American Express Company (NYSE: AXP) today reported third-quarter income from continuing operations of $642 million, down 25 percent from $861 million a year ago.
Diluted earnings per share from continuing operations were $0.54, down 27 percent from $0.74 a year ago.
The third quarter results included a $180 million ($113 million after-tax) non-recurring benefit associated with the company's accounting for a net investment in consolidated foreign subsidiaries (discussed in more detail later). Excluding that benefit, adjusted diluted earnings per share from continuing operations were $0.44.2
Net income totaled $640 million for the quarter, down 21 percent from $815 million a year ago. Diluted per-share net income of $0.53 was down 24 percent from $0.70 a year ago. Excluding the non-recurring benefit mentioned above, adjusted diluted per-share net income was $0.43.2
Consolidated revenues net of interest expense declined 16 percent to $6.0 billion, down from $7.2 billion a year ago.
Consolidated provisions for losses totaled $1.2 billion, down 13 percent from $1.4 billion a year ago.
Consolidated expenses totaled $3.9 billion, down 17 percent from $4.7 billion a year ago, reflecting in part the results of the company's reengineering initiatives.
At the end of the quarter, the company's tier-one risk based capital ratio was 9.7 percent. Its tier-one common risk based ratio was 9.7 percent, which compared favorably to the regulatory benchmark3 of 4 percent.
The company's return on average equity (ROE) was 11.7 percent, down from 27.8 percent a year ago. Return on average common equity (ROCE), was 10.4 percent, down from 27.6 percent a year ago.
"Our results showed further progress in navigating through the most difficult economic environment in decades," said Kenneth I. Chenault, chairman and chief executive officer.
"We generated substantial earnings this quarter due, in part, to the reengineering efforts that have successfully lowered our expense base. Just as important, we stepped up investments in the business with a focus on: premium cobranded products, charge card offerings and brand building initiatives in the U.S. and select international markets. We funded these investments, as expected, from the benefits we realized from better credit metrics during the past several months.
"While third quarter revenues declined because cardmember spending and loan volumes were down from year-ago levels, overall billings have stabilized during the last few months and we saw indications that spending by corporate cardmembers is beginning to pick up.
"During the quarter, we also expanded our deposit gathering activities, raising a net $4.1 billion as part of our funding strategy based on staying liquid at a time when the credit markets remain volatile.
"At the start of the year the economy appeared to be in a freefall, the drop in cardmember spending was accelerating and loan loss rates were rising rapidly. Today, while there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in cardmember spending are encouraging and there are signs that the recession may be approaching an end.
"Our three priorities remain: staying liquid, staying profitable and investing selectively for growth. However, in anticipation of sequential improvement in our loan loss provision during the fourth quarter, we are focused more and more on the third priority - investing in the business to make sure we capitalize on growth opportunities."
During the third quarter, the translation effects of a comparatively stronger U.S. dollar contributed to lower non-U.S. revenues, provisions and expenses, compared to the year-ago quarter.
Discontinued operations
Discontinued operations for the third quarter generated a loss of $2 million compared with a loss of $46 million during the year-ago period.
Segment Results
U.S. Card Services reported third-quarter net income of $109 million, compared to net income of $244 million a year ago.
Total revenues net of interest expense for the third quarter decreased 16 percent to $2.9 billion, driven by reduced cardmember spending, lower securitization income, net and lower loan balances.
Provisions for losses totaled $850 million, a decrease of 10 percent from $941 million a year ago. The decrease reflected lower loans and receivables, as well as recent improvements in credit trends in both the charge and lending portfolios. On a managed basis4, the net loan write-off rate was 8.9 percent, down from 10.0 percent in the second quarter and up from 5.9 percent a year ago. Owned net write-off rate was 9.8 percent in the quarter, down from 10.3 percent in the second quarter and up from 6.1 percent a year ago.
Total expenses decreased 11 percent. Marketing, promotion, rewards and cardmember services expenses decreased 16 percent from the year-ago period, reflecting lower rewards costs and reduced investments in marketing and promotion. Salaries and employee benefits and other operating expenses decreased 5 percent from year-ago levels, primarily due to the benefits of ongoing reengineering initiatives.
International Card Services reported third-quarter net income of $127 million, compared to $67 million a year ago.
Total revenues net of interest expense decreased 7 percent to $1.1 billion, primarily driven by reduced cardmember spending and lower loan balances.
Provisions for losses totaled $250 million, a decrease of 21 percent from $316 million a year ago, primarily reflecting a lower level of loans and receivables.
Total expenses decreased 16 percent. Marketing, promotion, rewards and cardmember services expenses decreased 22 percent from year-ago levels, reflecting reduced marketing investments and lower rewards costs. Salaries and employee benefits and other operating expenses decreased 11 percent from year-ago levels, primarily due to the benefits of ongoing reengineering initiatives.
Global Commercial Services reported a third quarter net income of $116 million, compared to $134 million a year ago.
Total revenues net of interest expense decreased 17 percent to $997 million, reflecting lower travel commissions and fees and reduced spending by corporate cardmembers compared to year ago levels.
Total expenses decreased 17 percent. Marketing, promotion, rewards and cardmember services expenses decreased 28 percent from the year-ago period, primarily reflecting lower rewards costs. Salaries and employee benefits and other operating expenses decreased 16 percent from the year-ago period, primarily due to the benefits of ongoing reengineering initiatives.
Global Network & Merchant Services reported third-quarter net income of $240 million, compared to $258 million a year ago.
Total revenues net of interest expense decreased 10 percent to $963 million, primarily reflecting lower merchant-related revenues driven by a decrease in global card billed business.
Total expenses decreased 11 percent. Marketing and promotion expenses increased 5 percent from the year-ago period, primarily reflecting higher brand-related marketing investments. Salaries and employee benefits and other operating expenses decreased 15 percent, primarily due to the benefits of ongoing reengineering initiatives.
Corporate and Other reported a third-quarter net income of $50 million, compared with net income of $158 million a year ago. The results for both periods reflected the recognition of $220 million ($136 million after-tax) for the previously announced MasterCard and Visa settlements.
This year's 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. Of this benefit, $135 million ($85 million after-tax) represents a correction of an error related to the accounting for cumulative translation adjustments in prior periods. The impact of the incorrect accounting was not material to any of the quarterly or annual periods in which it occurred. The error resulted in a $60 million ($38 million after-tax) income overstatement in the second quarter 2009, a $135 million ($85 million after-tax) income understatement in the fourth quarter 2008 and minimal amounts for all other periods affected dating back to third quarter 2007, when the incorrect accounting originated. A non-recurring $45 million ($28 million after-tax) related benefit was also recorded in the current quarter as a result of changes in the fair value of certain foreign exchange forward contracts that are economic hedges to foreign currency exposures of net investments in consolidated foreign subsidiaries.
These amounts were more than offset by items that included higher tax expense due primarily to a revision in the company's estimated annual effective tax rate and increased funding costs.