American Express Company (NYSE: AXP) today reported third-quarter net income of $1.1 billion, up 71 percent from $640 million a year ago. Diluted per share net income was $0.90, up 70 percent from $0.53 a year ago.
Consolidated total revenues net of interest expense were $7.0 billion, up 17 percent from $6.0 billion a year ago. The increase reflects the consolidation of securitized cardmember loans and related debt onto the balance sheet in the first quarter(3). Revenues also reflect higher cardmember spending and higher travel commissions and fees, offset by lower interest income due to a smaller loan portfolio and lower yields on both the securitized and non-securitized portions of the portfolio.
Consolidated provisions for losses totaled $373 million compared to $1.2 billion in the year-ago period, reflecting continued improvement in credit quality for the charge and credit card portfolios(3).
Consolidated expenses totaled $5.0 billion, up 28 percent from $3.9 billion a year ago, reflecting higher investment in business building initiatives and higher rewards costs.
The company's return on average equity (ROE) was 25.9 percent, up from 11.7 percent a year ago.
"Cardmember spending rose a strong 14 percent with the largest increases coming from businesses where we've been making significant investments: charge and premium co-brand products, corporate cards and cards issued by our bank partners," said Kenneth I. Chenault, chairman and chief executive officer.
"Lending volumes, however, remain below pre-recessionary levels as cardmembers continued to manage their finances carefully and pay down outstanding debt. While this translated into lower net interest income, it also helped to improve our overall risk profile.
"Our credit indicators, in fact, continued to lead the market and our write-off rate dropped below 5 percent in September for the first time since early 2008.
"Against the backdrop of regulatory and legislative changes that are reshaping the industry, we have been able to improve our competitive position relative to those issuers who rely more heavily on revolving credit and back-end fees.
"While wee remain cautious about the economic outlook, we plan to capitalize on that advantage by investing to strengthen relationships with high spending cardmembers and the merchants who accept our products."
Year-ago results included a non-recurring $180 million ($113 million after-tax) benefit associated with the company's accounting for a net investment in consolidated foreign subsidiaries.
The effective tax rate was 33 percent compared to 30 percent in the year-ago quarter.
Segment Results
U.S. Card Services reported third-quarter net income of $595 million, compared with $158 million a year ago.
Total revenues net of interest expense increased 23 percent to $3.7 billion from $3.0 billion. The increase reflects the consolidation of securitized cardmember loans and related debt onto the balance sheet in the first quarter(3). Revenues also reflect higher cardmember spending, offset by lower interest income due to a smaller loan portfolio and lower yields on the portfolio.
Provisions for losses totaled $274 million, down 68 percent from $850 million a year ago. The decline reflects continued improvement in credit quality for the charge and credit card portfolios(3).
Total expenses increased 26 percent. Marketing, promotion, rewards and cardmember services expenses increased 39 percent from the year-ago period, reflecting increased rewards costs and investments in marketing and promotion. Salaries and employee benefits and other operating expenses increased 12 percent from year-ago levels, primarily reflecting increased technology and partner-related investments.
The effective tax rate was 39 percent compared to 28 percent in the year-ago quarter.
International Card Services reported third-quarter net income of $153 million, up 15 percent from $133 million a year ago.
Total revenues net of interest expense were $1.2 billion, comparable with the year-ago quarter.
Provisions for losses totaled $64 million, down 74 percent from $250 million a year ago. The decline reflects continued improvement in credit quality for the charge and credit card portfolios.
Total expenses increased 25 percent. Marketing, promotion, rewards and cardmember services expenses increased 42 percent from year-ago levels, reflecting increased investments in marketing and promotion and higher rewards costs. Salaries and employee benefits and other operating expenses increased 13 percent from year-ago levels, primarily reflecting increased technology investments.
The effective tax rate was negative 6 percent compared to 2 percent in the year-ago quarter.
Global Commercial Services reported third-quarter net income of $159 million, up 56 percent from $102 million a year ago.
Total revenues net of interest expense increased 17 percent to $1.1 billion, from $975 million, reflecting increased spending by corporate cardmembers and higher travel commissions and fees.
Provisions for losses totaled $22 million, down 45 percent from $40 million a year ago. The decline reflects continued improvement in credit performance.
Total expenses increased 12 percent. Marketing, promotion, rewards and cardmember services expenses increased 36 percent from the year-ago period, primarily reflecting higher rewards costs. Salaries and employee benefits and other operating expenses increased 9 percent from the year-ago period.
The effective tax rate was 34 percent compared to 31 percent in the year-ago quarter.
Global Network & Merchant Services reported third quarter net income of $259 million, up 4 percent from $248 million a year ago.
Total revenues net of interest expense increased 15 percent to $1.1 billion, from $976 million, reflecting higher merchant-related revenues driven by an increase in global card billed business, as well as an increase in revenues from Global Network Services' bank partners.
Total expenses increased 19 percent. Marketing and promotion expenses increased 32 percent from the year-ago period, reflecting increased network and merchant-related investments. Salaries and employee benefits and other operating expenses increased 14 percent, primarily reflecting increased technology-related and professional service expenses, as well as incremental hiring to support business growth.
The effective tax rate was 39 percent compared to 33 percent in the year-ago quarter.
Corporate and Other reported third-quarter net expense of $73 million compared with net income of $1 million a year ago. The results for both periods reflect income of $220 million ($136 million after-tax) for the previously announced MasterCard and Visa settlements.
The year-ago quarter included the previously mentioned non-recurring $180 million ($113 million after-tax) benefit associated with the company's accounting for a net investment in consolidated foreign subsidiaries, offset by a higher tax expense due primarily to a revision in the company's estimated annual effective tax rate.