American Express Company — Form 10-Q summary
Reporting period: Quarter ended September 30, 2021; comparisons are with the third quarter and nine months ended September 30, 2020. Amounts are U.S. dollars. Interim financial statements are unaudited.
Business context and performance
American Express operates a global payments network and issues consumer and commercial credit and charge cards, alongside merchant, network, travel and other services. Management said spending momentum strengthened in the quarter, while the recovery remained uneven by region and category. Year-over-year comparisons benefit from the substantial COVID-19 disruption in 2020.
- Third-quarter worldwide network volumes rose 29% year over year and were 5% above third-quarter 2019; billed business rose 31%.
- Goods and Services spending increased 18% year over year and was 20% above pre-pandemic levels. Travel and Entertainment spending more than doubled year over year but remained 29% below pre-pandemic levels.
- U.S. billed business was 9% above pre-pandemic levels; international billed business remained 8% below.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue, net of interest expense | $10.93B | $8.75B | $30.24B | $26.74B |
| Provision for credit losses | $(191)M benefit | $665M expense | $(1.47)B benefit | $4.84B expense |
| Pretax income | $2.45B | $1.36B | $8.38B | $2.44B |
| Net income | $1.83B | $1.07B | $6.34B | $1.70B |
| Diluted EPS | $2.27 | $1.30 | $7.82 | $2.01 |
| Effective tax rate | 25.5% | 21.3% | 24.4% | 30.4% |
Q3 revenue rose 25% and net income rose 70%. The calculated pretax margin was approximately 22.4%, versus 15.6% a year earlier; calculated net margin was approximately 16.7%, versus 12.3%. Results benefited from higher spending and a credit-loss provision benefit, while expenses increased 29% to $8.67B. Rewards expense rose 51% and marketing and business development expense rose 29% in Q3.
- Q3 discount revenue rose 34%; net card fees rose 10%; net interest income rose 6%. For the nine months, net interest income fell 7%, as interest income declined faster than interest expense.
- Q3 loan net write-off rate, principal only, was 0.6% versus 2.5%; 30-plus-days-past-due loans were 0.7% versus 1.2%. The loan reserve was 4.5% of loans, versus 8.2% a year earlier.
- At September 30, Card Member loans were $77.0B and receivables were $48.8B. Card Member loan balances grew 11% year over year, below billed-business growth, which management attributed partly to higher paydowns.
- Segment Q3 pretax income: Global Consumer Services $1.49B (up 32%); Global Commercial Services $718M (versus $272M); Global Merchant and Network Services $529M (up 62%).
Cash flow, capital and liquidity
- For the first nine months, operating cash flow was $9.6B, investing cash flow was $0.8B and financing cash flow was $(15.3)B. Cash and cash equivalents declined $5.0B to $27.9B.
- At September 30, total debt was $36.8B, down from $44.9B at December 31, 2020; customer deposits were $84.3B, down from $86.9B. Cash and investment securities totaled approximately $38B, principally U.S. Treasury obligations.
- Company CET1 ratio was 12.6%, above its stated 10%–11% target range; management said it planned elevated repurchases to move back toward the range. Q3 shareholder returns totaled $3.6B, including $3.3B of repurchases and $0.3B of dividends.
Outlook, risks and unusual items
Management was optimistic about continued growth, particularly in the U.S., but highlighted uncertainty from COVID-19, variants, travel restrictions and an uneven global recovery. It expected loan balances and net interest income to recover more slowly than spending. Management anticipated marketing investment would remain elevated for the rest of 2021 while it continued to control operating expenses. The filing does not provide a clear numerical earnings or revenue guidance range.
- Management expected credit delinquencies and loss rates to rise gradually as balances rebuild, while not expecting a material increase in write-off rates in the next few quarters. It flagged remaining uncertainty as government stimulus and forbearance programs roll off.
- Legal and regulatory matters include inquiries into historical small-business card sales practices; the company said it was cooperating and did not believe the matter would materially harm its business or results. For certain disclosed matters, estimated reasonably possible losses were $0–$210M above accruals; this is not a maximum exposure estimate.
- India’s central bank restricted certain new card-issuing activity from May 1, 2021 pending compliance with local payment-data storage rules; existing customers were not affected.
- Unrealized gains on Amex Ventures equity investments were $728M for the first nine months and contributed to lower other expense. A $55M one-time tax-provision charge arose in Q1 from adopting the proportional amortization method for affordable-housing investments.
- After quarter-end, the company established a new $3.5B committed credit facility and issued notice to redeem its Series B preferred shares. The filing also notes an expected $206M annual net-interest-income impact from a hypothetical immediate 100-basis-point rate increase.
Most important facts for investors to verify
- Whether T&E spending, especially international travel, continues closing the gap to pre-pandemic levels.
- Whether reserve releases and exceptionally low delinquency and write-off measures persist as relief programs expire and loan balances grow.
- How reward, marketing and travel-benefit costs affect earnings as spending rebounds.
- Whether capital returns, liquidity and funding plans remain consistent with regulatory requirements and the CET1 target.
- Developments in sales-practices inquiries, payment regulation, merchant litigation and other contingencies, and the sustainability of investment-related unrealized gains.