billions): United States $70.1 $58.9 19% Outside the United States 25.3 19.9 27 ----- ---- Total $95.4 $78.8 21 ===== ===== Cards in force (millions): United States 37.0 35.2 (b) 5 Outside the United States 24.6 22.4 10 ---- ---- Total 61.6 57.6 (b) 7 ==== ==== Basic cards in force (millions): United States 28.1 27.1 4 Outside the United States 20.4 18.5 10 ---- ---- Total 48.5 45.6 6 ==== ==== Spending per basic card in force (dollars): (a) United States $2,509 $2,177 15 Outside the United States $1,578 $1,308 21 Total $2,202 $1,894 16
(a) Proprietary card activity only. (b) Prior year amounts have been reduced reflecting a 4Q '03 correction of the number of supplemental cards-in-force. - BILLED BUSINESS: The 21% increase in worldwide billed business resulted from a 16% increase in spending per basic cardmember and 7% growth in cards in force. -- U.S. billed business was up 19% reflecting growth of 20% within the consumer card business and a 22% increase in small business and 15% improvement in Corporate Services volume. - Spending per basic card in force increased 15%. -- Excluding the impact of foreign exchange translation: - Worldwide billed business and spending per proprietary basic card in force increased 17% and 13%, respectively. - Total billed business outside the U.S. was up 13% reflecting a growth rate in the high-teens in Latin America, low double-digit improvement in Asia, and high-single digit increases in Europe and in Canada. - Global Network Services volumes grew in excess of 20%. - Within our proprietary business, billed business outside the U.S. reflected growth in consumer and small business spending of 12% and a 10% increase in Corporate Services volumes. - Spending per proprietary basic card in force outside the U.S. rose 6%. -- U.S. non-T&E related volume categories (which represented approximately 64% of 1Q `04 U.S. billed business) grew 22%, while T&E volumes rose 15%, reflecting continued strengthening across all T&E industries. -- U.S. airline related volume, which represented approximately 12% of total volumes during the quarter, rose 16%. Worldwide airline volumes, which represented approximately 13% of total volumes during the quarter, increased 20% on 15% growth in transaction volume and a 4% increase in the average airline charge. 7 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) o DISCOUNT REVENUE (cont'd): - CARDS IN FORCE worldwide rose 7% versus last year on continued strong card acquisitions and an improved average customer retention level. -- U.S. cards in force rose 600K during the quarter. -- Outside the United States, 500K cards in force were added during the quarter on growth in both proprietary and network partner cards. o NET CARD FEES: Rose 5% due to higher cards in force. The average annual fee per proprietary card in force was $35 in 1Q '04, 4Q '03 and 1Q '03. o NET FINANCE CHARGE REVENUE: Rose 2% on 13% growth in average worldwide lending balances. - The yield on the worldwide portfolio was 8.7% in 1Q '04 and 4Q '03, and 9.7% in 1Q '03. The decrease versus last year reflects an increase in the proportion of the portfolio on promotional rates, increased paydown rates and improved credit, partially offset by lower funding costs. o TRAVEL COMMISSIONS AND FEES: Increased 23% on a 30% increase in travel sales reflecting the Rosenbluth acquisition and improvement within the travel environment. Excluding the benefits of the Rosenbluth acquisition, growth in travel commissions and fees and travel sales was 9% and 16%, respectively. The revenue earned per dollar of sales was down versus last quarter and last year (8.7% in 1Q '04, 9.5% in 4Q '03, and 9.3% in 1Q `03), partially due to the higher growth within on-line service transactions. o TC INVESTMENT INCOME: Increased 1% as higher average investments were partially offset by a lower pre-tax yield. TC sales increased 6% versus last year. o OTHER COMMISSIONS AND FEES: Increased 10% on greater volume-related foreign exchange conversion fees and higher card fees and assessments. o OTHER REVENUES: Increased 5% as larger insurance premiums, higher publishing revenues, and greater merchant-related revenues were partially offset by lower interest income on investment and liquidity pools held within card funding vehicles and lower ATM revenues. o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased 39% on the continuation of proactive brand advertising and card acquisition activities, higher charge volumes and greater rewards program participation and penetration. o CHARGE CARD INTEREST EXPENSE: Declined 19% due to a lower effective cost of funds, partially offset by higher average receivables balances. o HUMAN RESOURCES EXPENSE: Increased 16% versus last year due to merit increases, higher employee benefits, greater management incentive and employee profit sharing costs, the Rosenbluth acquisition, which added 2,700 employees in 4Q '03, and the impact of foreign currency translation. - The employee count at 3/04 of 66,100 was up 2,300 versus 3/03 and up 400 versus 12/03. o OTHER OPERATING EXPENSES: Increased 13% reflecting, in part, the Rosenbluth acquisition, the impact of greater business and service volume-related costs, higher equipment-related technology costs, and the impact of foreign currency translation. These increases were partially offset by reengineering initiatives and cost containment efforts. 8 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) o CREDIT QUALITY: - Overall credit quality improved during the quarter. - The provision for losses on charge card products decreased 5%, despite higher volume, due to strong credit quality. - The lending provision for losses was down 10% vs. last year, despite growth in loans outstanding, due to exceptionally well-controlled credit. - Reserve coverage ratios, which are well in excess of 100% of past due balances, remained strong. - WORLDWIDE CHARGE CARD: * -- The write-off rate improved versus last quarter and last year, while the past due rate rose slightly in the quarter, consistent with seasonal patterns, but was down versus last year.
3/04 12/03 3/03 -------- --------- ------- Loss ratio, net of recoveries 0.26% 0.27% 0.28% 90 days past due as a % of receivables 2.0% 1.9% 2.4% -- Reserve coverage of past due accounts remained strong, despite a small decline in the reserve balance. 3/04 12/03 3/03 --------- --------- ------- Reserves (MM) $896 $916 $923 % of receivables 3.2% 3.2% 3.8% % of 90-day past due accounts 164% 171% 159%
- WORLDWIDE LENDING: ** -- The write-off rate improved versus last quarter and last year. The past due rate was flat in the quarter, but was down versus last year.
3/04 12/03 3/03 -------- --------- ------- Write-off rate, net of recoveries 4.6% 4.8% 5.6% 30 days past due as a % of loans 2.7% 2.7% 3.0% -- Coverage of past due accounts was maintained at the high end of historical levels. 3/04 12/03 3/03 ------- --------- ------- Reserves (MM) $1,570 $1,541 $1,582 % of total loans 3.5% 3.4% 3.9% % of 30 day past due account 128% 127% 130%
* There are no off-balance sheet Charge Card securitizations. Therefore, "Owned basis" and "Managed basis" credit quality statistics for the Charge Card portfolio are the same. ** As previously described, this information is presented on a "Managed basis". "Owned basis" credit quality statistics are available in the First Quarter 2004 Earnings Release on the TRS Selected Statistical Information pages. Credit trends are generally consistent under both reporting methods. 9 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Preliminary) STATEMENTS OF INCOME (UNAUDITED, GAAP BASIS)
(millions) Quarters Ended Percentage March 31, Inc/(Dec) ----------------------------- ------------- 2004 2003 ---- ---- Revenues: Investment income $556 $558 -% Management and distribution fees 781 522 50 Other revenues 391 331 18 ----- ----- Total revenues 1,728 1,411 22 ----- ----- Expenses: Provision for losses and benefits: Annuities 255 273 (6) Insurance 201 192 5 Investment certificates 45 41 8 --- --- Total 501 506 (1) --- --- Human resources 603 479 26 Other operating expenses 307 248 24 ----- ----- Total expenses 1,411 1,233 14 ----- ----- Pre-tax income before accounting change 317 178 78 Income tax provision 89 45 99 ---- --- Income before accounting change 228 133 71 Cumulative effect of accounting change, net of tax (71) - - ---- ---- Net income $157 $133 18 ==== ====
o Income before accounting change increased 71%. Net income rose 18%. - 1Q '04 includes: -- The below-the-line, non-cash charge of $71MM after-tax from the adoption of SOP 03-1; -- A DAC valuation benefit of $66MM ($43MM after-tax) reflecting the lengthening of amortization periods for certain insurance and annuity products in conjunction with the adoption of SOP 03-1; -- A $49MM ($32MM after-tax) charge related to management's decision to improve the investment portfolio's risk profile through the early liquidation of a secured loan trust; and, -- Increased regulatory and legal-related costs. - The Threadneedle acquisition contributed approximately 7% to revenue growth and made a modest contribution to net income growth. o Total revenues increased 22% due to: - Increased management and distribution fees, and - Greater insurance premiums. o The pre-tax margin was 18.3% in 1Q '04 versus 14.3% in 4Q '03 and 12.6% in 1Q '03. o The effective tax rate was 28% in 1Q '04 versus 21% in 4Q '03 and 25% in 1Q '03. o SUPPLEMENTAL INFORMATION - NET REVENUES: In the following table, the Company presents AEFA's aggregate revenues on a basis that is net of provisions for losses and benefits because the Company manages the AEFA business and evaluates its financial performance, where appropriate, in terms of the "spread" on its products. An important part of AEFA's business is margin related, particularly the insurance, annuity and certificate businesses. One of the drivers for the AEFA business is the return on invested cash, primarily generated by sales of insurance, annuity and investment certificates, less provisions for losses and benefits on these products. These investments tend to be interest rate sensitive. Thus, GAAP revenues tend to be higher in periods of rising interest rates and lower in times of decreasing interest rates. The same relationship is true of provisions for losses and benefits, only it is more accentuated period-to-period because rates credited to customers' accounts generally reset at shorter intervals than the yield on underlying investments. The Company presents this portion of the AEFA business on a net basis to eliminate potentially less informative comparisons of period-to-period changes in revenue and provisions for losses and benefits in light of the impact of these changes in interest rates. 10 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd)
Quarters ended Percentage (millions) March 31, Inc/(Dec) -------------------------- ------------- 2004 2003 ---- ---- Total GAAP Revenues $1,728 $1,411 22% Less: Provision for losses and benefits: Annuities 255 273 Insurance 201 192 Investment certificates 45 41 ------ ------ Total 501 506 ------ ------ Net Revenues $1,227 $ 905 35 ====== ====== - Spreads within the annuity and insurance products were up versus last year and down versus last quarter. Certificates spreads were down versus last quarter and last year. - On a net revenue basis, the pre-tax margin was 25.8% in 1Q '04 versus 20.9% in 4Q '03 and 19.7% in 1Q '03.
o ASSETS OWNED, MANAGED AND ADMINISTERED:
Percentage (billions) March 31, Inc/(Dec) --------------------------- ------------- 2004 2003 ---- ---- Assets owned (excluding separate accounts) $58.9 $51.5 14% Separate account assets 32.4 21.3 53 Assets managed 232.7 121.3 92 Assets administered * 54.4 34.0 60 ------ ------ Total $378.4 $228.1 66 ====== ======
- Effective 9/30/03, the Company completed its acquisition of Threadneedle Asset Management. Consequently, Assets Owned, Separate Account Assets and Assets Managed include $1.0B, $2.6B, and $81.1B, respectively, of Threadneedle assets acquired on 9/30/03. Excluding these, assets owned rose 12%, separate account assets rose 40%, assets managed rose 25% and, in total, assets rose 29%. - Upon adoption of FIN 46 at 12/31/03, $0.5B of additional assets from variable interest entities were consolidated. In addition, $3.8B of related assets within structured investments previously reported as Assets Managed for Institutions were excluded due to the consolidation of the related VIE structures. * Includes non-branded administered assets. 3/31/03 balance excluded $3.8B of such assets. o ASSET QUALITY: - Overall, credit quality continued to improve as default rates have declined versus last year. - Non-performing assets relative to invested assets (excluding short-term cash positions and including the impact of FIN 46) were 0.07% and were more than 4x covered by reserves, including those related to the impairment of securities. - High-yield investments (excluding unrealized appreciation/depreciation and the impact of FIN 46) totaled $2.9B, or 7% of the total investment portfolio at 3/04, compared with 7% at 12/03 and 5% at 3/03 (including the impact of FIN 46, high-yield investments totaled $3.1B, or 7% of the total investment portfolio at 3/04). - The SFAS No. 115 related mark-to-market adjustment (including the impact of FIN 46 and reported in assets pre-tax) was appreciation of $1.5B at 3/04, $0.9B at 12/03 and $1.1B at 3/03. 11 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd) o INVESTMENT INCOME: - Investment income was flat versus last year. In 1Q '04, $58MM of investment losses, including the $49MM charge resulting from management's decision to further improve the investment portfolio's risk profile through the early liquidation of a secured loan trust, were partially offset by $20MM of investment gains. Results also benefited from the effect of appreciation this year versus depreciation last year in the S&P 500 on the value of options hedging outstanding stock market certificates and equity indexed annuities, which was offset in the related provisions. 1Q '03 included $5MM of net investment gains. - Average invested assets of $45.1B (including unrealized appreciation/depreciation and the impacts of FIN 46) rose 5% versus $43.1B in 1Q '03, reflecting strong client interest in the underlying fixed rate products over the past two years. - The average yield on invested assets (excluding realized and unrealized appreciation/depreciation and including the impacts of FIN 46) rose to 5.3% versus 5.2% in 1Q '03. o MANAGEMENT AND DISTRIBUTION FEES: The increase of 50% was due to a 47% increase in management fees and a 53% increase in distribution fees. The management fee increase resulted from higher average assets under management, reflecting the impact of Threadneedle, and improvement in equity market valuations and net asset inflows. Distribution fees increased on greater mutual fund fees, increased brokerage-related activities and higher limited partnership product sales.
- Assets Managed: Percentage (billions) March 31, Inc/(Dec) ------------------- --------- 2004 2003 ---- ---- Assets managed for individuals $109.3 $79.9 37% Assets managed for institutions 123.4 41.4 # Separate account assets 32.4 21.3 53 ----- ---- ---- Total $265.1 $142.6 86 ====== ======
# Denotes variance in excess of 100%. -- The increase in managed assets since 3/03 resulted primarily from the Threadneedle acquisition, which added $83.7B in assets effective 9/30/03, as well as market appreciation and foreign currency translation of $39.6B and net inflows of $3.0B. For the twelve months ended 3/04, net inflows due to Threadneedle and within the retail channel were partially offset by institutional outflows, excluding Threadneedle. - Flows for the year exclude the impact of the adoption of FIN 46, which resulted in a $3.8B decrease in Assets Managed for Institutions due to the consolidation of the related VIE structures. -- The $7.7B increase in managed assets during 1Q `04 reflects market appreciation and foreign currency translation of $6.2B and net inflows of $1.5B, as net inflows at Threadneedle and within the retail channel were partially offset by net outflows in the institutional business, excluding Threadneedle. o PRODUCT SALES: - Total gross cash sales from all products were up 29% versus 1Q '03. Branded advisor-generated sales increased 32% on a cash basis, and 35% on the internally used "gross dealer concession" basis, a commonly used financial services industry measure of the sales production of the advisor channel. - Total mutual fund cash sales increased 44% on strong advisor-related sales growth and the benefits of Threadneedle activities. Proprietary sales improved, reflecting the benefit of the Threadneedle acquisition, while non-proprietary sales increased substantially. A significant portion of non-proprietary sales continued to occur in "wrap" accounts. Within proprietary funds: -- Sales of equity funds increased, while bond and money market funds declined. -- Redemption rates continued to compare favorably with industry levels. - Total annuity cash sales rose 2% as the increase in variable product sales more than offset the decline in fixed annuity sales. 12 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd) o PRODUCT SALES (cont'd): - Total cash sales of insurance products rose 35% reflecting higher property-casualty sales, in part due to sales through Costco, and higher sales of life insurance products. - Total certificate cash sales increased 24% due to greater sales of certificates sold to clients outside the U.S. through the joint venture between AEFA and AEB and higher advisor sales levels. - Total institutional cash sales more than doubled reflecting the benefit of the Threadneedle activities, and increased pension account contributions, partially offset by lower new pension account sales. - Total other cash sales decreased 23% as lower contributions in the 401(k) business were partially offset by higher limited partnership product sales. - Advisor product sales generated through financial planning and advice services were 75% of total sales in 1Q '04 and 4Q '03, and 76% in 1Q `03. o OTHER REVENUES: Were up 18% on strong property-casualty and higher life insurance-related revenues. - Financial planning and advice services fees of $33MM increased 5% versus 1Q '03, despite strong underlying plan volume growth, which will impact fee revenues over the next several quarters. o PROVISIONS FOR LOSSES AND BENEFITS: Annuity product provisions decreased 6% due to lower crediting rates and lower costs related to guaranteed minimum death and income benefits, partially offset by the effect of appreciation in the S&P 500 on equity indexed annuities this year versus depreciation last year and a higher average inforce level. Insurance provisions increased 5% as higher inforce levels were partially offset by lower life insurance crediting rates. Certificate provisions were up 8% as higher average reserves and the effect on the stock market certificate product of appreciation in the S&P 500 this year versus depreciation last year were partially offset by lower crediting rates. o HUMAN RESOURCES: Expenses increased 26% reflecting higher field force compensation-related costs, the effects of the Threadneedle acquisition, merit increases and greater employee benefit costs. Within the home office, the average number of employees was down 2%, excluding Threadneedle. These increases were partially offset by a $44MM DAC benefit.* - Total Advisor Force: 12,070 at 3/04; up 464 advisors, or 4%, versus 3/03 and down 51 advisors versus 12/03. -- The decrease in advisors versus 12/03 reflects the normal seasonal impact in the first quarter of lower appointments coupled with higher terminations. -- Veteran advisor retention rates remain strong. -- Total production and advisor productivity were up versus last year and substantially improved relative to recent quarters as individual investor interest continued to strengthen. - The total number of clients increased 3%, client acquisitions rose 4% and accounts per client were up 1%. Client retention was 94%. o Other Operating Expenses: Increased 24% versus last year reflecting the effect of the Threadneedle acquisition, professional fees related to various industry regulatory matters and greater legal expenses. These were partially offset by a $22MM DAC benefit* and a lower minority interest expense related to premium deposits (the joint venture with AEB). * As previously discussed in conjunction with the adoption of SOP 03-1, AEFA extended the time periods over which DAC associated with certain insurance and annuity products are amortized. In adopting SOP 03-1, AEFA established additional liabilities for insurance benefits that may become payable under variable annuity death benefit guarantees or on single pay universal life contracts. In order to establish the proper relationships between these liabilities and DAC associated with the same contracts, AEFA changed its estimates of meaningful life for certain contracts so DAC amortization periods are the same as liability funding periods. 13 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW AMERICAN EXPRESS BANK (Preliminary) STATEMENTS OF INCOME (UNAUDITED)
(millions) Quarters Ended Percentage March 31, Inc/(Dec) ------------------------------- ------------ 2004 2003 ---- ---- Net revenues: Interest income $134 $149 (10)% Interest expense 53 60 (12) ---- ---- -- Net interest income 81 89 (8) Commissions and fees 70 55 27 Foreign exchange income & other revenues 59 53 11 ---- ---- Total net revenues 210 197 7 ---- ---- Expenses: Human resources 75 61 24 Other operating expenses 81 73 11 Provision for losses 6 34 (82) ---- ---- Total expenses 162 168 (3) ---- ---- Pre-tax income 48 29 62 Income tax provision 18 10 76 ---- ---- Net income $30 $19 55 ==== ====
o Net income increased 55% as higher net revenues and a significantly lower provision for losses offset higher human resources and operating expenses. - 1Q `04 includes $11MM ($8MM after-tax) of human resources and other operating costs reflecting the decision to further rationalize certain New York and Asian activities. - Both revenue and expense growth were impacted by the weak dollar, but there was minimal impact on net income. o Net revenues rose 7%. - Net interest income decreased 8% due to lower levels of Personal Financial Services (PFS) loans, reflecting the Bank's decision to temporarily curtail loan origination in Hong Kong, partially offset by strong growth in Private Banking loans, in addition to spread improvement and increased volumes in the investment portfolio. - Commissions and fees were up 27% due to higher volumes in the Financial Institutions Group (FIG) and Private Banking. - Foreign exchange income & other revenues increased 11% due to higher Private Banking client activity, partially offset by lower spread income on premium deposits (the joint venture with AEFA) and lower capital gains. o Human resources expenses were up 24% reflecting merit increases, higher management incentive costs, and reengineering expenses in New York and Asia. o Other operating expenses increased 11% primarily due to currency translation losses, previously recorded in Shareholder's Equity, resulting from the Bank's decision to further rationalize certain activities in Asia. o The provision for losses decreased 82% due to lower PFS loan volumes and an improvement in bankruptcy related write-offs in the consumer lending portfolio in Hong Kong. o The pre-tax margin was 22.9% in 1Q '04 versus 20.5% in 4Q '03 and 14.7% in 1Q '03. o The effective tax rate was 38% in 1Q '04 versus 31% in 4Q '03 and 34% in 1Q '03. o AEB remained "well-capitalized".
3/04 12/03 3/03 Well-Capitalized ----- ------ ----- ----------------- Tier 1 11.7% 11.4% 10.8% 6.0% Total 11.5% 11.3% 11.0% 10.0% Leverage Ratio 5.7% 5.5% 5.5% 5.0%
14 AMERICAN EXPRESS COMPANY FIRST QUARTER 2004 OVERVIEW AMERICAN EXPRESS BANK (Cont'd) o Exposures - AEB's loans outstanding were $6.4B at 3/04 versus $6.5B at 12/03 and $5.7B at 3/03. -- During 4Q `03, approximately $100MM of loans previously classified as "Other" were reclassified to the consumer category. These loans represent non-PFS consumer loans that are an ongoing part of the Bank's consumer business. The statistics below conform to the current period presentation. -- Activity since 3/03 included a $100MM decrease in corporate banking loans, a $200MM increase in financial institution loans and a $600MM net increase in consumer and Private Banking loans, consisting of an $800MM increase in Private Banking loans and a $200MM decline in PFS and other loans. Activity since 12/03 included a $100MM decrease in financial institution loans, while corporate, consumer and Private Banking loans were all flat. -- Consumer and Private Banking loans comprised 70% of total loans at 3/04, 68% at 12/03 and 65% at 3/03; corporate banking loans comprised 2% of total loans at 3/04, 3% at 12/03 and 8% at 3/03; and financial institution loans comprised 28% of total loans at 3/04, 29% at 12/03 and 27% at 3/03. - In addition to the loan portfolio, there are other banking activities, such as forward contracts, various contingencies and market placements, which added approximately $7.4B to the credit exposures at 3/04, and $7.6B at 12/03 and 3/03. Of the $7.4B of additional exposures at 3/04, $5.3B were relatively less risky cash and securities related balances. o ASSETS MANAGED - For the twelve months ended 3/04, growth in Private Banking client holdings of 17%, PFS client holdings of 15% and FIG managed assets of 95% reflected net asset inflows, market appreciation and a positive foreign currency translation impact. - During 1Q '04, growth in Private Banking client holdings, PFS client holdings and FIG managed assets reflected net asset inflows and market appreciation, partially offset by a negative foreign currency translation impact. o Loans - Total non-performing loans* were $69MM at 3/04, compared to $78MM at 12/03 and $106MM at 3/03 as AEB continues to wind down its Corporate Banking business. The decreases reflect loan payments and write-offs, partially offset by net downgrades, mostly in India. - Other non-performing assets were $10MM at 3/04 versus $15MM at 12/03 and 3/03. - AEB's total credit loss reserves at 3/04 of $113MM compared with $121MM at 12/03 and $155MM at 3/03, and are allocated as follows:
(millions) 3/04 12/03 3/03 ---- ----- ---- Loans $106 $113 $145 Other assets, primarily matured foreign exchange and other derivative contracts 6 6 5 Other credit-related commitments 1 2 5 ----- ----- ----- Total $113 $121 $155 ==== ==== ====
-- Loan loss reserve coverage of non-performing loans* was 154% at 3/04, 145% at 12/03 and 136% at 3/03. - Management formally reviews the loan portfolio and evaluates credit risk throughout the year. This evaluation takes into consideration the financial condition of the borrowers, fair market value of collateral, status of delinquencies, historical loss experience, industry trends and the impact of current economic conditions. As of March 31, 2004, management considers the loss reserve to be appropriate. * AEB defines a non-performing loan as any loan (other than certain smaller-balance consumer loans) on which the accrual of interest is discontinued because the contractual payment of principal or interest has become 90 days past due or if, in management's opinion, the borrower is unlikely to meet its contractual obligations. For smaller-balance consumer loans related to the Personal Financial Services business, management establishes reserves it believes to be adequate to absorb credit losses in the portfolio. Generally, these loans are written off in full when an impairment is determined or when the loan becomes 120 or 180 days past due, depending on loan type. For this portfolio, 30-day past due rates were 5.5% at 3/04 versus 6.6% at 12/03 and 5.0% at 3/03. 15 INFORMATION RELATING TO FORWARD LOOKING STATEMENTS This supplement includes forward-looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," and similar expressions are intended to identify forward-looking statements. 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. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: the company's ability to successfully implement a business model that allows for significant earnings growth based on revenue growth that is lower than historical levels, including the ability to improve its operating expense to revenue ratio both in the short-term and over time, which will depend in part on the effectiveness of reengineering and other cost-control initiatives, as well as factors impacting the company's revenues; the company's ability to cost effectively manage and expand cardmember benefits, including containing the growth of its marketing, promotion, rewards and cardmember services expenses; the company's ability to accurately estimate the provision for the cost of the Membership Rewards program; the Company's ability to grow its business and meet or exceed its return on shareholders' equity target by reinvesting approximately 35% of annually-generated capital, and returning approximately 65% of such capital to shareholders, over time, which will depend on the company's ability to manage its capital needs and the effect of business mix, acquisitions and rating agency requirements; the ability of the company to generate sufficient revenues for expanded investment spending and to actually spend such funds to the extent available, and the ability to capitalize on such investments to improve business metrics; credit risk related to consumer debt, business loans, merchant bankruptcies and other credit exposures both in the U.S. and internationally; volatility in the valuation assumptions for the interest only (I/O) strip relating to TRS's lending securitizations; fluctuation in the equity and fixed income markets, which can affect the amount and types of investment products sold by AEFA, the market value of its managed assets, and management, distribution and other fees received based on the value of those assets; AEFA's ability to recover Deferred Acquisition Costs (DAC), as well as the timing of such DAC amortization, in connection with the sale of annuity, insurance and certain mutual fund products; changes in assumptions relating to DAC, which could impact the amount of DAC amortization; the ability to improve investment performance in AEFA's businesses, including attracting and retaining high-quality personnel; the success, timeliness and financial impact, including costs, cost savings and other benefits including increased revenues, of reengineering initiatives being implemented or considered by the company, including cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation, outsourcing (including, among others, technologies operations), relocating certain functions to lower-cost overseas locations, moving internal and external functions to the Internet to save costs, and planned staff reductions relating to certain of such reengineering actions; the ability to control and manage operating, infrastructure, advertising and promotion and other expenses as business expands or changes, including balancing the need for longer-term investment spending; the potential negative effect on the company's businesses and infrastructure, including information technology, of terrorist attacks, disasters or other catastrophic events in the future; the impact on the company's businesses resulting from continuing geopolitical uncertainty; the overall level of consumer confidence; consumer and business spending on the company's travel related services products, particularly credit and charge cards and growth in card lending balances, which depend in part on the ability to issue new and enhanced card products and increase revenues from such products, attract new cardholders, capture a greater share of existing cardholders' spending, sustain premium discount rates, increase merchant coverage, retain cardmembers after low introductory lending rates have expired, and expand the global network services business; the triggering of obligations to make payments to certain co-brand partners, merchants, vendors and customers under contractual arrangements with such parties under certain circumstances; successfully cross-selling financial, travel, card and other products and services to the company's customer base, both in the United States and internationally; a downturn in the company's businesses and/or negative changes in the company's and its subsidiaries' credit ratings, which could result in contingent payments under contracts, decreased liquidity and higher borrowing costs; fluctuations in interest rates, which impact the company's borrowing costs, return on lending products and spreads in the investment and insurance businesses; credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept the company's card products and returns on the company's investment portfolios; fluctuations in foreign currency exchange rates; political or economic instability in certain regions or countries, which could affect lending and other commercial activities, among other businesses, or restrictions on convertibility of certain currencies; changes in laws or government regulations; the costs and integration of acquisitions; and outcomes and costs associated with litigation and compliance and regulatory matters. A further description of these and other risks and uncertainties can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2003, and its other reports filed with the SEC. -----END PRIVACY-ENHANCED MESSAGE-----