AMERICAN EXPRESS LOGO
2000
Second Quarter
Earnings Supplement
The enclosed summary should be read in conjunction with the text and statistical
tables included in American Express Company's (the "Company" or "AXP") Second
Quarter 2000 Earnings Release.
-------------------------------------------------------------------------------
This summary contains certain forward-looking statements, each indicated by an
asterisk (*), which are subject to risks and uncertainties and speak only as of
the date on which they are made. Important factors that could cause actual
results to differ materially from these forward-looking statements, including
the Company's financial and other goals, are set forth on pages 34-37 of the
Company's 1999 10-K Annual Report on file with the Securities and Exchange
Commission.
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<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000
-------------------
HIGHLIGHTS
----------
o Diluted EPS growth of 15%, the net revenue (managed basis) increase of 16%,
and ROE of 25% met our financial targets.
o Solid performance continued. Compared with the second quarter of 1999:
- Worldwide billed business rose 19% (21% excluding foreign exchange
translation);
- Worldwide lending balances on a managed asset basis of $28.3B were up
42%;
- Worldwide cards in force increased 12%, up 5.5MM from last year. In
the second quarter, 1.5MM net new cards were added; and
- AEFA assets owned, managed and administered of $286B were 19% higher.
o American Express expanded its products and services during the quarter as
it:
- Launched/announced several new proprietary card products:
-- Blue for Business, which offers financing and e-commerce services
for small business owners;
-- Consumer and small business co-branded cards with Costco in
Canada;
-- Platinum Card linked to American Express Brokerage providing
exclusive benefits to customers;
-- Corporate Purchasing Card in Argentina;
-- American Express Business Card in Taiwan and Hong Kong;
-- India's first co-branded Telecom Credit Card with MTNL; and
-- The first affinity card in Argentina together with IAE, the
Austral University School of Business.
- Launched/announced several new network card products and agreements:
-- Personal and Gold credit cards with Bangkok Bank in Thailand;
-- Hong Leong Bank Classic and Gold American Express Credit Cards in
Malaysia;
-- American Express-branded credit cards in Argentina with Banco Rio
de la Plata;
-- The first locally-issued American Express Cards in Peru with
Banco de Credito and Interbank;
-- The An Shin e-card American Express Card in Taiwan with Aetna
Sinopac, a joint venture between Aetna Life Insurance and Bank
Sinopac;
-- The BankBoston American Express Card in Brazil; and
-- A new network agreement with Maduro and Curiel's Bank to issue
dual currency American Express Cards in the Netherlands Antilles
and Aruba.
- Signed an agreement with Delta Air Lines to extend our strategic
partnership, which includes offering cobranded Delta SkyMiles Credit
Cards and participation in the Membership Rewards program;
- Added several new partners to AXP's International Airline Program,
benefiting Centurion and Platinum Card members;
- Entered into a new global partnership with JCB covering their merchant
businesses in Japan, which includes reciprocal card acceptance,
merchant acquisition and merchant processing/servicing agreements;
- Signed an agreement with Western Union Financial Services, Inc. to
provide Western Union Money Transfer services to consumers at American
Express owned and operated ATMs;
- Signed a global distribution agreement with Credit Suisse Private
Banking to market American Express Funds on their "Fund Lab" website;
- Announced a strategic alliance between AEFA and Wells Fargo to
distribute investment and annuity products and introduce two new
annuities;
- Signed an agreement to sell all of the assets of Havas Voyages'
leisure travel activity to C&N Touristic; and
- Announced an investment in and marketing agreement with Indigo for its
new public corporate jet service.
1
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000
-------------------
HIGHLIGHTS (cont'd)
-------------------
o American Express continued to implement its internet strategy as it:
- Signed an agreement with SAPMarkets to integrate the Corporate
Purchasing Card platform into the SAP(TM) Business-to-Business
Procurement(TM) application;
- Introduced a Web-based corporate travel booking system, Corporate
Travel Online, with GetThere.com;
- Entered into a strategic agreement with VeraSign and Ariba to deliver
the first integrated card payment processing utility for online
business-to-business transactions;
- Formed a marketing alliance with priceline.com whereby Small Business
Services' charge cards, credit cards and lines of credit will be the
'premier' payment products at priceline.com's B2B portal;
- Announced internet auto insurance shopping from AXP Property Casualty
companies;
- Launched the American Express Mortgage Center, an online supermarket
that offers access to mortgage products, one-stop access to lenders,
financial tools and information; and
- Announced investments in:
-- Protege, an integrated network of businesses and services
designed to build internet businesses in Europe;
-- HealthAllies.com, a consumer exchange for health services;
-- Slam Dunk Networks, Inc., which operates the internet's first
global infrastructure guaranteeing transaction message delivery
and tracking;
-- OutPurchase.com, an online purchasing solution for small and
medium-sized businesses in the U.S.;
-- WR Hambrecht & Co., an online investment bank;
-- The EC Company, a provider of e-commerce solutions for mid-sized
suppliers through its Internet Transaction Exchange; and
-- AvantGo, Inc., a business-to-business mobile internet company.
o Additional progress was made in broadening relationships with existing AXP
customers as:
- Spending and lending balances per cardmember continued to increase;
- Approximately 30% of new AEFA clients were again obtained from the
cardmember base; and
- AEFA-manufactured certificates and mutual funds sold by AEB to its
international clients continued to grow.
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
CONSOLIDATED
------------
(unaudited)
(millions, except per share amounts)
Quarters Ended Percentage
June 30, Inc/(Dec)
------------------------------ -----------------
2000 1999
---- ----
<S> <C> <C> <C>
Consolidated revenues:
Net (managed basis) $5,558 $4,811 16%
===== ======
GAAP reporting basis $5,970 $5,298 13%
====== ======
NET INCOME: $740 $646 15%
==== ====
EPS:
Basic $0.56 $0.48 17%
===== =====
Diluted $0.54 $0.47 15%
===== =====
</TABLE>
o CONSOLIDATED REVENUES: Grew from an increase in cards in force, strong card
spending, larger loan balances, and higher managed assets.
o CONSOLIDATED EXPENSES: Rose due to greater marketing and promotion and
interest costs, larger provisions for losses, and higher human resource and
operating expenses.
o SHARE REPURCHASES: 5.4MM shares were purchased in 2Q '00; since the
inception of repurchase programs in September 1994, 331.8MM shares have
been acquired.
<TABLE>
Millions of Shares
-----------------------------------------
<S> <C> <C> <C>
- AVERAGE SHARES: 2Q '00 1Q '00 2Q '99
------ ------ ------
Basic 1,328 1,331 1,342
===== ===== =====
Diluted 1,361 1,362 1,371
===== ===== =====
- ACTUAL SHARES:
Shares outstanding -
beginning of period 1,334 1,341 1,350
Repurchase of common shares (5) (8) (7)
Employee benefit plans,
compensation and other 4 1 4
Shares outstanding-end of period 1,333 1,334 1,347
</TABLE>
CORPORATE AND OTHER
-------------------
o The 2Q '00 net expense of $47MM compared with $45MM in 2Q '99 and 1Q '00.
Included in the results is a gain related to the completion of sales of
assets transferred from AEB in the early 1990's after the decision to
discontinue LDC lending activities. This gain was offset by higher internet
related spending and, therefore, had no material impact on the reported net
expense.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
TRAVEL RELATED SERVICES
-----------------------
(preliminary) Statements of Income
--------------------
(unaudited, managed basis)
Quarters Ended Percentage
(millions) June 30, Inc/(Dec)
--------------------- ---------------
2000 1999
---- ----
<S> <C> <C> <C>
Net revenues:
Discount revenue $1,949 $1,662 17%
Net card fees 411 393 5
Travel commissions and fees 507 469 8
Other revenues 848 669 27
Lending:
Finance charge revenue 948 684 39
Interest expense 385 208 85
----- -----
Net finance charge revenue 563 476 18
----- -----
Total net revenues 4,278 3,669 17
Expenses:
Marketing and promotion 330 267 24
Provision for losses and claims:
Charge card 344 288 19
Lending 332 260 28
Other 20 14 42
----- -----
Total 696 562 24
----- -----
Charge card interest expense 350 257 36
Human resources 1,028 968 6
Other operating expenses 1,147 987 16
----- -----
Total expenses 3,551 3,041 17
----- -----
Pretax income 727 628 16
Income tax provision 255 217 17
----- -----
Net income $472 $411 15
===== =====
</TABLE>
Note: Unless indicated otherwise, the following discussion addresses the
"managed basis" Statements of Income. The GAAP Statements of Income are also
included in the Company's Earnings Release.
o Revenues benefited from increased cards in force, higher worldwide billed
business and strong growth in cardmember loans outstanding.
o The higher expenses reflect increased operating costs, primarily due to
business growth, greater provisions for losses, higher interest expenses
and larger marketing and promotion expenditures.
o Under Statement of Financial Accounting Standards No. 125 (SFAS 125), which
prescribes the accounting for securitizations, TRS recognized pre-tax gains
of $80MM ($52MM after-tax) in 2Q '00 and $99MM ($64MM after-tax) in 2Q '99
related to the securitization of $2.2B and $2.5B of U.S. Lending
receivables, respectively. These gains were offset by higher expenses
related to card acquisition initiatives and, therefore, had no material
impact on net income or total expenses in either period.
For purposes of the above "managed basis" Statements of Income, which
present TRS' results as if there had been no securitizations, such gains
(reported on the GAAP Statements of Income as a $53MM and $62MM reduction
in the Lending Provision for Losses in 2Q '00 and 2Q '99, respectively, and
increases in Other Revenue and Lending Interest Expense) and corresponding
growth in Marketing and Promotion and Other Operating Expenses have been
eliminated.
o During 2Q '00 TRS recognized a gain (reported in Other Operating Expenses)
on the sale of the leisure travel activities of Havas Voyages in France.
This gain was offset by higher investments in internet related activities,
and other business building initiatives, and, therefore, had no material
impact on net income or total expenses.
o The pre-tax margin was 17.0% in 2Q '00 versus 17.1% last year as we
continued to invest heavily in business building activities.
o The effective tax rate was 35% in 2Q '00, 2Q '99 and 1Q '00.
4
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
TRAVEL RELATED SERVICES (Cont'd)
--------------------------------
o DISCOUNT REVENUE: Stronger billed business and a lower discount rate
yielded a 17% increase in discount revenue.
- The average discount rate in 2Q '00 was 2.69% versus 2.73% in 2Q '99
and 2.72% in 1Q '00. The decline reflects the cumulative impact on our
mix of business of stronger than average growth in lower rate retail
and other "everyday spend" merchant categories (e.g., supermarkets,
discounters, etc.)
-- We believe the AXP value proposition is strong. However,
continued changes in the mix of business, the continued shift to
electronic data capture, volume related pricing discounts, and
selective repricing initiatives will probably result in some rate
erosion over time.*
<TABLE>
<CAPTION>
Quarters Ended Percentage
June 30, Inc/(Dec)
------------------ ---------
2000 1999
---- ----
<S> <C> <C> <C>
Card billed business (billions):
United States $55.8 $46.0 22%
Outside the United States 18.7 16.4 13
----- -----
Total $74.5 $62.4 19
===== =====
Cards in force (millions):
United States 32.5 28.7 13
Outside the United States 16.9 15.2 11
----- -----
Total 49.4 43.9 12
===== =====
Basic cards in force (millions):
United States 25.3 22.5 13
Outside the United States 12.9 11.7 10
----- -----
Total 38.2 34.2 12
===== =====
Spending per basic card in force (dollars) (a):
United States $2,242 $2,081 8
Outside the United States $1,688 $1,587 6
Total $2,085 $1,933 8
</TABLE>
(a) Proprietary card activity only.
- BILLED BUSINESS: The 19% increase in billed business resulted from
higher spending per basic cardmember worldwide (due in part to
increased merchant coverage and the benefits of rewards programs) and
growth in cards in force.
-- U.S. billed business increased 22% reflecting continued strong
growth, in excess of 20%, within the consumer and small business
areas and double-digit volume expansion within Corporate
Services.
- Spending per basic card in force grew 8% despite the
dilutive effect of four consecutive quarters of particularly
strong card growth.
-- Excluding foreign exchange translation:
- Total billed business outside the U.S. rose approximately
18% on strong double-digit increases in all regions.
- Spending per proprietary basic card in force outside the
U.S. rose 11%.
-- Network partnership and Purchasing Card volumes sustained their
stronger growth levels, in excess of the consolidated worldwide
billed business growth rate.
-- Retail and "everyday spend" categories continued to contribute
strongly to worldwide business growth.
-- Airline related volume rose double digits as the average airline
charge was up and transaction volume increased.
- Cards in force worldwide rose 12% versus last year.
-- Strong U.S. card acquisitions during the quarter (1.1MM net new
cards added) reflect the continuation of proactive consumer card
and small business services activities, including the successful
launch of Blue and co-branded Costco cards.
-- Outside the United States, cards in force rose 11% on continued
proprietary card growth and particularly strong network card
results.
5
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
TRAVEL RELATED SERVICES (Cont'd)
--------------------------------
o NON-AMEX BRANDED STATISTICS: Total cards in force and billed
business exclude activities on Non-Amex Branded cards (Visa and
Eurocards) issued in connection with joint venture activities.
These are now reported as separate line items within TRS'
selected statistical information. This disclosure is consistent
with our previously discussed plans to broaden the scope of our
card activities through possible acquisitions of card portfolios
and additional joint ventures.
<TABLE>
<CAPTION>
Quarters Ended Percentage
June 30, Inc/(Dec)
----------------------- -----------
2000 1999
---- ----
<S> <C> <C> <C>
Cards in force (millions) 0.6 0.2 #
Billed business (billions) $0.7 $0.2 #
</TABLE>
# Denotes variance greater than 100%.
o NET CARD FEES: Rose 5% as new cards in force were added. The average fee
per card in force declined to $36 in 2Q '00, versus $38 in 2Q '99 and $37
in 1Q '00, as the mix evolved toward lower and no fee products.
o TRAVEL COMMISSIONS AND FEES: Were up 8% on 3% growth in travel sales. The
revenue earned per dollar of sales (8.2% in 2Q '00 and 7.8% in 2Q '99)
reflects new fees related to certain client services, which were partially
offset by continued efforts by airlines to reduce distribution costs and by
corporate clients to contain travel and entertainment expenses.
o OTHER REVENUES: Increased 27% due to higher lending and membership rewards
fees, greater foreign exchange conversion revenues, Tax and Business
Services and ATM acquisitions, and larger interest revenues.
o NET FINANCE CHARGE REVENUE: Rose 18% on strong 42% growth in worldwide
lending balances, which was partially offset by lower net interest yields.
- The yield on the U.S. portfolio declined to 7.4% in 2Q '00 versus 9.3%
in 2Q '99 as funding costs rose, a higher proportion of the portfolio
was on introductory rates and the mix of products evolved toward more
fixed-rate and lower-rate offerings. The yield decline from 7.8% in 1Q
'00 reflects the lagged effect of interest rate increases on the
revenue earned from cardmembers and the evolving mix of products.
- The variance between the gross revenue and interest expense growth
rates of 39% and 85%, respectively, also reflects the evolving mix of
products and the lagged effect of higher interest rates.
o MARKETING AND PROMOTION EXPENSES: Increased by 16% on a GAAP reporting
basis on expanded card acquisition and media advertising activities. On a
Managed Statement of Income basis, expenses were 24% higher after the
elimination of expenses corresponding to the SFAS 125 gain.
o CHARGE CARD INTEREST EXPENSE: Rose 36% due to higher billed business
volumes and a greater worldwide cost of funds.
o HUMAN RESOURCE EXPENSES: Increased 6% versus last year as a result of a
higher average number of employees and merit increases.
- The employee count at 6/00 of 73,800 was up approximately 2,300 versus
last year and 70 versus 1Q '00 primarily due to increased global
technology business demands, greater business volumes and the
substitution of contract programmers with full-time employees.
o Other operating expenses: Rose 16% on higher costs related to business
growth, cardmember loyalty programs, professional fees for the outsourcing
of certain collection activities and various business building initiatives.
6
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
TRAVEL RELATED SERVICES (Cont'd)
--------------------------------
o CREDIT QUALITY:
- Overall, charge card and lending credit quality improved in the
quarter and versus last year.
- The provision for losses on charge card products was 19% above last
year due to higher volumes.
- The lending provision for losses was 28% above last year, as growth in
outstanding loans was partially offset by improved credit quality.
- Reserve coverage ratios at more than 100% of past due balances
remained strong.
- WORLDWIDE CHARGE CARD:
-- The write-off rate stayed near its historically low level, rising
slightly from last quarter, but remaining below last year. Past
due rates improved versus last year and last quarter.
<TABLE>
<CAPTION>
6/00 3/00 6/99
------- ------- -------
<S> <C> <C> <C>
Loss ratio, net of recoveries 0.36% 0.34% 0.39%
90 days past due as a % of receivables 2.4% 2.6% 2.6%
</TABLE>
-- Reserve coverage of past due accounts remained strong.
<TABLE>
<CAPTION>
6/00 3/00 6/99
------- ------ -----
<S> <C> <C> <C>
Reserves (MM) $986 $894 $932
% of receivables 3.6% 3.3% 3.8%
% of past due accounts 153% 129% 148%
</TABLE>
- U.S. Lending:
-- The write-off and past due rates improved from last year and last
quarter.
6/00 3/00 6/99
<TABLE>
<CAPTION>
------- ------ ------
<S> <C> <C> <C>
Write-off rate, net of recoveries 4.4% 4.6% 5.3%
30 days past due as a % of loans 2.4% 2.6% 2.7%
</TABLE>
-- The cardmember lending reserve coverage of past due accounts
remained strong.
<TABLE>
<CAPTION>
6/00 3/00 6/99
------- ------ ------
<S> <C> <C> <C>
Reserves (MM) $686 $689 $602
% of total loans 2.6% 2.8% 3.3%
% of past due accounts 109% 109% 124%
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
AMERICAN EXPRESS FINANCIAL ADVISORS
-----------------------------------
(Preliminary) Statements of Income
--------------------
(unaudited)
(millions) Quarters Ended Percentage
June 30, Inc/(Dec)
------------------- ------------
2000 1999
---- ----
<S> <C> <C> <C>
Revenues:
Investment income $592 $615 (4)%
Management and distribution fees 701 553 27
Other revenues 248 226 9
----- -----
Total revenues 1,541 1,394 11
Provision for losses and benefits:
Annuities 254 273 (7)
Insurance 138 132 5
Investment certificates 68 73 (6)
----- -----
Total 460 478 (4)
----- -----
Total net revenues 1,081 916 18
----- -----
Expenses:
Human resources 528 430 23
Other operating expenses 156 133 17
----- -----
Total expenses 684 563 21
----- -----
Pretax income 397 353 12
Income tax provision 122 111 9
----- -----
Net income $275 $242 14
===== =====
</TABLE>
o Net revenue growth of 18% resulted from:
- Increased management fees from larger managed asset levels;
- Greater distribution fees from product sales and asset levels; and
- Higher insurance premiums.
o Pretax margin trends reflect higher human resource expenses on
substantially greater sales and asset levels, and expenses related to
various business building initiatives. Core operating expense growth was
well controlled.
o The effective tax rate was 30.5% in 2Q '00, 31.4% in 2Q '99 and 31.0% in 1Q
'00. 2Q '00 includes the realization of greater tax credits from affordable
housing project investments which should continue to provide tax benefits
in future quarters.
o During 1Q '00, reporting of data related to assets owned, managed and
administered and product sales was revised to better reflect AEFA's
multiple sales channel strategy and the broadening of its product portfolio
through additional non-proprietary offerings. Prior reporting did not
capture the full range of products sold by AEFA. Therefore, asset and sales
data now include all proprietary, non-proprietary and retirement services
(e.g., 401k) products. All non-proprietary product related assets held
within a "wrap-like" program are now included in "Assets Managed". All
other non-proprietary product related assets are included in "Assets
Administered", as are other non-proprietary assets within retirement
services. All prior period results have been restated to conform with this
presentation.
8
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
FIRST QUARTER 2000 OVERVIEW
---------------------------
AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd)
--------------------------------------------
<TABLE>
<CAPTION>
o ASSETS OWNED, MANAGED AND ADMINISTERED:
Percentage
(billions) June 30, Inc/(Dec)
------------------- ---------
2000 1999
---- ----
<S> <C> <C> <C>
Assets owned (excluding separate accounts) $39.9 $37.8 6%
Separate account assets 36.5 30.1 21
Assets managed 175.7 151.9 16
Assets administered 34.1 20.8 64
------ ------
Total $286.2 $240.6 19
====== ======
</TABLE>
o INVESTMENT INCOME:
- Gross investment income decreased 4% due to a lower average yield on
invested assets and a decrease in the value of options hedging
outstanding stock market certificates.
- Average invested assets of $33.3B (excluding unrealized
appreciation/depreciation) rose versus $31.4B in 2Q '99.
- The average yield on invested assets was 7.3% versus 7.5% in 2Q '99.
- Insurance, annuity and certificates spreads were down versus last year
and last quarter.
o Asset Quality remains strong despite some deterioration in the high yield
portfolio.
- Non-performing assets relative to invested assets were 0.6% and were
39% covered by reserves.
- The SFAS No. 115 related mark-to-market adjustment on the portfolio
(reported in assets pre-tax) was depreciation of ($999MM) at 6/00
versus ($881MM) at 3/00 and ($217MM) at 6/99.
- Unrealized depreciation on securities held to maturity was ($147MM) at
6/00 and ($63MM) at 3/00 compared with appreciation of $167MM at 6/99.
o MANAGEMENT AND DISTRIBUTION FEES: The increase of 27% was due to higher
average assets under management, distribution fees from greater mutual fund
sales and asset levels, and higher brokerage fees.
- ASSETS MANAGED:
<TABLE>
<CAPTION>
Percentage
(billions) June 30, Inc/(Dec)
------------------ ---------------
2000 1999
---- ----
<S> <C> <C> <C>
Assets managed for individuals $119.6 $102.1 17%
Assets managed for institutions 56.1 49.8 13
Separate account assets 36.5 30.1 21
------ ------
Total $212.2 $182.0 17
====== ======
</TABLE>
-- The growth in managed assets since 6/99 resulted from $21.6B of
market appreciation and $8.6B of net new money.
-- The $6.3B decrease in managed assets during 2Q '00 resulted from
net new money of $2.5B, offset by market depreciation of $8.8B.
o PRODUCT SALES:
- Total gross cash sales from all products were up 16% over 2Q '99.
- Mutual fund sales increased 17% on particularly strong non-proprietary
fund sales, especially in "wrap" accounts. Within proprietary funds:
-- Equity and money market fund sales grew; sales of bond funds
declined.
-- Sales of no-load funds improved; front-load and rear-load fund
sales were down.
-- Redemption rates continued to compare favorably with industry
levels.
- Annuity sales were up 60%, as variable annuity sales were particularly
strong as a result of new product offerings.
- Sales of insurance products increased 30% from new product offerings.
- Certificate sales rose 4% reflecting the growth of certificates sold
to clients outside the U.S. through a joint venture between AEFA and
AEB.
- Institutional sales increased 9% reflecting both new accounts and
additional contributions.
- Product sales generated through financial planning and advice services
were 66% of total sales in 2Q '00 and 65% in 2Q '99.
9
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd)
--------------------------------------------
o OTHER REVENUES: Were up 9% reflecting higher life and property-casualty
insurance premiums and greater fees from financial planning and advice
services.
- Financial planning and advice services fees of $23.9MM rose 5% versus
2Q '99. The relatively slower growth versus recent quarters reflects
the field force focus on the platform transition process.
o Provisions for losses and benefits: Lower annuity product provisions
resulted from a smaller fixed annuity inforce level. Insurance provisions
rose reflecting a larger inforce level and, to a lesser extent, a higher
accrual rate. Certificate provisions decreased as a higher inforce level
and accrual rate were offset by the effect of depreciation in the S&P 500
on the stock market certificate product.
o HUMAN RESOURCES: Expenses were up 23% because of larger field force
compensation-related expenses due to growth in sales and asset levels, the
new advisor platforms, as well as higher home office expenses reflecting
growth in the client services organization and costs for technology-related
initiatives.
- TOTAL ADVISOR FORCE: 11,486 at 6/00; +997 advisors, or 10%, versus
6/99 and up 392 advisors versus 3/00.
-- The increase in advisors versus 3/00 reflects appointments
related to the growing number of advisors in the pipeline over
the last 6-9 months, partially offset by transitional factors
related to the implementation of the platform strategy.
- Recruiting of experienced advisors, a key platform
implementation goal, again showed good results in the
quarter.
- Veteran advisor retention rates remain strong.
-- We continue to be optimistic about advisors in the pipeline as 2Q
'00 applicant testing levels and hires, who are not appointed to
advisor status until training and licensing is completed
(typically 12-16 weeks), were both up versus 2Q '99*.
-- Overall, field force dynamics were somewhat negatively impacted
by transitional factors related to the platform implementation
process. While production increased double digits versus last
year, advisor productivity and client acquisition rose only
slightly.
-- The total number of clients was up 8% while accounts per client
were flat versus 2Q '99. Client retention continued above 95%.
o OTHER OPERATING EXPENSES: The 17% increase reflects costs related to higher
business volumes, the implementation of the new advisor platforms, new
product development, the evolution of online transaction and third-party
distribution capabilities and greater rent and equipment support costs for
new advisors.
10
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE
--------------------------------------
<TABLE>
<CAPTION>
(Preliminary) Statements of Income
--------------------
(unaudited)
(millions) Quarters Ended Percentage
June 30, Inc/(Dec)
---------------- -------------
2000 1999
---- ----
<S> <C> <C> <C>
Net revenues:
Interest income $183 $183 -%
Interest expense 120 108 11
---- ----
Net interest income 63 75 (16)
TC investment income 98 86 14
Commissions and fees 59 47 26
Foreign exchange income and other revenue 42 51 (18)
---- ----
Total net revenues 262 259 1
---- ----
Expenses:
Human resources 84 85 -
Other operating expenses 159 150 5
Provision for losses 15 18 (16)
---- ----
Total expenses 258 253 2
---- ----
Pretax income 4 6 (34)
Income tax benefit (36) (32) 13
---- ----
Net income $40 $38 6
==== ====
</TABLE>
o Net income at both American Express Bank and Travelers Cheque was up versus
last year.
o Revenues rose 1% as higher commissions and fees and TC investment income
were offset by lower foreign exchange and other revenue and net interest
income. AEB's two individual oriented businesses continued to grow as
Private Banking client holdings rose 35% and client volumes in Personal
Financial Services increased 26%.
- Net interest income at AEB was down 16% versus last year primarily due
to the effects of a lower loan portfolio and higher funding costs.
- TC investment income increased 14% reflecting a higher TC investment
pool and growth in Money Order related activities.
- Commissions and fees rose 26% on higher Private Banking, Correspondent
Banking and Personal Financial Services fees.
- Foreign exchange income and other revenue declined due to lower
security gains and joint venture earnings.
o Human resources expense was flat reflecting personnel reductions as AEB
rationalizes certain country activities. Other operating expenses increased
5% as Travelers Cheque business building initiatives were partially offset
by lower costs at AEB.
o AEB remained "well capitalized".
<TABLE>
<CAPTION>
6/00 3/00 6/99 Well-Capitalized
---------- -------- ----------- ---------------------
<S> <C> <C> <C> <C>
Tier 1 10.3% 10.1% 9.8% 6.0%
Total 11.9% 11.6% 12.1% 10.0%
Leverage Ratio 5.8% 5.6% 5.7% 5.0%
</TABLE>
11
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE (Cont'd)
-----------------------------------------------
o EXPOSURES
- AEB's loans outstanding were $5.1B at 6/00 versus $5.2B at 6/99 and
$5.0B at 3/00. The reduction since 6/99 resulted from a $330MM
decrease in corporate and correspondent bank loans and a $500MM
increase in consumer and private banking loans, before the effect of
asset sales and securitizations. Compared to 1Q '00, corporate,
correspondent bank, consumer and private banking loans were basically
flat. As of 6/00, consumer and private banking loans comprised 37% of
total loans versus 33% at 6/99.
- In addition to the loan portfolio, there are other banking activities,
such as forward contracts, various contingencies and market
placements, which added approximately $7.2B to the credit exposures at
6/00, $7.6B at 6/99, and $7.7B at 3/00. Of the $7.2B of additional
exposures at 6/00, $4.8B were relatively less risky cash and
securities related balances.
<TABLE>
<CAPTION>
($ in billions) 6/30/00
-----------------------------------------------------------
Net
Guarantees 3/31/00
FX and and Total Total
Country Loans Derivatives Contingents Other(1) Exposure(2) Exposure(2)
------- ----- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong $0.5 - $0.1 $0.1 $0.6 $0.7
Indonesia 0.1 - 0.1 0.1 0.3 0.3
Singapore 0.5 - 0.1 0.1 0.6 0.7
Korea 0.2 - - 0.3 0.5 0.4
Taiwan 0.2 - - 0.1 0.4 0.4
China - - - - - -
Japan - - - - 0.1 0.1
Thailand - - - - - -
Other 0.1 - - 0.1 0.2 0.3
---- ---- ---- ---- ---- ----
Total Asia/Pacific Region (2) 1.6 - 0.4 0.7 2.7 2.9
---- ---- ---- ---- ---- ----
Chile 0.2 - - 0.1 0.4 0.4
Brazil 0.2 - - 0.1 0.3 0.3
Mexico 0.1 - - - 0.1 0.1
Peru - - - - - -
Argentina 0.1 - - - 0.1 0.1
Other 0.2 - 0.2 0.1 0.5 0.5
---- ---- ---- ---- ---- ----
Total Latin America (2) 0.9 - 0.2 0.3 1.4 1.3
---- ---- ---- ---- ---- ----
India 0.3 - 0.1 0.3 0.7 0.7
Pakistan 0.1 - - 0.2 0.3 0.3
Other 0.1 - 0.1 0.1 0.2 0.2
---- ---- ---- ---- ---- ----
Total Subcontinent (2) 0.5 - 0.2 0.6 1.2 1.2
---- ---- ---- ---- ---- ----
Egypt 0.3 - - 0.2 0.5 0.5
Other 0.1 - - - 0.2 0.2
---- ---- ---- ---- ---- ----
Total Middle East and Africa (2) 0.4 - 0.1 0.2 0.7 0.8
---- ---- ---- ---- ---- ----
Total Europe (2) (3) 1.4 $0.1 0.5 2.3 4.4 4.7
Total North America (2) 0.3 0.1 0.2 1.3 1.8 1.8
---- ---- ---- ---- ---- ----
Total Worldwide (2) $5.1 $0.2 $1.5 $5.4 $12.3 $12.7
==== ==== ==== ==== ===== =====
</TABLE>
(1) Includes cash, placements and securities.
(2) Individual items may not add to totals due to rounding.
(3) Total exposures at 6/30/00 and 3/31/00 include $5MM and $10MM of
exposures to Russia, respectively.
Note: Includes cross-border and local exposure and does not net local
funding or liabilities against any local exposure.
12
<PAGE>
AMERICAN EXPRESS COMPANY
------------------------
SECOND QUARTER 2000 OVERVIEW
----------------------------
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE (Cont'd)
-----------------------------------------------
o Total non-performing loans for AEB of $174MM were down from $210MM at 6/99
and flat with 3/00. The decline versus last year reflects write-offs,
mainly in Indonesia, and loan payments.
o Other non-performing assets at AEB of $36MM at 6/00, primarily foreign
exchange and derivatives contracts, decreased from $55MM at 6/99, and
compared with $31MM at 3/00. The decline versus last year primarily
reflects upgrades of the risk status of assets and write-offs, mainly in
Indonesia.
o AEB's total reserves at 6/00 of $187MM compared with $249MM at 6/99 and
$189MM at 3/00 and are allocated as follows:
<TABLE>
<CAPTION>
(millions) 6/00 3/00 6/99
-------- -------- -----------
<S> <C> <C> <C>
Loans $166 $170 $216
Other Assets, primarily derivatives 16 15 32
Other Liabilities 5 4 1
---- ---- ----
Total $187 $189 $249
==== ==== ====
</TABLE>
- The decline versus 6/99 reflects the write-offs cited above.
o Management formally reviews the loan portfolio and evaluates credit risk
throughout the year. This evaluation takes into consideration the financial
condition of the borrowers, fair market value of collateral, status of
delinquencies, historical loss experience, industry trends, and the impact
of current economic conditions. As of June 30, 2000 management believes the
loss reserve is appropriate.
13
