Business Context and Reporting Period
This Form 8-K, filed on September 15, 2009, by American Express Company, discloses Regulation FD information regarding delinquency and write-off statistics for the U.S. Card Services (USCS) operating segment. The data covers the months ended June 30, July 31, and August 31, 2009, presented on both an owned (GAAP) basis and a managed basis.
Key Financial Metrics
U.S. Card Services - Owned Basis (GAAP)
- Total Loans: $23.6 billion (June), $23.1 billion (July), $24.3 billion (August).
- 30+ Days Past Due: 4.4% (June), 4.3% (July), 4.1% (August).
- Net Write-off Rate: 9.9% (June), 9.9% (July), 10.2% (August).
U.S. Card Services - Managed Basis
- Total Loans: $54.0 billion (June), $52.9 billion (July), $53.0 billion (August).
- 30+ Days Past Due: 4.4% (June), 4.2% (July), 4.1% (August).
- Net Write-off Rate: 9.9% (June), 9.2% (July), 9.0% (August).
Lending Trust (Securitized Portfolio)
- Ending Principal Balance: $33.8 billion (May 27), $33.2 billion (June 26), $35.9 billion (July 27).
- Annualized Default Rate (net of recoveries): 10.2% (May 27), 8.9% (June 26), 8.5% (July 27).
Material Changes and Explanations
The increase in the owned basis net write-off rate to 10.2% in August 2009 was driven by calculation mechanics related to the transfer of approximately $3 billion of loans to the American Express Credit Account Master Trust (Lending Trust) on August 20, 2009, alongside maturities of previously issued certificates. Conversely, the managed basis net write-off rate improved to 9.0% in August, reflecting a downward trend from 9.9% in June. The Lending Trust's annualized default rate decreased to 8.5% in the period ending August 25, 2009, largely due to the acquisition of the $3 billion loan pool.
Outlook, Risks, and Management Commentary
Management emphasizes the managed basis presentation as it provides a comprehensive view of the cardmember lending business by including both securitized and non-securitized loans. The filing includes forward-looking statements subject to significant risks, including:
- The ability to manage credit risk in a challenging economic environment, dependent on housing markets, unemployment, and bankruptcy rates.
- Future delinquency levels and payment patterns resulting from efforts to manage delinquent cardmembers.
- Near-term write-off rates for the third and fourth quarters of 2009.
- Marketing and promotion spending levels based on competitive assessments.
The company notes that actual results may differ materially from expectations due to these factors.
Investor Verification Checklist
- Verify the impact of the August 20, 2009, $3 billion loan transfer on the owned basis write-off rate calculation.
- Compare the managed basis write-off trend (improving) against the owned basis trend (worsening in August) to understand the effect of securitization mechanics.
- Review the Lending Trust's Form 10-D reports to reconcile differences in reporting periods and loan vintage between the Trust and the managed portfolio.
- Monitor upcoming quarterly reports for updates on the provision benefit from lower-than-expected write-offs.