Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  American Express Company    AXP

AMERICAN EXPRESS COMPANY

(AXP)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector newsMarketScreener StrategiesAnalyst Recommendations

AMERICAN EXPRESS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) (form 10-Q)

share with twitter share with LinkedIn share with facebook
07/24/2020 | 01:26pm EDT
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 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 sold globally to diverse customer groups,
including consumers, small businesses, mid-sized companies and large
corporations. These products and services are sold through various channels,
including mobile and online applications, affiliate marketing, customer referral
programs, third-party vendors and business partners, direct mail, telephone,
in-house sales teams, and direct response advertising. Business travel-related
services are offered through our non-consolidated joint venture, American
Express Global Business Travel (the GBT JV).
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.
The following types of revenue are generated from our various products and
services:
•Discount revenue, our largest revenue source, primarily represents the amount
we earn on transactions occurring at merchants that have entered into a card
acceptance agreement with us, or a Global Network Services (GNS) partner or
other third-party merchant acquirer, for facilitating transactions between the
merchants and Card Members;
•Interest on loans, principally represents interest income earned on outstanding
balances;
•Net card fees, represent revenue earned from annual card membership fees, which
vary based on the type of card and the number of cards for each account;
•Other fees and commissions, primarily represent Card Member delinquency fees,
foreign currency conversion fees charged to Card Members, loyalty
coalition-related fees, service fees earned from merchants, travel commissions
and fees, and Membership Rewards program fees; and
•Other revenue, primarily represents revenues arising from contracts with
partners of our GNS business (including commissions and signing fees less issuer
rate payments), cross-border Card Member spending, ancillary merchant-related
fees, earnings from equity method investments (including the GBT JV), insurance
premiums earned from Card Members, and prepaid card and Travelers Cheque-related
revenue.
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 in the 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.
                                       1

--------------------------------------------------------------------------------

Table of Contents


Bank Holding CompanyAmerican Express is a bank holding company under the Bank Holding Company Act of
1956 and The Board of Governors of the Federal Reserve System (the Federal
Reserve) is our primary federal regulator. As such, we are subject to the
Federal Reserve's regulations, policies and minimum capital standards.
Business Environment
Businesses and economies around the globe continued to see significant adverse
impacts during the second quarter due to the COVID-19 pandemic and the resulting
containment measures implemented by local and national authorities. During the
quarter, while the impact of COVID-19 peaked and subsequently declined in some
jurisdictions, leading to phased re-openings, other areas have seen continuing
or renewed containment measures.
Throughout the quarter, our colleague base has continued to successfully operate
in a remote working environment. We have worked to ensure our colleagues feel
secure in their jobs and have the flexibility and resources they need to stay
safe and healthy. More recently, we have shifted our focus to planning for the
safe return of our colleagues to our offices. This return will take place
slowly, in phases, and we are implementing comprehensive safety protocols for
when our buildings open. To support our customers and merchants, we continued to
offer financial and other assistance, adding product benefits to reflect today's
environment, and continuing to provide the high level of customer service they
expect and rely on. During the quarter we participated in the U.S. Paycheck
Protection Program, designed to provide small businesses with support to cover
payroll and certain other expenses. We also continued to work with our strategic
partners on initiatives to support our communities. In June 2020, we launched
our global Shop Small campaign, which includes a commitment of over $200 million
to help support our small merchants as they begin to re-open. In addition, we
remain committed to strengthening inclusion and diversity within our company,
while also increasing our support to Black-owned businesses and the Black
community. We have pledged $10 million over the next four years to fund grants
and training for U.S. Black-owned small businesses to assist in their recovery
and address the challenges they face due to racial and social inequalities.
Reflective of the broader economy and spending trends in our customer segments,
our billed business for the quarter was down 34 percent versus the prior year.
Billed business in the month of April was down 40 percent year-over-year,
followed by sequential improvement through May and June, with declines of 36
percent and 26 percent, respectively. Non-T&E spend was down 19 percent
year-over-year in April, improving to a 5 percent decline year-over-year in
June. In contrast, T&E spend saw much larger declines, down 95 percent
year-over-year in April, improving to a 77 percent year-over-year decline in
June. U.S. billed business declined 32 percent for the quarter versus the prior
year, compared with a 38 percent decline in billed business outside the United
States, where T&E volumes make up a higher proportion of spend. Our proprietary
consumer and commercial billed business declined by 35 percent and 36 percent
year-over-year, respectively. The decline in commercial billed business was
driven by continued year-over-year decreases in T&E spend by our large corporate
customers, which continued throughout the quarter, with less pronounced billed
business declines from small and medium sized corporate customers, where T&E
makes up a lower proportion of spend. Consumer billed business was also impacted
by declines in T&E, and offline non-T&E spend, which was slightly offset by
increased online and card-not-present spend at non-T&E merchants. To the extent
we continue to see significant year-over-year declines in billed business, our
future results will be materially impacted.
Revenues net of interest expense decreased 29 percent year-over-year, with
sequential moderate improvement from April to June, consistent with the trend in
billings. Discount revenue, our largest revenue line, decreased 39 percent,
which was a larger contraction than the decline in billed business for the
quarter, reflecting a decrease in the average discount rate. The average
discount rate for the quarter declined by 14 basis points over the prior year,
due to a shift in spend mix to non-T&E categories. If the spend mix stays at the
current level or if the spend mix to non-T&E categories increases further, we
would expect to see continued discount rate erosion in the third quarter. We
continued to see COVID-19 related declines in Other fees and commissions and
Other revenues, primarily due to declines in travel-related revenues. Card fee
revenues had strong year-over-year growth, as such revenues are slower to react
to economic shifts since they are recognized over a twelve-month period and we
did not see an increase in Card Member attrition compared to the prior year;
however, we also saw a modest sequential deceleration in growth rate from the
first quarter, as the pace of new account acquisitions slowed. Net interest
income declined by 9 percent year-over-year, primarily driven by lower average
loans, partially offset by a higher net yield.

                                       2

--------------------------------------------------------------------------------

Table of Contents

As a result of the spend-centric nature of our business model, Card Member loans and receivables declined 16 percent and 36 percent year-over-year, respectively, due to lower billed business volumes. Provisions for credit losses increased, primarily driven by higher reserve builds reflecting the continued deterioration of the global macroeconomic outlook, including unemployment and Gross Domestic Product (GDP), and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables. During the first quarter, we created a Customer Pandemic Relief (CPR) program to provide short-term support for customers impacted by COVID-19. Enrollments in the CPR program peaked in April with $8.5 billion of loans and receivables included in the program. As of June 30, 2020, only $0.7 billion of balances remained in the program as the majority of the enrolled customers have become current as we wind down the program. We also enhanced our longer-term financial relief programs during the quarter. The balance in such longer-term programs had grown to approximately $2.6 billion of loans and receivables as of June 30, 2020. See Note 2 to the "Consolidated Financial Statements" for further information on troubled debt restructurings. In addition, as of June 30, 2020, we had $1.9 billion of delinquent loans and receivables, which included those balances in the CPR and other financial relief programs that were delinquent. The balance of delinquent loans and receivables remained relatively constant throughout the quarter. Card Member rewards and services, and business development expenses, are generally correlated to billings or are variable based on usage and were impacted this quarter by the decline in billing volumes and lower usage of travel-related benefits due to ongoing impacts of COVID-19 and the resulting containment measures. We expect the trend for these expenses to continue to be correlated to billings and usage. In addition, we continued to focus on controlling operating expenses and reducing spend on proactive marketing for new acquisitions, while continuing to invest in new initiatives that enhance and provide relevant product benefits for our Card Members. During the second quarter, we substantially enhanced our liquidity levels, and we further strengthened our capital position with capital ratios that are well above our targets and regulatory requirements. These robust capital and liquidity levels provide us with significant flexibility to maintain the strength of our balance sheet through this uncertain period. We also intend to maintain our quarterly dividend for the third quarter in line with prior quarters, subject to approval by the Board of Directors. Looking ahead, there remains great uncertainty on how the COVID-19 pandemic will progress or what its continued impact will be on the global economy. We will continue to focus on what we can control - backing our customers, colleagues and communities, and maintaining a tight rein on expenses, while pursuing opportunities to invest in initiatives that can enable our long-term growth. See "Certain Legislative, Regulatory and Other Developments" and "Risk Factors" for information on additional impacts of COVID-19 and related containment efforts as well as other matters that could have a material adverse effect on our results of operations and financial condition.

                                       3

--------------------------------------------------------------------------------

Table of Contents


CRITICAL ACCOUNTING ESTIMATES
Please see the "Critical Accounting Estimates" section of our Annual Report on
Form 10-K for the year ended December 31, 2019 for a full description of all of
our critical accounting estimates. The critical accounting estimate related to
Reserves for Card Member Credit Losses presented below has been updated to
reflect the adoption of the Current Expected Credit Loss (CECL) methodology.
Reserves for Card Member Credit Losses
Reserves for Card Member credit losses represent our best estimate of the
expected credit losses in our outstanding portfolio of Card Member loans and
receivables as of the balance sheet date. The CECL methodology, which became
effective January 1, 2020, requires us to estimate lifetime expected credit
losses by incorporating historical loss experience, as well as current and
future economic conditions over a reasonable and supportable period (R&S Period)
beyond the balance sheet date.
In estimating expected credit losses, we use a combination of
statistically-based models that include a significant amount of judgment,
primarily related to the determination of the appropriate R&S Period, the
methodology to incorporate current and future economic conditions, and the
determination of the probability of and exposure at default, all of which are
ultimately used in measuring the quantitative components of our reserves. We use
these models and assumptions, combined with historical loss experience, to
calculate the reserve rates that are applied to the outstanding loan or
receivable balances to produce our reserves for expected credit losses. Beyond
the R&S Period, we estimate expected credit losses using our historical loss
rates. We also consider whether to adjust the quantitative reserves for certain
external and internal qualitative factors, which consequentially may increase or
decrease the reserves for credit losses on Card Member loans and receivables.
The R&S Period, which is approximately 3 years, represents the maximum
time-period beyond the balance sheet date over which we can reasonably estimate
credit losses, using all available portfolio information, current economic
conditions and forecasts of future economic conditions. We obtain our forecasts
of future economic conditions from an independent third party, and in
determining the relevant R&S Period for Card Member loans and receivables, we
also consider information arising from other internal processes, as well as our
own past loss experience. Card Member loan products do not have a contractual
term and balances can revolve if minimum required payments are made, causing
some balances to remain outstanding beyond the R&S Period. Card Member
receivable products are contractually required to be paid in full; therefore, we
have assumed the balances will be either paid or written-off within the R&S
Period.
Within the R&S Period, our models use past loss experience and current and
future economic conditions to estimate the probability of default, exposure at
default and expected recoveries to estimate net losses at default. A significant
area of judgment relates to how we apply future Card Member payments to the
reporting period balances when determining the exposure at default. The nature
of revolving loan products inherently includes a relationship between future
payments and spend behavior, which creates complexity in the application of how
future payments are either partially or entirely attributable to the existing
balance at the end of the reporting period. Using historical customer behavior
and other factors, we have assumed that future payments are first allocated to
interest and fees associated with the reporting period balance and future spend.
We then allocate a portion of the payment to the estimated higher minimum
payment amount due because of any future spend. Any remaining portion of the
future payment would then be allocated to the remaining balance.
As noted above, CECL requires that the R&S Period include an assumption about
current and future economic conditions. We incorporate multiple economic
scenarios (e.g., baseline, better and worse) obtained from an independent third
party. The expected credit losses calculated from each economic scenario are
weighted to reflect uncertainty around the baseline economic scenario. We
determine the weighting of each scenario based on our detailed review of the
externally sourced information and comparing other economic information we use
throughout other processes.

                                       4

--------------------------------------------------------------------------------

Table of Contents

Macroeconomic Sensitivity Reserves for credit losses are sensitive to various inputs and assumptions, which may differ by portfolio. Macroeconomic forecasts are critical inputs into our models and inherently contain multiple variables, of which the U.S. unemployment rate and U.S. GDP growth rate are the most significant to our estimated expected credit losses. At both March 31 and June 30, 2020, our weighted economic scenarios, obtained from an independent third party, assumed the U.S. unemployment rate and contraction in U.S. GDP would peak during the second quarter of 2020. The following table reflects the macroeconomic forecasts for those key variables utilized for the computation of Reserves for credit losses as of June 30 and March 31, 2020:

                                      As of June 30, 2020       As of March 31, 2020
U.S. Unemployment Rate
Second quarter of 2020 (Peak)              15% - 17%                  9% - 13%
Fourth quarter of 2020                     9% - 11%                    7% - 9%
U.S. GDP Growth (Contraction) (a)
Second quarter of 2020 (Peak)            (33%) - (36%)              (18%) - (25%)
Fourth quarter of 2020                    0.6% - (4%)                 2% - (6%)


(a)Real GDP quarter over quarter percentage change seasonally adjusted to
annualized rates.
The combination of the material movements in these variables contributed to a
build to our Reserves for credit losses of $1.1 billion which was partially
offset by other factors, primarily a decrease in the outstanding balance of
loans and receivables. These macroeconomic forecasts, under different conditions
or using different assumptions or estimates, could result in significantly
different changes in reserves for credit losses. It is difficult to estimate how
potential changes in specific factors might affect the overall reserves for
credit losses and current results may not reflect the potential future impact of
macroeconomic forecast changes.
Refer to the "Business Environment" and Table 3 in MD&A and Note 1 and Note 3 to
the "Consolidated Financial Statements" for a further description of the impact
of CECL, both at implementation and for the three and six months ended June 30,
2020.
The process of estimating these reserves requires a high degree of judgment. To
the extent our expected credit loss models are not indicative of future
performance, actual losses could differ significantly from our judgments and
expectations, resulting in either higher or lower future provisions for credit
losses in any period.
                                       5

--------------------------------------------------------------------------------

Table of Contents


                             Results of Operations
Refer to the "Glossary of Selected Terminology" for the definitions of certain
key terms and related information appearing within this section.
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, 2020 compared to the same periods in the prior
year, as presented in the accompanying tables. These discussions should be read
in conjunction with the discussion under "Business Environment," which contains
further information on COVID-19 and the related impacts on our results.
As a result of the adoption of CECL on January 1, 2020, there is a lack of
comparability in both the reserves and provisions for credit losses for the
periods presented. Results for reporting periods beginning after January 1, 2020
are presented using the CECL methodology, while comparative information
continues to be reported in accordance with the incurred loss methodology in
effect for prior periods. Refer to Note 3 to the "Consolidated Financial
Statements" for further information.
Consolidated Results of Operations
Table 1: Summary of Financial Performance

© Edgar Online, source Glimpses


share with twitter share with LinkedIn share with facebook
All news about AMERICAN EXPRESS COMPANY
10/29AMERICAN EXPRESS : CFO to Participate in Bank of America Securities Future of Fi..
BU
10/29AMERICAN EXPRESS : Announces $1 Billion Action Plan to Promote Racial, Ethnic an..
BU
10/28MASTERCARD INCORPORATED : Revenue Hurt by Distancing, Border Restrictions -- Upd..
DJ
10/28MASTERCARD INCORPORATED : Revenue Hurt by Distancing, Border Restrictions
DJ
10/28Mastercard warns of ongoing virus-led travel slowdown as profit slumps
RE
10/26China Is Far Behind on U.S. Purchases Under Trade Deal
DJ
10/26AMERICAN EXPRESS : and Uber Expand Partnership to Introduce New Offerings for Pl..
BU
10/26AMERICAN EXPRESS CO : Change in Directors or Principal Officers, Financial State..
AQ
10/26AMERICAN EXPRESS : Elects Charles Phillips to Board of Directors
BU
10/26NEWS HIGHLIGHTS : Top Financial Services News of the Day
DJ
More news