American Express Company (NYSE:AXP) today reported first-quarter net income of $1.4 billion, up from $1.3 billion a year ago. Diluted earnings per share rose 16 percent to $1.33, from $1.15 a year ago.

(Millions, except percentages and per share amounts)

             

Quarters Ended

March 31,

Percentage

Inc/(Dec)

2014     2013
Total Revenues Net of Interest Expense $ 8,199 $ 7,881 4%
Net Income $ 1,432 $ 1,280 12%
Earnings Per Common Share – Diluted:

Net Income Attributable to Common
Shareholders1

 $ 1.33 $ 1.15 16%
Average Diluted Common Shares Outstanding 1,067 1,106 (4)%
Return on Average Equity 28.3% 23.2%

Consolidated total revenues net of interest expense rose to $8.2 billion in the quarter, up 4 percent (5 percent when adjusted for foreign currency translations2) from $7.9 billion a year ago. The increase reflected higher Card Member spending and higher net interest income.

Consolidated provisions for losses totaled $485 million, up 17 percent from $416 million a year ago. The increase reflected a larger reserve release a year ago, offset, in part, by the benefit of lower net write-offs this quarter.

Consolidated expenses totaled $5.5 billion, down 1 percent from $5.6 billion a year ago. The decrease reflected a 4 percent decline in operating expenses3, partially offset by higher rewards costs. Adjusted for foreign currency translations, consolidated total expenses were unchanged from a year ago.2

The effective tax rate for the quarter was 35 percent, up from 33 percent from a year ago.

The company's return on average equity (ROE) was 28.3 percent, up from 23.2 percent a year ago.

“We are off to a good start to 2014, thanks to disciplined expense control, credit metrics near their historic low, higher revenues and a strong balance sheet that allows us to return a substantial amount of capital to shareholders,” said Kenneth I. Chenault, chairman and chief executive officer.

“Earnings per share exceeded our long-term target, and the overall performance reflected our ability to manage the business in a way that delivers bottom-line results.

“Card Member spending was up 6 percent globally (7 percent adjusted for foreign currency translations), with higher volumes in the U.S. and internationally. While consumers remain cautious about taking on additional debt, we continued to see a modest increase in Card Member loan balances.

“During the quarter, we launched new initiatives to expand card acceptance among smaller merchants, capture a greater share of U.S. consumers’ everyday spending and extend our loyalty coalition business into Italy. These initiatives are aimed at helping us reach additional segments of the market. They put us in a stronger position to grow over the medium and long term and are making the American Express brand more welcoming and inclusive.

“Once again, we performed very well in the Federal Reserve’s annual stress test. The results provide us with the flexibility to move forward with plans to increase the quarterly dividend by 13 percent and repurchase up to $4.4 billion of shares this year and an additional $1.0 billion during the first quarter of 2015. Our plan remains focused on balancing three priorities: supporting growth strategies, maintaining strong capital ratios and returning a substantial level of capital to our shareholders.”

Segment Results

U.S. Card Services reported first-quarter net income of $876 million, up 9 percent from $804 million a year ago.

Total revenues net of interest expense increased 5 percent to $4.3 billion from $4.1 billion a year ago. The rise reflected a 7 percent increase in Card Member spending and higher net interest income.

Provisions for losses totaled $342 million, up 18 percent from $290 million a year ago. The increase reflected a larger reserve release a year ago, offset, in part, by the benefit of lower net write-offs this year.

Total expenses increased 1 percent to $2.5 billion.

The effective tax rate was 38 percent compared to 37 percent a year ago.

International Card Services reported first-quarter net income of $159 million, down 11 percent from $178 million a year ago.

Total revenues net of interest expense were $1.4 billion, up 3 percent (7 percent FX adjusted2) from a year ago. The increase primarily reflected higher Card Member spending and higher revenues from the Loyalty Partner business.

Total expenses were $1.1 billion, up 2 percent (5 percent FX adjusted2) from a year ago. The increase primarily reflected higher marketing and promotion and rewards costs, partially offset by a decline in operating expenses.

The effective tax rate was 22 percent compared to 8 percent a year ago due to certain tax benefits related to foreign operations last year.

Global Commercial Services reported first-quarter net income of $184 million, down 4 percent from $191 million a year ago.

Total revenues net of interest expense were $1.2 billion, up 3 percent (4 percent FX adjusted2) from a year ago. The increase primarily reflected higher Card Member spending, partially offset by lower travel commissions and fees.

Total expenses increased 2 percent (3 percent FX adjusted2) to $871 million from $852 million a year ago. The rise primarily reflected costs related to the planned joint venture for the Global Business Travel division.

The effective tax rate was 35 percent compared to 33 percent from a year ago.

Global Network & Merchant Services reported first-quarter net income of $443 million, up 19 percent from $373 million a year ago.

Total revenues net of interest expense increased 5 percent (7 percent FX adjusted2) to $1.4 billion from $1.3 billion a year ago. The increase primarily reflected higher merchant-related revenues driven by an increase in global Card Member spending, as well as an increase in revenues from Global Network Services’ bank partners.

Total expenses decreased 8 percent (7 percent FX adjusted2) to $647 million from $702 million a year ago, primarily reflecting lower operating expenses.

The effective tax rate was 37 percent compared to 36 percent a year ago.

Corporate and Other reported first-quarter net loss of $230 million compared with net loss of $266 million in the year-ago period.

About American Express

American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success. Learn more at americanexpress.com and connect with us on facebook.com/americanexpress, foursquare.com/americanexpress, linkedin.com/companies/american-express, twitter.com/americanexpress, and youtube.com/americanexpress.

Key links to products and services: charge and credit cards, business credit cards, travel services, gift cards, prepaid cards, merchant services, business travel, and corporate card

The 2014 First Quarter Earnings Supplement will be available today on the American Express website at http://ir.americanexpress.com. An investor conference call will be held at 5:00 p.m. (ET) today to discuss first-quarter earnings results. Live audio and presentation slides for the investor conference call will be available to the general public at the same website. A replay of the conference call will be available later today at the same website address.

This release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the company’s expected business and financial performance and are subject to risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements due to a variety of factors, including those contained in the company's Annual Report on Form 10-K for the year ended December 31, 2013 and the company’s other filings with the Securities and Exchange Commission. 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.

1 Represents net income less earnings allocated to participating share awards of $12 million and $11 million for the three months ended March 31, 2014 and 2013, respectively.

2 As reported in this release, FX adjusted information, which constitute non-GAAP financial measures, assumes a constant exchange rate between the periods being compared for purposes of currency translations into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the three months ended March 31, 2014 apply to the period(s) against which such results are being compared). The company believes the presentation of information on an FX adjusted basis is helpful to investors by making it easier to compare the company’s performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.

3 Operating expenses include salaries and employee benefits, professional services, occupancy and equipment, communications and other, net.

All information in the following tables is presented on a basis prepared in accordance with U.S. generally accepted accounting principles (GAAP), unless otherwise indicated. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

     
(Preliminary)

American Express Company

Consolidated Statements of Income

 
(Millions)
Quarters Ended
March 31, Percentage
2014 2013 Inc/(Dec)
 
Revenues
Non-interest revenues
Discount revenue $ 4,646 $ 4,438 5 %
Net card fees 674 653 3
Travel commissions and fees 423 437 (3 )
Other commissions and fees 618 573 8
Other   501     537   (7 )
Total non-interest revenues   6,862     6,638   3
Interest income
Interest on loans 1,711 1,683 2
Interest and dividends on investment securities 46 53 (13 )
Deposits with banks and other   19     26   (27 )
Total interest income   1,776     1,762   1
Interest expense
Deposits 94 114 (18 )
Long-term debt and other   345     405   (15 )
Total interest expense   439     519   (15 )
Net interest income   1,337     1,243   8
Total revenues net of interest expense   8,199     7,881   4
Provisions for losses
Charge card 215 154 40
Card Member loans 250 243 3
Other   20     19   5
Total provisions for losses   485     416   17
Total revenues net of interest expense after provisions for losses   7,714     7,465   3
 
Expenses
Marketing and promotion 613 621 (1 )
Card Member rewards 1,582 1,520 4
Card Member services and other 222 189 17
Salaries and employee benefits 1,540 1,615 (5 )
Professional services 692 716 (3 )
Occupancy and equipment 462 472 (2 )
Communications 93 96 (3 )
Other, net   302     327   (8 )
Total   5,506     5,556   (1 )
Pretax income 2,208 1,909 16
Income tax provision   776     629   23
Net income $ 1,432   $ 1,280   12
Net income attributable to common shareholders (A) $ 1,420   $ 1,269   12
Effective tax rate 35.1 % 32.9 %
 
# - Denotes a variance of more than 100 percent.
 

(A) Represents net income, less earnings allocated to participating share awards of $12 million and $11 million for the three months ended March 31, 2014 and 2013, respectively.

 
 
(Preliminary)

American Express Company

Condensed Consolidated Balance Sheets

 
(Billions)
 
March 31, December 31,
2014 2013
 
Assets
Cash & cash equivalents $ 21 $ 19
Accounts receivable 47 47
Investment securities 5 5
Loans 63 67
Other assets   15     15  
Total assets $ 151   $ 153  
 
Liabilities and Shareholders' Equity
Customer deposits $ 43 $ 42
Short-term borrowings 3 5
Long-term debt 54 55
Other liabilities   31     32  
Total liabilities   131     134  
 
Shareholders' Equity   20     19  
Total liabilities and shareholders' equity $ 151   $ 153  
 
 
 
(Preliminary)

American Express Company

Financial Summary

 
(Millions)

Quarters Ended

March 31, Percentage
2014 2013 Inc/(Dec)
 

Total revenues net of interest expense

U.S. Card Services $ 4,290 $ 4,082 5 %
International Card Services 1,352 1,317 3
Global Commercial Services 1,194 1,163 3
Global Network & Merchant Services   1,365     1,303   5
8,201 7,865 4
Corporate & Other   (2 )   16   #
 
CONSOLIDATED TOTAL REVENUES NET OF INTEREST EXPENSE $ 8,199   $ 7,881   4
 

Pretax income (loss)

U.S. Card Services $ 1,406 $ 1,270 11
International Card Services 203 193 5
Global Commercial Services 285 283 1
Global Network & Merchant Services   702     582   21
2,596 2,328 12
Corporate & Other   (388 )   (419 ) (7 )
 
PRETAX INCOME $ 2,208   $ 1,909   16
 

Net income (loss)

U.S. Card Services $ 876 $ 804 9
International Card Services 159 178 (11 )
Global Commercial Services 184 191 (4 )
Global Network & Merchant Services   443     373   19
1,662 1,546 8
Corporate & Other   (230 )   (266 ) (14 )
 
NET INCOME $ 1,432   $ 1,280   12
 
# - Denotes a variance of more than 100 percent.
 
(Preliminary)

American Express Company

Financial Summary (continued)

 
 
Quarters Ended
March 31, Percentage
2014 2013 Inc/(Dec)
EARNINGS PER COMMON SHARE
 
BASIC
Net income attributable to common shareholders $ 1.34   $ 1.15   17
 
Average common shares outstanding (millions)   1,060     1,099   (4 ) %
 
DILUTED
Net income attributable to common shareholders $ 1.33   $ 1.15   16
 
Average common shares outstanding (millions)   1,067     1,106   (4 ) %
 
Cash dividends declared per common share $ 0.23   $ 0.20   15 %
 
 

Selected Statistical Information

 
Quarters Ended
March 31, Percentage
2014 2013 Inc/(Dec)
 
Return on average equity (A) 28.3 % 23.2 %
Return on average common equity (A) 28.1 % 23.0 %
Return on average tangible common equity (A) 35.4 % 29.3 %
Common shares outstanding (millions) 1,059 1,098 (4 ) %
Book value per common share $ 18.87 $ 17.56 7 %
Shareholders' equity (billions) $ 20.0 $ 19.3 4 %
 
# - Denotes a variance of more than 100 percent.
 

(A) Refer to Appendix I for components of return on average equity, return on average common equity and return on average tangible common equity, a non-GAAP measure.

 
(Preliminary)          

American Express Company

Components of Return on Average Equity (ROE), Return on Average Common Equity (ROCE),

and Return on Average Tangible Common Equity (ROTCE)

Appendix I

 
(Millions)
For the Twelve Months Ended
March 31, December 31, September 30, June 30, March 31,
2014 2013 2013 2013 2013
 

ROE

 
Net income $ 5,511 $ 5,359 $ 4,688 $ 4,572 $ 4,506
Average shareholders' equity $ 19,442 $ 19,254 $ 19,289 $ 19,372 $ 19,426
Return on average equity (A) 28.3% 27.8% 24.3% 23.6% 23.2%
 

Reconciliation of ROCE and ROTCE

 
Net income $ 5,511 $ 5,359 $ 4,688 $ 4,572 $ 4,506
Earnings allocated to participating share awards and other   48   47   43   45   46
Net income attributable to common shareholders $ 5,463 $ 5,312 $ 4,645 $ 4,527 $ 4,460
 
Average shareholders' equity $ 19,442 $ 19,254 $ 19,289 $ 19,372 $ 19,426
Average common shareholders' equity $ 19,442 $ 19,254 $ 19,289 $ 19,372 $ 19,426
Average goodwill and other intangibles   4,012   4,055   4,091   4,128   4,181
Average tangible common shareholders' equity $ 15,430 $ 15,199 $ 15,198 $ 15,244 $ 15,245
Return on average common equity (A) 28.1% 27.6% 24.1% 23.4% 23.0%
Return on average tangible common equity (B) 35.4% 34.9% 30.6% 29.7% 29.3%
 

(A) Return on average equity and return on average common equity are calculated by dividing one year period net income/net income attributable to common shareholders by one year average total shareholders’ equity/average common shareholders' equity, respectively.

 

(B) Return on average tangible common equity, a non-GAAP measure, is computed in the same manner as return on average common equity except the computation of average tangible common shareholders' equity, a non-GAAP measure, excludes from average total shareholders' equity, average goodwill and other intangibles. The Company believes that return on average tangible common equity is a useful measure of the profitability of its business.