The American Express Company, often abbreviated Amex, AmEx, AX or Amexco, is a global provider of financial services based in New York City, USA. The company is best known for its charge card, credit card, and traveler's cheque businesses.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number 1-7657 AMERICAN EXPRESS COMPANY ------------------------ (Exact name of registrant as specified in its charter) New York State 13-4922250 - ----------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) World Financial Center, 200 Vesey Street, New York, NY 10285 - -------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 640-2000 ------------------ None - --------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 31, 1996 - -------------------------------- ------------------------------- Common Shares (par value $.60 per share) 473,870,465 shares
AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statement of Income--Three and 1-2 nine months ended September 30, 1996 and 1995 Consolidated Balance Sheet--September 30, 3 1996 and December 31, 1995 Consolidated Statement of Cash Flows--Nine 4 months ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of 6-17 Financial Condition and Results of Operations Review Report of Independent Accountants 18 Part II. Other Information 19 PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended September 30, ------------------ 1996 1995 Net Revenues: --------- --------- Discount revenue $ 1,256 $ 1,116 Interest and dividends, net 796 896 Net card fees 418 439 Travel commissions and fees 316 316 Other commissions and fees 320 323 Management and distribution fees 302 241 Cardmember lending net finance charge 255 270 revenue Insurance premiums 99 218 Other 294 235 ------ ------ Total 4,056 4,054 ------ ------ Expenses: Human resources 1,103 1,010 Provisions for losses and benefits: Annuities and investment certificates 348 358 Life insurance and other 134 226 Charge card 172 207 Cardmember lending 107 132 Interest: Charge card 175 169 Other 94 141 Occupancy and equipment 281 271 Marketing and promotion 293 261 Professional services 212 208 Communications 119 101 Other 397 399 ------ ------ Total 3,435 3,483 ------ ------ Pretax income 621 571 Income tax provision 163 155 ------ ------ Net income $ 458 $ 416 ======= ======= Net income per common share $ 0.95 $ 0.83 ======= ======= Average common and common equivalent shares outstanding 481.9 496.5 ======= ======= Cash dividends declared per common share $ 0.225 $ 0.225 ======= ======= See notes to Consolidated Financial Statements. 1
AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Nine Months Ended September 30, --------------------- 1996 1995 ---------- --------- Net Revenues: Discount revenue $ 3,644 $ 3,246 Interest and dividends, net 2,478 2,642 Net card fees 1,253 1,311 Travel commissions and fees 943 931 Other commissions and fees 935 959 Management and distribution fees 878 673 Cardmember lending net finance charge 779 758 revenue Insurance premiums 295 634 Other 777 638 ------ ------ Total 11,982 11,792 ------ ------ Expenses: Human resources 3,177 3,000 Provisions for losses and benefits: Annuities and investment certificates 1,045 1,037 Life insurance and other 403 652 Charge card 630 571 Cardmember lending 421 364 Interest: Charge card 513 495 Other 356 437 Occupancy and equipment 830 795 Marketing and promotion 762 755 Professional services 609 584 Communications 329 301 Other 1,086 1,160 ------ ------ Total 10,161 10,151 ------ ------ Pretax income 1,821 1,641 Income tax provision 514 462 ------ ------- Net income $ 1,307 $ 1,179 ======= ======= Net income per common share $ 2.68 $ 2.34 ======= ======= Average common and common equivalent shares outstanding 486.6 499.4 ======== ======= Cash dividends declared per common share $ 0.675 $0.675 ======= ======= See notes to Consolidated Financial Statements. 2
AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEET (millions) (Unaudited) September 30, December 31, Assets 1996 1995 - ------ ------------ ------------ Cash and cash equivalents $ 4,884 $ 3,200 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 1996, $759; 1995, $753 16,080 17,154 Other receivables, less reserves: 1996, $53; 1995, $76 2,380 2,760 Investments 39,306 42,561 Loans: Cardmember lending, less reserves: 1996, $420; 1995, $489 10,571 10,268 International banking, less reserves: 1996, $116; 1995, $111 5,524 5,317 Other, net 538 506 Separate account assets 17,485 14,974 Deferred acquisition costs 2,519 2,262 Land, buildings and equipment--at cost, less accumulated depreciation: 1996, $1,838; 1995, $1,763 1,666 1,783 Other assets 5,714 6,620 -------- -------- Total assets $106,667 $107,405 ======== ======== Liabilities and Shareholders' Equity - ------------------------------------ Customers' deposits $ 9,550 $ 9,889 Travelers Cheques outstanding 6,340 5,697 Accounts payable 4,477 4,686 Insurance and annuity reserves: Fixed annuities 21,625 21,405 Life and disability policies 3,891 3,752 Investment certificate reserves 3,177 3,606 Short-term debt 16,901 17,654 Long-term debt 8,233 7,570 Separate account liabilities 17,485 14,974 Other liabilities 6,745 9,952 -------- ------- Total liabilities 98,424 99,185 Shareholders' equity: Preferred shares, $1.66 2/3 par value, authorized 20 million shares Convertible Exchangeable Preferred shares, issued and outstanding 4 million shares at December 31, 1995, stated at liquidation value - 200 Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 473.5 million shares in 1996 and 483.1 million shares in 1995 284 290 Capital surplus 3,907 3,781 Net unrealized securities gains 577 875 Foreign currency translation adjustment (91) (85) Retained earnings 3,566 3,159 -------- --------- Total shareholders' equity 8,243 8,220 -------- --------- Total liabilities and shareholders' equity $106,667 $107,405 ======== ========= See notes to Consolidated Financial Statements. 3
AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (millions) (Unaudited) Nine Months Ended September 30, ------------------- 1996 1995 ---- ---- Cash Flows from Operating Activities Net income $1,307 $1,179 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 1,490 1,463 Depreciation, amortization, deferred taxes and other 202 237 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest 477 (410) Other assets 688 104 Accounts payable and other liabilities (1,066) (445) Increase in Travelers Cheques outstanding 643 1,438 Increase in insurance reserves 154 364 ------ ------ Net cash provided by operating activities 3,895 3,930 ------ ------ Cash Flows from Investing Activities Sale of investments 3,921 2,015 Maturity and redemption of investments 4,797 3,538 Purchase of investments (8,015) (7,200) Net increase in Cardmember receivables (941) (1,695) Proceeds from repayment of loans 16,703 15,963 Cardmember receivables/loans sold to Trust 2,242 - Issuance of loans (18,811) (17,183) Purchase of land, buildings and equipment (299) (224) Sale of land, buildings and equipment 223 19 Acquisitions, net of cash acquired/sold - (7) ------ ------ Net cash used by investing activities (180) (4,774) ------ ------ Cash Flows from Financing Activities Net decrease in customers' deposits (215) (604) Sale of annuities and investment certificates 4,053 4,907 Redemption of annuities and investment (4,403) (3,166) certificates Net increase (decrease) in debt with maturities of 3 months or less 5,233 (4,732) Issuance of debt 8,797 15,412 Principal payments on debt (14,381) (9,064) Issuance of American Express common shares 116 202 Repurchase of American Express common shares (886) (665) Dividends paid (330) (344) ------ ----- Net cash (used) provided by financing activities (2,016) 1,946 Effect of exchange rate changes on cash (15) 42 ----- ----- Net increase in cash and cash equivalents 1,684 1,144 Cash and cash equivalents at beginning of period 3,200 3,433 ----- ----- Cash and cash equivalents at end of period $4,884 $4,577 ====== ====== See notes to Consolidated Financial Statements. 4
AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements should be read in conjunction with the financial statements presented in the Annual Report on Form 10- K of American Express Company (the "Company" or "American Express") for the year ended December 31, 1995. Certain prior year's amounts have been reclassified to conform to the current year's presentation. Significant accounting policies disclosed therein have not changed. The consolidated financial statements are unaudited; however, in the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the consolidated financial position of the Company at September 30, 1996 and December 31, 1995, the consolidated results of its operations for the three and nine months ended September 30, 1996 and 1995 and cash flows for the nine months ended September 30, 1996 and 1995. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. 2. Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $122 million and $126 million for the three months ended September 30, 1996 and 1995, respectively, and $373 million and $368 million for the nine months ended September 30, 1996 and 1995, respectively. Interest and Dividends is presented net of interest expense of $128 million and $140 million for the three months ended September 30, 1996 and 1995, respectively, and $396 million and $450 million for the nine months ended September 30, 1996 and 1995, respectively, related to the Company's international banking operations. 3. The following is a summary of investments: September 30, December 31, (In millions) 1996 1995 -------------- ------------- Held to Maturity, at amortized cost (fair value: 1996, $13,539; 1995, $17,549) $13,317 $16,790 Available for Sale, at fair value (cost: 1996, $19,998; 1995, $20,452) 21,802 22,435 Investment mortgage loans (fair value: 1996, $3,714; 1995, $3,434) 3,672 3,180 Trading 515 156 ------- ------- $39,306 $42,561 ======= ======= 4. Net income taxes paid during the nine months ended September 30, 1996 and 1995 were approximately $455 million and $475 million, respectively. Interest paid during the nine months ended September 30, 1996 and 1995 was approximately $1.8 billion. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results Of Operations For The Three and Nine Months Ended September 30, 1996 and 1995 The Company's consolidated net income increased 10 percent and 11 percent in the quarter and nine months ended September 30, 1996, respectively, compared with a year ago. Net income per share in the third quarter and first nine months of 1996 rose by 14 percent and 15 percent, respectively, reflecting higher revenues, improved margins and a reduction in average shares outstanding. Excluding AMEX Life Assurance Company (AMEX Life), a subsidiary that was sold in October 1995, consolidated revenues increased 4 percent and 6 percent in the quarter and nine months ended September 30, 1996, respectively, compared with last year. Proceeds from this sale were used to fund a portion of the Company's share repurchase program which is discussed below. Consolidated Liquidity and Capital Resources On October 28, 1996, the Company's Board of Directors approved a plan to repurchase up to 40 million common shares over the next two to three years, from time to time as market conditions allow. The plan is primarily designed to allow the Company to offset share issuances under employee compensation plans. Under certain conditions, the Company may purchase additional shares to increase economic value for shareholders. As of October 31, 1996, the Company had repurchased 57.7 million shares at an average price of $38.19 per share under two previously authorized share repurchase plans. The total authorization under those plans was 60 million shares. During the nine months ended September 30, 1996, 2.3 million put options issued in connection with the two prior share repurchase programs expired unexercised. At September 30, 1996, the Company had a total of 500,000 put options outstanding with a weighted average strike price of $41.74 per share. These options expired unexercised in October 1996. On October 15, 1996, the Company completed the exchange of its DECS (Debt Exchangeable for Common Stock) for shares of common stock of First Data Corporation (FDC). Prior to the exchange, the Company had outstanding 23,618,500 DECS. Based on the appreciation of FDC shares during the three- year term of the DECS, holders received 0.819 FDC shares for each DECS held, or 19,343,536 FDC shares. As a result of the exchange, the Company's holdings in FDC were reduced to 3,274,964 shares. In the fourth quarter of 1996, the Company will recognize a $480 million pretax ($300 million after-tax) gain on the exchange. On May 6, 1996, after receiving a redemption notice from the Company, Nippon Life Insurance Company converted all of its four million $3.875 Convertible Exchangeable Preferred shares into 4,705,882 of the Company's common shares. For purposes of computing earnings per common share, the increase in outstanding common shares was offset by the elimination of the preferred dividend. As a result, the conversion has no impact on earnings per common share. 6
Travel Related Services Results of Operations For The Three and Nine Months Ended September 30, 1996 and 1995 <TABLE> <CAPTION> Statement of Income ------------------- (Unaudited) (Dollars in millions) Three Months Ended Nine Months Ended September 30, Percentage September 30, Percentage ----------------- --------------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) ---------------------------- ------------------------------ <S> <C> <C> <C> <C> <C> <C> Net Revenues: Discount Revenue $1,256 $1,116 12.5% $3,644 $3,246 12.3% Net Card Fees 418 439 (4.6) 1,253 1,311 (4.4) Travel Commissions and Fees 316 316 0.1 943 931 1.3 Interest and Dividends 167 261 (36.3) 568 761 (25.3) Other Revenues 508 570 (10.9) 1,384 1,608 (14.0) ---------------- --------------- 2,665 2,702 (1.4) 7,792 7,857 (0.8) ---------------- --------------- Lending: Finance Charge Revenue 377 396 (4.9) 1,152 1,126 2.3 Interest Expense 122 126 (3.0) 373 368 1.5 ---------------- --------------- Net Finance Charge Revenue 255 270 (5.7) 779 758 2.8 ---------------- --------------- Total Net Revenues 2,920 2,972 (1.8) 8,571 8,615 (0.5) ---------------- --------------- Expenses: Marketing and Promotion 278 252 10.3 730 731 (0.2) Provision for Losses and Claims: Charge Card 172 207 (16.8) 630 571 10.4 Lending 107 132 (18.8) 421 364 15.9 Other 28 137 (79.9) 79 382 (79.6) ----------------- ---------------- Total 307 476 (35.4) 1,130 1,317 (14.2) ----------------- ---------------- Interest Expense: Charge Card 175 169 3.5 513 495 3.5 Other 72 114 (36.4) 282 338 (16.3) ----------------- ---------------- Total 247 283 (12.5) 795 833 (4.5) Net Discount Expense 128 101 26.5 379 309 22.9 Human Resources 764 700 9.1 2,190 2,098 4.4 Other Operating Expenses 755 752 0.2 2,031 2,119 (4.1) ----------------- ---------------- Total Expenses 2,479 2,564 (3.3) 7,255 7,407 (2.1) ----------------- ---------------- Pretax Income 441 408 8.2 1,316 1,208 8.9 Income Tax Provision 118 111 6.5 384 349 10.1 ----------------- ---------------- Net Income $323 $297 8.8 $932 $859 8.5 ================= ================ </TABLE> 7
<TABLE> <CAPTION> The impact on the Statement of Income related to TRS' securitized receivables and loans was as follows: <S> <C> <C> <C> <C> Increase Net Card Fees $4 - $4 - Increase Other Revenues 45 $20 120 $63 Decrease Lending Finance Charge Revenue (43) - (76) - Decrease Lending Interest Expense 17 - 25 - Decrease Provision for Losses and Claims: Charge Card 51 40 160 124 Lending 11 - 22 - Decrease Interest Expense: Charge Card 43 41 124 122 Increase Net Discount Expense (128) (101) (379) (309) --------------- ---------------- Pretax Income $0 $0 $0 $0 =============== ================ Travel Related Services </TABLE> <TABLE> <CAPTION> Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) Three Months Ended Nine Months Ended September 30, Percentage September 30, Percentage ------------------ ------------------ 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) ----------------------------- ----------------------------- <S> <C> <C> <C> <C> <C> <C> Total Cards in Force (millions): United States 28.4 25.9 9.4% 28.4 25.9 9.4% Outside the United States* 11.9 11.5 4.1 11.9 11.5 4.1 ------------ ---------------- Total 40.3 37.4 7.8 40.3 37.4 7.8 ============ ================ Basic Cards in Force (millions): United States 21.7 19.4 12.0 21.7 19.4 12.0 Outside the United States* 9.4 9.0 4.2 9.4 9.0 4.2 ------------ ---------------- Total 31.1 28.4 9.5 31.1 28.4 9.5 ============ ================ Card Billed Business: United States $32.7 $29.2 11.8 $94.8 $83.9 13.0 Outside the United States* 13.2 11.8 12.4 38.4 34.6 10.9 ------------- ---------------- Total $45.9 $41.0 12.0 $133.2 $118.5 12.4 ============= ================ Travelers Cheque Sales $8.6 $8.3 3.2 $20.5 $20.5 - Average Travelers Cheques Outstanding $6.6 $6.7 (1.8) $6.1 $6.0 1.0 Travel Sales $3.8 $3.7 4.1 $11.5 $11.0 3.9 * Both years include Cards issued by strategic alliance partners and independent operators as well as business billed on those Cards. 8
Travel Related Services' ("TRS") 1995 results included income from AMEX Life. Excluding AMEX Life results from the three and nine month periods ended September 30, 1995, TRS' net income grew approximately 13 percent in both periods, revenues increased approximately 4 percent and 5 percent, respectively, and expenses were up approximately 2 percent and 4 percent, respectively. For the three and nine months ended September 30, 1996, net revenues reflected higher worldwide billed business on American Express Cards and growth in Cardmember loans outstanding. The rise in billed business resulted from greater spending per Cardmember, due in part to the benefits of rewards programs and broader merchant coverage, and an increase in the number of Cards outstanding. These improvements were partially offset by a decrease in net Card fees consistent with TRS' strategy of expanding its lending portfolio through the issuance of low- and no-fee credit cards. Lending net finance charge revenue reflects the effect of the $1 billion asset securitization completed in the second quarter of 1996 (see TRS' Liquidity and Capital Resources discussion). Excluding this asset securitization, lending net finance charge revenue rose 4 percent and 9 percent for the three and nine months ended September 30, 1996, respectively, reflecting higher average loan balances, but lower net interest spreads on introductory interest rates on new products. Interest and dividends and other revenues declined primarily as a result of the sale of AMEX Life. In addition, the decline in the third quarter also reflects a lower level of investments due to a change in investment strategy related to consolidation of certain legal entities within the U.S. Consumer Lending business. This effect was offset by an equal reduction in other interest expense. Credit quality has improved since last year, particularly in Latin America. Accordingly, the provision for losses for both charge and lending products declined significantly during the third quarter. Management expects the amount of the fourth quarter provision to be similar to that of the third quarter.* The Charge Card provision for losses rose in the nine month period primarily due to volume growth. The lending provision for losses was higher for the nine month period because of higher loss rates earlier in the year and volume growth. The other provision for losses declined with the sale of AMEX Life. In the third quarter of 1996, operating expenses increased from last year, primarily relating to the cost of Cardmember loyalty programs, business growth and investment spending. * This is a forward-looking statement. See Part II, Item 5 of this 10-Q report for certain risks and uncertainties relating to such statement. 9
Travel Related Services Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) </TABLE> <TABLE> <CAPTION> (Dollars in billions) September 30, December 31, Percentage September 30, Percentage 1996 1995 Inc/(Dec) 1995 Inc/(Dec) ------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Accounts Receivable, net $17.4 $18.9 (8.0%) $18.1 (4.0%) Cardmember Loans, net $10.6 $10.3 3.0 $9.3 13.7 Owned and Managed Cardmember Receivables (excluding Revolving Card Products): Total Cardmember Receivables $20.7 $20.5 1.1 $18.7 10.5 90 Days Past Due as a % of Total Cardmember Receivables 3.6% 3.5% - 3.6% - Total Loss Reserves (millions) $996 $952 4.6 $915 8.8 % of Cardmember Receivables 4.8% 4.6% - 4.9% - % of 90 Days Past Due 134% 131% - 135% - Cardmember Receivables Loss Ratio, Net of Recoveries* 0.52% 0.51% - 0.49% - Owned and Managed U.S. Cardmember Lending (including Revolving Card Products): Total Cardmember Loans $11.2 $10.0 12.5 $9.0 24.2 30 Days Past Due as a % of Total Cardmember Loans 3.2% 3.8% - 3.5% - Total Loss Reserves (millions) $427 $443 (3.6) $389 9.8 % of Cardmember Loans 3.8% 4.5% - 4.3% - % of 30 Days Past Due 119% 116% - 122% - Write-Off Rates* 5.1% 4.4% - 4.4% - Investments $6.5 $9.2 (28.9) $11.9 (45.3) Total Assets $41.7 $45.2 (7.6) $47.1 (11.4) Travelers Cheques Outstanding $6.3 $5.7 11.3 $6.7 (5.5) Short-term Debt $16.8 $17.9 (6.2) $16.9 (0.6) Long-term Debt $5.0 $4.4 14.6 $3.4 47.7 Total Liabilities $36.7 $40.3 (8.8) $42.3 (13.2) Total Shareholder's Equity $5.0 $4.9 2.2 $4.8 4.6 Return on Average Equity 25.1% 24.6% - 24.6% - </TABLE> * For the year-to-date period Note: Owned and Managed Cardmember Receivables and Loans include securitized assets not reflected in the Consolidated Balance Sheet. 10
American Express Centurion Bank ("Centurion Bank") and American Express Receivables Financing Corporation II, a newly formed wholly owned subsidiary of TRS, created a new trust, the American Express Credit Account Master Trust (the "Trust"), for the securitization of revolving credit loans. On May 16, 1996, the Trust securitized $1 billion of loans through the public issuance of two classes of investor certificates and a privately placed collateral interest in the assets of the Trust. The securitized assets consist of loans arising in a portfolio of designated Optima Card, Optima Line of Credit and Sign & Travel revolving credit accounts owned by Centurion Bank. On September 18, 1996, the American Express Master Trust (the "Master Trust") issued an additional $1.25 billion Class A Floating Rate Accounts Receivable Trust Certificates. The securitized assets consist of receivables generated under designated American Express Card, American Express Gold Card and Platinum Card consumer accounts. The Master Trust was formed in 1992 to securitize Charge Card receivables. The decline in investments reflects a change in investment strategy related to consolidation of certain legal entities within the U.S. Consumer Lending business, which was offset by a corresponding decrease in other liabilities. 11
American Express Financial Advisors Results of Operations For The Three and Nine Months Ended September 30, 1996 and 1995 Statement of Income -------------------- (Unaudited) <TABLE> <CAPTION> (Dollars in millions, except where indicated) Three Months Ended Nine Months Ended September 30, Percentage September 30, Percentage --------------- ---------------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) ----------------------------- ----------------------------- <S> <C> <C> <C> <C> <C> <C> Revenues: Investment Income $560 $555 0.9% $1,691 $1,639 3.2% Management and Distribution Fees 302 241 25.4 878 673 30.4 Other Income 159 138 15.5 472 406 16.3 ----------------- --------------- Total Revenues 1,021 934 9.4 3,041 2,718 11.9 ----------------- --------------- Expenses: Provision for Losses and Benefits: Annuities 303 293 3.7 898 855 5.1 Insurance 102 99 2.8 312 296 5.3 Investment Certificates 45 55 (17.2) 147 150 (2.4) ---------------- ---------------- Total 450 447 0.9 1,357 1,301 4.3 Human Resources 259 226 14.4 757 650 16.4 Other Operating Expenses 82 64 28.3 270 214 25.9 ---------------- ----------------- Total Expenses 791 737 7.5 2,384 2,165 10.1 ---------------- ----------------- Pretax Income 230 197 16.6 657 553 19.0 Income Tax Provision 74 63 16.6 218 183 19.8 ---------------- ----------------- Net Income $156 $134 16.5 $439 $370 18.5 ================ ================= Selected Statistical Information -------------------------------------- Life Insurance in Force (billions) $65.2 $57.6 13.2 $65.2 $57.6 13.2 =============== =============== Assets Owned and/or Managed (billions): Assets managed for institutions $35.8 $32.3 10.9 $35.8 $32.3 10.9 Assets owned and managed for individuals: Owned Assets 50.8 46.2 9.9 50.8 46.2 9.9 Managed Assets 56.3 46.3 21.6 56.3 46.3 21.6 ---------------- ---------------- Total $142.9 $124.8 14.5 $142.9 $124.8 14.5 ================ ================ Sales of Selected Products: Mutual Funds $3,313 $2,584 28.2 $10,644 $7,236 47.1 Annuities $946 $699 35.3 $3,226 $2,757 17.0 Investment Certificates $182 $363 (49.9) $503 $1,379 (63.5) Life and Other Insurance Sales $109 $94 16.2 $318 $273 16.3 Number of Financial Advisors 8,092 7,930 2.0 8,092 7,930 2.0 Fees From Financial Plans (thousands) $11,660 $9,798 19.0 $34,867 $29,842 16.8 Product Sales Generated from Financial Plans as a Percentage of Total Sales 64.7% 65.3% - 63.7% 64.3% - </TABLE> 12
During the three and nine months ended September 30, 1996, the increase in American Express Financial Advisors' investment income reflected higher average asset levels, but lower investment yields compared with the year- ago periods. Management and distribution fees rose reflecting increases in management fees earned on a higher asset base and distribution fees attributable to greater mutual fund sales. The growth in managed assets was due to market appreciation and positive net sales. Other income increased primarily due to higher life insurance contract charges and premiums. The provisions for annuity and insurance benefits grew as higher business in force was offset, in part, by lower accrual rates. The provision for investment certificates declined due to lower average investment certificates in force in the third quarter and lower accrual rates. Human resources expense was higher as financial advisors' compensation increased as a result of greater commissionable sales and, to a lesser extent, more employees compared with last year. Other operating expenses grew primarily as a result of higher data processing support costs. The growth in other operating expenses in the nine month period also included a higher provision for insurance industry guarantee association assessments. American Express Financial Advisors Liquidity and Capital Resources September 30, December 31, Percentage September 30, Percentage 1996 1995 Inc/(Dec) 1995 Inc/(Dec) -------------------------------------------------------------- Investments $28.2 $28.8 (2.0%) $28.0 0.6% Separate Account Assets $17.5 $15.0 16.8 $14.1 23.8 Total Assets $50.8 $48.3 5.2 $46.2 9.9 Reserves for Losses and Benefits $28.6 $28.6 (0.2) $27.7 3.2 Total Liabilities $47.7 $45.2 5.6 $43.4 10.0 Total Shareholder's Equity $3.0 $3.1 (0.9) $2.8 7.2 Return on Average Equity 20.2% 19.4% - 19.2% - American Express Financial Advisors' total assets grew from year end due to an increase in separate account assets as a result of market appreciation and positive net sales. The declines in investments and total shareholder's equity from year end reflect a lower level of unrealized securities gains due to a decline in market value resulting from higher market interest rates. 13
American Express Bank Results of Operations For The Three and Nine Months Ended September 30, 1996 and 1995 <TABLE> <CAPTION> Statement of Income -------------------- (Unaudited) (Dollars in millions) Three Months Ended Nine Months Ended September 30, Percentage September 30, Percentage -------------- ------------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) --------------------------- ---------------------------- <S> <C> <C> <C> <C> <C> <C> Net Revenues: Interest Income $206 $221 (6.9%) $619 $693 (10.7%) Interest Expense 128 140 (8.4) 396 450 (12.0) ------------- --------------- Net Interest Income 78 81 (4.3) 223 243 (8.4) Commissions, Fees and Other Revenues 57 59 (4.8) 156 180 (13.6) Foreign Exchange Income 16 21 (21.7) 56 61 (7.5) ------------- --------------- Total Net Revenues 151 161 (6.7) 435 484 (10.2) ------------- --------------- Provision for Credit Losses 5 1 # 13 5 # ------------- ------------ Expenses: Human Resources 59 62 (5.0) 168 190 (11.7) Other Operating Expenses 59 65 (9.2) 175 206 (14.9) ------------- --------------- Total Expenses 118 127 (7.1) 343 396 (13.4) ------------- --------------- Pretax Income 28 33 (16.3) 79 83 (5.0) Income Tax Provision 10 11 (11.6) 28 26 5.3 ------------- --------------- Net Income $18 $22 (18.8) $51 $57 (9.8) ============= =============== # Denotes variance of more than 100%. </TABLE> The decline in American Express Bank's (the "Bank") earnings for the three and nine months ended September 30, 1996 resulted from lower revenues, partly offset by expense savings. These results also reflect the Bank's continued efforts to focus on strategic markets and eliminate low return activities. Net interest income was down primarily as a result of higher short-term funding costs, as well as a balance sheet reduction in the nine month period. The decreases in commissions, fees and other revenues and operating expenses were primarily due to exiting nonstrategic businesses, including the transfer of certain aircraft assets to the Bank's parent, American Express Company, in January 1996. 14
American Express Bank Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Dollars in billions, except where indicated) <TABLE> <CAPTION> September 30, December 31, Percentage September 30, Percentage 1996 1995 Inc/(Dec) 1995 Inc/(Dec) ---------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Investments $2.5 $2.5 (0.4%) $2.6 (2.0%) Total Loans $5.6 $5.4 3.9 $5.4 4.8 Reserve for Credit Losses (millions) $116 $111 4.5 $115 0.7 Reserves as a Percentage of Total Loans 2.1% 2.0% - 2.1% - Total Nonperforming Loans (millions) $31 $34 (8.2) $32 (2.8) Other Real Estate Owned (millions) $34 $44 (21.8) $43 (20.6) Total Assets $12.1 $12.3 (1.9) $12.5 (3.3) Deposits $8.4 $8.5 (0.5) $8.4 0.4 Total Liabilities $11.3 $11.5 (1.5) $11.7 (3.2) Total Shareholder's Equity (millions) $777 $837 (7.3) $809 (4.0) Risk-Based Capital Ratios: Tier 1 9.0% 8.9% - 8.7% - Total 12.8% 13.0% - 13.9% - Leverage Ratio 6.0% 5.8% - 5.6% - Return on Average Assets* 0.58% 0.59% - 0.57% - Return on Average Common Equity* 9.34% 9.99% - 9.80% - * For the year-to-date peiod </TABLE> The Bank's total balance sheet declined modestly from year end. Liquidity created from the transfer of certain aircraft assets to the parent was used to pay a special dividend and fund higher loans, while deposits declined slightly. The decrease in other real estate owned primarily resulted from the sale of a foreclosed asset. Corporate and Other Corporate and Other reported third quarter 1996 net expenses of $39 million, compared with net expenses of $37 million a year ago. Corporate and Other reported net expenses of $115 million in the nine months ended September 30, 1996, compared with $107 million last year. Results for the first nine months of 1996 and 1995 include the Company's share of the Travelers Inc. revenue participation in accordance with an agreement related to the 1993 sale of the Shearson Lehman Brothers Division, which was offset by expenses related to business building initiatives. 15
INDEPENDENT ACCOUNTANTS REVIEW REPORT The Shareholders and Board of Directors American Express Company We have reviewed the accompanying consolidated balance sheet of American Express Company (the "Company") as of September 30, 1996, the related consolidated statements of income for the three and nine month periods ended September 30, 1996 and 1995, and the consolidated statement of cash flows for the nine month periods ended September 30, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 8, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/Ernst & Young LLP New York, New York November 14, 1996 16
PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 5. Other Information (a) Forward-looking statements -------------------------- A statement in Part I of this 10-Q is identified under "Travel Related Services -- Results of Operations For The Three and Nine Months Ended September 30, 1996 and 1995" as a "forward-looking statement." This statement involves risks and uncertainties. Important factors which may cause actual results to differ materially from this forward looking statement include, but are not limited to, the following: consumer and/or business spending per Cardmember, which may result from general economic conditions affecting consumers or businesses, including the overall levels of consumer debt; other general economic and business conditions, such as interest rates and consumer credit trends, which could affect the ability of consumers and businesses to repay credit and charge card debt to TRS; the rate of bankruptcies of consumers and businesses; and the volume of new card products issued by TRS, which typically involve higher provisioning. (b) By-law Amendment ---------------- On October 28, 1996, Section 2.2 of the Company's By-laws was amended, generally giving the Secretary of the Company the authority to fix a date for special meetings of shareholders demanded by holders of a majority of the Company's shares outstanding and entitled to vote in the election of directors (which currently includes holders of the Company's common shares). The amended section provides that the Secretary shall fix a date for such meetings no less than 60 days nor more than 90 days after receipt of a properly submitted demand by shareholders. See Exhibit 3.2 to this Form 10-Q Report for the full text of the amended section. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page E-1 hereof. (b) Reports on Form 8-K: Form 8-K, dated July 22, 1996, Item 5, relating to the registrant's earnings for the quarter ended June 30, 1996. Form 8-K, dated October 29, 1996, Item 5, relating to the registrant's earnings for the quarter ended September 30, 1996. 17
SIGNATURES 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, thereunto duly authorized. AMERICAN EXPRESS COMPANY ------------------------ (Registrant) Date: November 14, 1996 By /s/ Richard K. Goeltz - ----------------------- ------------------------- Richard K. Goeltz Vice Chairman and Chief Financial Officer Date: November 14, 1996 /s/ Daniel T. Henry - ----------------------- -------------------------- Daniel T. Henry Senior Vice President and Comptroller (Chief Accounting Officer) 18
EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 3.2 Registrant's By-laws, as amended on October 28, 1996. 12 Computation in Support of Ratio of Earnings to Fixed Charges. 15 Letter re Unaudited Interim Financial Information. 27 Financial Data Schedule.