AMERICAN EXPRESS COMPANY Business Introduction
We are a globally integrated payments company that provides our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are credit and charge card products, along with travel and lifestyle related services, offered to consumers and businesses around the world. Our range of products and services includes:
•Credit card, charge card, banking and other payment and financing products
•Merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants
•Network services
•Other fee services, including fraud prevention services and the design and operation of customer loyalty programs
•Expense management products and services
•Travel and lifestyle services
Our various products and services are offered globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are offered through various channels, including mobile and online applications, affiliate marketing, customer referral programs, third-party service providers and business partners, direct mail, telephone, in-house sales teams, and direct response advertising. We have a significant ownership position in, and extensive commercial arrangements with, Global Business Travel Group, Inc. (GBTG). The commercial arrangements with GBTG include, among other things, a long-term trademark license agreement pursuant to which GBTG uses the American Express brand, GBTG's support of certain of our partnerships, joint negotiation with travel suppliers and a strategic relationship between GBTG and our Global Commercial Services (GCS) business. During the second quarter of 2022, GBTG became a publicly traded company following the completion of a business combination betweenAmerican Express Global Business Travel andApollo Strategic Growth Capital . As a result of the transaction, our economic interest was reduced to approximately 35 percent from approximately 40 percent.
We compete in the global payments industry with card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and Automated Clearing House (ACH)), as well as evolving and growing alternative payment and financing providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies, business models and customer relationships to create payment or financing solutions.
Effective for the first quarter of 2022, we made the following reporting presentation changes to our Consolidated Statements of Income:
Within Non-interest revenues:
•Processed revenue represents revenues earned from processed volumes, previously reported in Discount revenue, Other fees and commissions and Other revenue.
•Service fees and other revenue combines the remaining balances from Other fees and commissions and Other revenue.
Within Total expenses:
•Disaggregated Marketing and business development expense into Business development expense and Marketing expense.
Prior period amounts have been recast to conform with current period presentation; there was no impact to Total non-interest revenues or Total expenses.
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EffectiveJuly 1, 2022 , we made changes to our management organization structure. Our financial disclosures will reflect these organizational changes when our executives, including our chief operating decision maker, begin to review financial information aligned to the new management organization. At that time, we will also recast prior periods to conform to the new reportable operating segments. We expect our reportable operating segments will be as follows:
•U.S. Consumer Services, including our consumer card issuing business and travel
and lifestyle services in the
•International Card Services, including our consumer card issuing business and travel and lifestyle services outside theU.S. , our commercial services business outside theU.S. and our loyalty coalition businesses;
•Commercial Services, including our commercial services businesses in the
•Global Merchant and Network Services, including our merchant acquiring and card network businesses.
Refer to the "Glossary of Selected Terminology" for the definitions of certain key terms and related information appearing within this Form 10-Q.
Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the "Cautionary Note Regarding Forward-Looking Statements" section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted inthe United States of America (GAAP). However, certain information included within this Form 10-Q constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
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Table 1: Summary of Financial Performance
As of or for the Three Months As of or for the Six Months
Ended Ended
June 30, June 30,
(Millions, except percentages,
per share amounts and where Change Change
indicated) 2022 2021 2022 vs. 2021 2022 2021 2022 vs. 2021
Selected Income Statement Data
Total revenues net of interest
expense $ 13,395 $ 10,243 $ 3,152 31 % $ 25,130 $ 19,307 $ 5,823 30 %
Provisions for credit losses 410 (606) 1,016 # 377 (1,281) 1,658 #
Expenses 10,442 7,909 2,533 32 19,498 14,655 4,843 33
Pretax income 2,543 2,940 (397) (14) 5,255 5,933 (678) (11)
Income tax provision 579 660 (81) (12) 1,192 1,418 (226) (16)
Net income 1,964 2,280 (316) (14) 4,063 4,515 (452) (10)
Earnings per common share -
diluted (a) $ 2.57 $ 2.80 $ (0.23) (8) % $ 5.30 $ 5.54 $ (0.24) (4)
Common Share Statistics (b)
Cash dividends declared per
common share $ 0.52 $ 0.43 $ 0.09 21 % $ 1.04 $ 0.86 $ 0.18 21
Average common shares
outstanding:
Basic 752 801 (49) (6) % 755 802 (47) (6)
Diluted 753 802 (49) (6) % 756 803 (47) (6)
Selected Metrics and Ratios
Network volumes (Billions) $ 394.8 $ 316.1 $ 79 25 % $ 745.1 $ 585.4 $ 160 27 %
Return on average equity (c) 34.4 % 36.5 % 36.0 % 37.1 %
Net interest income divided by
average Card Member loans 10.2 % 10.0 % 10.2 % 10.1 %
Net interest yield on average
Card Member loans (d) 10.4 % 10.6 % 10.5 % 10.9 %
Effective tax rate 22.8 % 22.4 % 22.7 % 23.9 %
Common Equity Tier 1 10.3 % 14.2 % 10.3 % 14.2 %
Selected Balance Sheet Data
Cash and cash equivalents $ 26,277 $ 30,796 $ (4,519) (15) % $ 26,277 $ 30,796 $ (4,519) (15) %
Card Member receivables 56,019 47,585 8,434 18 56,019 47,585 8,434 18
Card Member loans 95,437 75,610 19,827 26 95,437 75,610 19,827 26
Customer deposits 96,411 84,905 11,506 14 96,411 84,905 11,506 14
Long-term debt $ 40,495 $ 37,363 $ 3,132 8 % $ 40,495 $ 37,363 $ 3,132 8 %
# Denotes a variance of 100 percent or more
(a)Represents net income, less (i) earnings allocated to participating share awards of$15 million and$16 million for the three months endedJune 30, 2022 and 2021, respectively, and$31 million for both the six months endedJune 30, 2022 and 2021, and (ii) dividends on preferred shares of$15 million for both the three months endedJune 30, 2022 and 2021, and$29 million for both the six months endedJune 30, 2022 and 2021.
(b)Our common stock trades principally on
(c)Return on average equity (ROE) is calculated by dividing (i) annualized net
income for the period by (ii) average shareholders' equity for the period.
Effective for the first quarter of 2022, the interim period calculation
methodology for ROE was modified to present the returns for the period on an
annualized basis rather than the preceding twelve months. Prior period amounts
have been recast to conform with current period presentation.
(d)Net interest yield on average Card Member loans reflects adjusted net
interest income divided by average Card Member loans, computed on an annualized
basis. Adjusted net interest income and net interest yield on average Card
Member loans are non-GAAP measures. Refer to Table 9 for a reconciliation to Net
interest income divided by average Card Member loans.
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Business Environment
Our strong results for the second quarter reflect the strength of our global customer base and business model, as well as the investments we made during the pandemic while navigating a complex macroeconomic environment. We continue to invest in our brand, value propositions, customers, colleagues, technology and coverage which is driving sustainable growth across our businesses. Our worldwide network volumes for the second quarter increased 25 percent year-over-year (28 percent on an FX-adjusted basis1) and billed business, which represented 86 percent of our total network volumes and was the most significant driver of our financial results, increased 27 percent. Goods & Services spend, which accounts for the majority of our billed business, grew by 15 percent on a year-over-year basis. Travel & Entertainment spend increased 80 percent year-over-year and surpassed pre-pandemic levels, primarily driven byU.S. consumers and small and medium size businesses as well as a continuing recovery outside of theU.S. Total revenues net of interest expense increased 31 percent year-over-year (33 percent on an FX-adjusted basis1) reflecting strong growth in all our revenue lines. The growth in network volumes drove increases in both Discount revenue, our largest revenue line, and Processed revenue. Service fees and other revenue increased year-over-year, driven in part by higher travel-related revenues. Net card fees grew 15 percent year-over-year, as new card acquisitions increased and Card Member retention remained high, demonstrating the impact of investments we have made in our premium value propositions. Net interest income grew by 30 percent year-over-year, primarily driven by growth in loans, partially offset by higher interest expense due to higher rates. Card Member loans grew 26 percent year-over-year, driven by ongoing strong growth in billed business. Provisions for credit losses increased, primarily driven by reserve builds in the current period, as compared to reserve releases in the prior year. The reserve builds in the current period reflected the strong growth in loans and a slightly worse macroeconomic outlook, partially offset by improved portfolio quality. While delinquency and write-off rates remained near historic lows, most of these rates continued to modestly increase on a sequential basis compared to the prior quarter. Card Member rewards, Business development and Card Member services increased year-over-year primarily due to network volume growth and higher usage of travel-related benefits. Card Member rewards expense growth was also driven by a larger proportion of billed business in categories that earn incremental rewards such as travel. Marketing expense increased 13 percent year-over-year, due to higher investments to drive growth momentum and accelerate new card acquisitions. Operating expenses increased 28 percent year-over-year primarily due to prior-year net gains on ourAmex Ventures investments and higher compensation costs in the current quarter. During the quarter, we maintained our capital ratios within our target range and returned$1.0 billion of capital to our shareholders through share buybacks and dividends. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth.
Our strong performance continues to give us confidence in our business model, although we recognize the uncertainty of the geopolitical and macroeconomic environment. We remain committed to executing on our strategy for building sustainable long-term growth.
See "Certain Legislative, Regulatory and Other Developments" and "Risk Factors" for information on certain matters that could have a material adverse effect on our results of operations and financial condition. 1 The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation intoU.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current period apply to the corresponding prior year period against which such results are being compared). FX-adjusted revenues is a non-GAAP measure. We believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates. 4
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Results of Operations
The discussions in both the "Consolidated Results of Operations" and "Business
Segment Results of Operations" provide commentary on the variances for the three
and six months ended June 30, 2022 compared to the same periods in the prior
year, as presented in the accompanying tables.
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