American Express Company — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. American Express is a global payments and financial services company operating U.S. Card Services, International Card Services, Global Commercial Services, and Global Network & Merchant Services. The filing incorporates its full financial statements and MD&A by reference to its 2013 Annual Report; the supplied filing text does not provide a clear cash-flow statement or complete segment results.
Financial performance and condition
| Metric | 2013 | Prior period / change |
|---|---|---|
| Revenue, net of interest expense | $33.0 billion | Up 4% from $31.6 billion in 2012 |
| Net income | $5.359 billion | Up 20% from $4.482 billion |
| Diluted EPS attributable to common shareholders | $4.88 | Up 25% from $3.89 |
| Return on average equity | 27.8% | 23.1% in 2012 |
| Net interest income | $5.047 billion | $4.628 billion in 2012 |
| Net yield on average interest-earning assets | 5.6% | 5.2% in 2012 |
| Worldwide billed business | $952.4 billion | Up 7%; 107.2 million Cards-in-force at year-end |
| Average discount rate | 2.51% | 2.52% in 2012 |
| Card Member loans at year-end | $67.238 billion | $65.229 billion in 2012 |
| Card Member receivables at year-end | $44.163 billion | $42.766 billion in 2012 |
| U.S. retail deposits at year-end | Approximately $40.8 billion | Not directly comparable in the supplied text |
| Available-for-sale securities at year-end | $5.016 billion | $5.614 billion in 2012 |
Credit quality remained strong: principal-only net write-offs on Card Member loans were 1.8% of average loans, down from 2.1%; the rate including interest and fees was 2.0%, versus 2.3%. Receivables net write-offs were 1.6%, compared with 1.5% in 2012. Management said delinquency remained consistently low and lending write-off rates were at historically low levels.
Average total assets were $152.281 billion and average shareholders’ equity was $19.254 billion. Average interest-bearing liabilities were $99.273 billion, including average long-term debt of $54.678 billion. These are average-balance disclosures, not year-end debt figures; the supplied text does not provide a clear total year-end debt value or cash-flow totals. The company described its capital position as strong; its U.S. banking subsidiaries were considered well capitalized at year-end.
Material changes and notable developments
- Revenue, net income, EPS, billed business, and net interest income increased year over year; the average discount rate edged lower.
- U.S. Card Member loans grew, while loan write-off rates continued to improve. The company cautioned that those rates were likely to rise from unusually low levels.
- The company repurchased approximately 9.54 million shares in the fourth quarter at an average $83.84 per share. Dividends declared per share for 2013 were $0.89, up from $0.80.
- American Express sold its publishing business in October 2013 and sold its wholesale tour operator business; it also closed its remaining company-owned travel service offices.
- The company announced plans to establish a Global Business Travel joint venture, with American Express expecting to retain approximately 50% ownership. Completion remained subject to definitive agreements and approvals.
Outlook, risks, and contingencies
- Management commentary: Management cited healthy spending growth, continuing strong credit quality, expense control, and investment in growth. It expected lending write-off rates to increase from historically low levels and anticipated continued pressure on the average discount rate.
- Competition and technology: Alternative payment providers, digital wallets, mobile commerce, and bank-transfer options could pressure transaction volumes, merchant fees, and access to closed-loop transaction data.
- Regulation and merchant rules: Proposed U.S. merchant-settlement terms would permit certain surcharges on American Express cards, subject to equal-treatment conditions. Final court approval was pending. Proposed EU payments legislation could affect pricing, merchant rules, and partner arrangements.
- Regulatory settlements: In December 2013, the company and banking subsidiaries agreed to pay $16.2 million in civil penalties and provide at least $59.5 million in customer remediation over marketing and billing practices for card add-on products.
- Legal exposure: For disclosed matters where losses were reasonably possible and estimable, the aggregate estimated range was $0 to $440 million in excess of related accrued liabilities, if any. The filing says this is not the maximum possible exposure. Material proceedings included merchant antitrust and acceptance-rule litigation and Canadian foreign-currency-conversion class actions.
- Funding and capital: The company relies on deposits, debt issuance, securitizations, and other funding sources. Market disruption, ratings changes, deposit competition, and evolving Basel III, liquidity, stress-testing, and capital-planning requirements could constrain funding or capital distributions.
- Other risks: Economic weakness, foreign exchange movements, cybersecurity and data privacy, partner and airline-industry concentration, and execution risks in new products and the proposed travel joint venture could adversely affect results.
Important facts for investors to verify
- Review the incorporated 2013 Annual Report for full consolidated cash flows, year-end debt, liquidity detail, capital ratios, and segment-level revenue and earnings.
- Check whether the merchant settlement received final approval and how any surcharge-rule changes affect merchant acceptance, billed business, and discount revenue.
- Track credit performance as write-off rates normalize from historically low levels, including delinquency, loan provisions, and receivables losses.
- Assess deposit funding, securitization access, debt ratings, and capital requirements against the company’s liquidity needs and planned dividends or repurchases.
- Monitor the Global Business Travel joint venture’s closing conditions, ownership terms, and subsequent operating performance, as well as outcomes of material litigation and regulatory matters.