Business Context and Reporting Period
This Form 8-K, filed on April 15, 2010, by American Express Company, provides Regulation FD disclosure regarding delinquency and write-off statistics for the U.S. Card Services (USCS) operating segment. The data covers the months ended January 31, February 28, and March 31, 2010, as well as the aggregate three-month period ended March 31, 2010.
Key Financial Metrics
The filing focuses on credit performance metrics for the USCS lending portfolio rather than consolidated revenue or profit figures.
| Metric | Jan 31, 2010 | Feb 28, 2010 | Mar 31, 2010 | Three Months Ended Mar 31, 2010 |
|---|---|---|---|---|
| Total Loans (Billions) | $50.9 | $49.2 | $49.2 | $49.2 |
| Average Loans (Billions) | $51.7 | $50.1 | $49.2 | $50.5 |
| 30+ Days Past Due (% of Total) | 3.6% | 3.6% | 3.3% | 3.3% |
| Net Write-off Rate | 7.0% | 7.4% | 7.5% | 7.2% |
Additionally, the American Express Credit Account Master Trust (Lending Trust) reported an annualized default rate, net of recoveries, of 7.6% for the period ending March 25, 2010, with an ending total principal balance of $32.6 billion.
Material Changes
- Sequential Increase in Write-offs: The net write-off rate for the USCS portfolio increased sequentially from 7.0% in January to 7.4% in February and 7.5% in March. Management stated this trend was consistent with previous disclosures anticipating an increase during the first quarter of 2010.
- Improvement in Delinquency: The percentage of loans 30 days past due declined from 3.6% in January and February to 3.3% in March.
- Portfolio Reduction: Total loans decreased from $50.9 billion in January to $49.2 billion in February and remained flat through March.
Guidance, Outlook, and Risks
Outlook: Management expects the USCS lending net write-off rate for the second quarter of 2010 to be lower than the first quarter, assuming past-due trends, recoveries, and bankruptcies remain consistent with levels observed in the third and fourth quarters of 2009.
Risks and Contingencies: The filing highlights several factors that could cause actual results to differ from expectations, including:
- The broader economic environment, specifically the housing market, unemployment rates, and bankruptcy filings.
- The effectiveness of the Company's credit models and efforts to manage delinquent cardmembers.
- Changes in loan balances and recovery rates.
Unusual Items: The filing notes that credit performance statistics for the Lending Trust may differ from the total USCS portfolio due to differences in loan mix (e.g., small business loans), vintage, and calculation methodologies (end-of-period balances vs. average balances).
Investor Verification Checklist
- Verify the sequential trend of net write-off rates against the Company's Q2 2010 guidance.
- Monitor the 30+ days past due ratio to assess if the March improvement to 3.3% is sustainable.
- Review the American Express Credit Account Master Trust Form 10-D filings to compare securitized loan performance against the total portfolio metrics provided here.
- Assess the impact of the declining total loan balance ($50.9B to $49.2B) on future revenue generation.
- Track macroeconomic indicators (unemployment, bankruptcies) cited as key drivers for future credit performance.