Business Context and Reporting Period
This Form 8-K, filed on October 15, 2009, by American Express Company, provides Regulation FD disclosure regarding credit performance statistics for the U.S. Card Services (USCS) operating segment. The report covers the months ended July 31, August 31, and September 30, 2009, and the three-month period ended September 30, 2009. The data is presented on both an "owned basis" (GAAP) and a "managed basis" (including securitized loans).
Key Financial Metrics
U.S. Card Services Delinquency and Write-off Statistics (Preliminary)
| Metric | July 31, 2009 | Aug 31, 2009 | Sep 30, 2009 | 3 Months Ended Sep 30, 2009 |
|---|---|---|---|---|
| Owned Basis (Billions) | ||||
| Total Loans | $23.1 | $24.3 | $22.7 | $22.7 |
| 30+ Days Past Due % | 4.3% | 4.1% | 4.0% | 4.0% |
| Net Write-off Rate | 9.9% | 10.2% | 9.2% | 9.8% |
| Managed Basis (Billions) | ||||
| Total Loans | $52.9 | $53.0 | $51.9 | $51.9 |
| 30+ Days Past Due % | 4.2% | 4.1% | 4.1% | 4.1% |
| Net Write-off Rate | 9.2% | 9.0% | 8.4% | 8.9% |
American Express Credit Account Master Trust (Lending Trust)
| Period End | Ending Principal Balance | Defaulted Amount (Net) | Annualized Default Rate | 30+ Days Delinquent |
|---|---|---|---|---|
| July 26, 2009 | $33.2B | $0.3B | 8.9% | $1.5B |
| Aug 25, 2009 | $35.9B | $0.3B | 8.5% | $1.5B |
| Sep 24, 2009 | $35.0B | $0.2B | 8.1% | $1.5B |
Note: This filing does not provide consolidated revenue, profit, cash flow, or liquidity metrics for the entire company.
Material Changes and Explanations
- Owned Basis Write-off Rate: The net write-off rate on an owned basis increased to 10.2% in August 2009 from 9.9% in July. Management attributes this increase to calculation mechanics related to the transfer of approximately $3 billion of loans to the American Express Credit Account Master Trust on August 20, 2009, alongside maturities of previously issued certificates.
- Managed Basis Trends: On a managed basis, the net write-off rate improved sequentially from 9.2% in July to 9.0% in August and further to 8.4% in September.
- Lending Trust Performance: The annualized default rate for the Lending Trust declined from 8.9% in the period ending July 26 to 8.1% in the period ending September 24.
Outlook, Risks, and Management Commentary
Management emphasizes that the "managed basis" presentation offers a more comprehensive view of the U.S. cardmember lending business by including securitized loans. The filing includes forward-looking statements subject to significant risks, including:
- Macroeconomic Factors: Dependence on the economic environment, housing market conditions, unemployment rates, and bankruptcy filings.
- Credit Risk: The ability to manage credit risk for consumer and small business loans and the effectiveness of credit models.
- Future Write-offs: Near-term write-off rates for the fourth quarter of 2009 will depend on loan balance changes, delinquency rates, and bankruptcy filings.
- Marketing and Provisions: Uncertainty regarding marketing spend and potential provision benefits from lower-than-expected write-offs.
Key Facts for Investor Verification
- Verify the impact of the August 20, 2009, securitization transfer on the owned basis net write-off rate calculation.
- Compare the managed basis write-off rate (8.4% in September) against the owned basis rate (9.2% in September) to understand the full scope of credit exposure.
- Monitor the Lending Trust's annualized default rate trend (8.1% in late September) as an indicator of securitized loan performance.
- Review subsequent 10-Q filings for actual fourth-quarter 2009 write-off rates and provision benefits.
- Assess the divergence between the Lending Trust reporting period (approx. 25th to 25th) and the managed portfolio calendar month reporting.