10-QPeriod: Q1 FY2010

AMERICAN EXPRESS CO Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 5, 2010For Securities:AXP

Summary

American Express Company (AXP) reported a strong first quarter in 2010, demonstrating significant recovery and growth following the challenging economic environment of 2009. Net income surged by 103% to $885 million, translating to a diluted Earnings Per Share (EPS) of $0.73, a substantial increase from $0.31 in the prior year's quarter. This robust performance was driven by a broad-based increase in spending volumes across all business segments, a notable decrease in provisions for credit losses, and strategic investments in marketing and growth initiatives. The company benefited from an improving economic environment, leading to year-over-year cardmember spending growth and favorable credit trends. A significant factor influencing the financial statements was the adoption of new accounting standards (ASC 810 and ASC 860) effective January 1, 2010, which required the consolidation of previously off-balance sheet securitized assets and liabilities. This consolidation led to an increase in reported loans and long-term debt, alongside a change in revenue recognition for securitization income. Despite these accounting changes, the underlying business demonstrated resilience and growth, with total revenues net of interest expense rising by 11%.

Financial Highlights

36 data points
Beta

Net Income

$885.00M

EPS (Diluted)

$0.73

Total Assets

$143.31B

Cash & Equivalents

$21.10B

Free Cash Flow

$2.12B

Financial Statements
Beta
Operating Income$1.25B
Interest Expense$598.00M
Net Income$885.00M
EPS (Basic)$0.74
EPS (Diluted)$0.73
Shares Outstanding (Basic)1.19B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net income increased by 103% to $885 million ($0.73 diluted EPS) compared to $437 million ($0.31 diluted EPS) in Q1 2009.
  • 2Total revenues net of interest expense grew by 11% to $6.6 billion, driven by increased discount revenue and other fees.
  • 3Provisions for losses decreased significantly by 48% to $943 million, reflecting improved credit performance.
  • 4Cardmember spending volumes increased year-over-year, with a 16% rise in total billed business globally.
  • 5Adopted new accounting standards (ASC 810 & 860) on January 1, 2010, leading to the consolidation of previously off-balance sheet securitized loans and debt, impacting balance sheet presentation.
  • 6Marketing, promotion, and rewards expenses increased by 23% and 44% respectively, signaling strategic investments in business growth.
  • 7The company's regulatory capital ratios remained well above minimum requirements, with Tier 1 capital at 9.8% for American Express Company.

Frequently Asked Questions

The primary driver was a combination of an improving economic environment leading to higher cardmember spending, a substantial decrease in provisions for credit losses due to favorable credit trends, and the positive impact of new accounting standards consolidating previously off-balance sheet securitized loans. These factors, alongside increased investments in marketing and rewards, contributed to robust revenue growth and profitability.

The adoption of new GAAP (ASC 810 & 860) effective January 1, 2010, required the company to consolidate previously off-balance sheet securitized assets and liabilities. This resulted in a significant increase in reported cardmember loans and long-term debt on the balance sheet. It also shifted the recognition of securitization income to interest and fee income, impacting the presentation of revenues and expenses compared to prior periods.

The company observed favorable credit trends in the first quarter of 2010, leading to a release of loss reserves. While the company expects charge-off and delinquency rates to rise to some extent over time, they anticipate the U.S. lending net write-off rate in the second quarter of 2010 to be lower than in the first quarter, assuming stable trends. They plan to continue investing a substantial portion of benefits from credit performance into business-building initiatives.

Marketing, promotion, and rewards expenses saw significant increases in Q1 2010. The company is strategically investing a substantial portion of expected benefits from credit performance into these areas. The increase in rewards expenses, in particular, is attributed to higher redemption rates, greater spending volumes, and a higher average cost per point due to redemption mix changes and increased co-brand expenses.