American Express Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless noted. American Express is a global payments company providing consumer and commercial cards, merchant and network services, and related financing and travel services.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue, net of interest expense | $9.064B | $10.310B | -12% |
| Provisions for credit losses | $(675)M benefit | $2.621B expense | $3.296B improvement |
| Total expenses | $6.746B | $7.237B | -7% |
| Pretax income | $2.993B | $452M | +$2.541B |
| Net income | $2.235B | $367M | +$1.868B |
| Diluted EPS | $2.74 | $0.41 | +$2.33 |
| Effective tax rate | 25.3% | 18.8% | +6.5 percentage points |
Revenue pressure reflected lower transaction volumes, travel-related fees and interest income. Discount revenue fell 10% to $5.242B; net card fees rose 13% to $1.253B; net interest income fell 21% to $1.830B. Average discount rate declined to 2.26% from 2.34%. The credit-loss benefit reflected reserve releases and lower write-offs, rather than recurring revenue growth. Pretax income included $377M of net unrealized gains on Amex Ventures equity investments; the prior-year gain was $15M.
Spending and credit: Worldwide network volumes decreased 6% to $269.3B, while billed business declined 7%. Volumes were down 17% year over year in January and February combined, then rose 23% in March. Goods and Services spend rose 8%; Travel and Entertainment fell 49%. Card Member loans were $70.1B, down 10% year over year; average loans fell 15%. Loan net write-off rate (principal only) improved to 1.4% from 2.5%, and 30+ day delinquencies fell to 0.9% from 1.7%. Management cautioned that credit outcomes for customers leaving relief programs remain uncertain.
Cash flow and balance sheet: Operating cash flow was $2.280B, versus $(2.219)B; investing cash flow was $4.774B, versus $21.927B; financing cash flow was $461M, versus $(5.418)B. Cash and cash equivalents were $40.280B at quarter-end. Cash plus investment securities totaled $61.6B, according to management. Total assets were $193.067B and shareholders’ equity was $24.449B. Total debt was $43.6B, down from $44.9B at year-end; customer deposits were $89.2B, up from $86.9B.
Capital and shareholder returns: The company’s CET1 ratio was 14.8%, above its 10–11% target range and 7.0% regulatory requirement. It returned $0.7B to common shareholders in Q1, including $0.3B in dividends and $0.4B in repurchases. Management planned up to approximately $0.9B of Q2 repurchases, subject to regulatory capacity and other conditions.
Material changes and management commentary
- Revenue remained below the prior-year level, but the pace of deterioration moderated as March volumes improved. International network volumes were down 10% (15% on an FX-adjusted basis), versus a 4% decline in the U.S.
- Consumer and commercial segments reported higher pretax income, primarily because of credit reserve releases compared with substantial reserve builds in Q1 2020. Global Merchant and Network Services pretax income declined 25% to $414M.
- Management described 2021 as a “transition year,” focused on investments to rebuild growth momentum, including card acquisition and marketing. It cited high cardmember retention, improving engagement and strong liquidity and capital.
- The filing gives no clear quantified full-year earnings or revenue guidance. Recovery depends in part on travel returning, continued spending improvement, credit performance and the path of the pandemic.
Risks, contingencies and unusual items
- COVID-19 resurgence, restrictions, uneven international recovery and uncertainty around travel could weigh on volumes, revenues and credit. Reserve releases depend on economic assumptions and could reverse.
- Financial-relief-program balances remained above pre-pandemic levels; post-program credit performance was uncertain.
- Regulatory inquiries include reviews of historical small-business card sales practices, a January 2021 grand jury subpoena and a CFPB information demand. The company said it was cooperating and did not expect a material adverse impact, but outcomes are uncertain.
- For material legal matters where loss is reasonably possible and estimable, the company disclosed a range of $0–$220M in excess of recorded accruals; this is not a maximum exposure. It also recorded a $78M accrual for cardmember protection exposures, including travel purchases, and said additional reasonably possible losses could not be quantified.
- A $55M one-time tax-provision charge accompanied the prospective adoption of the proportional amortization method for qualified affordable-housing investments. The company also cited competitive, regulatory, cyber, funding and partner-related risks.
Investor verification points
- Assess whether March’s spending rebound continued, particularly in U.S. and international travel, and whether the 49% T&E decline narrowed.
- Separate recurring operating performance from the $675M credit-loss benefit and $377M unrealized investment gain; monitor future reserve builds or releases.
- Track loan balances, net interest yield, paydown behavior, relief-program exits, delinquencies and write-offs as stimulus and forbearance effects change.
- Confirm the capacity and regulatory conditions for planned repurchases, and review liquidity, deposit funding and debt maturities.
- Follow developments in small-business sales-practices inquiries, merchant litigation and consumer-protection exposures, including whether accruals or disclosed loss ranges change.