American Express 2008 Annual Report Download - page 54

2008 financial review
american express company
selected statistical information(a)
Years Ended December 31,
(Billions, except percentages
and where indicated) 2008 2007 2006
Card billed business $106.1 $ 98.0 $ 86.3
Total cards-in-force (millions) 16.3 16.0 15.6
Basic cards-in-force (millions) 11.4 11.3 11.2
Average basic cardmember
spending (dollars) $9,292 $8,772 $7,491
International Consumer Travel:
Travel sales (millions) $1,267 $1,113 $ 922
Travel commissions and fees/sales 8.1% 8.6% 8.7%
Total segment assets $ 20.4 $ 21.4 $ 18.9
Segment capital (millions) (b) $1,997 $2,062 $1,724
Return on average segment capital(c) 16.7% 15.3% 17.9%
Return on average tangible
segment capital(c) 22.5% 21.4% 25.2%
Cardmember receivables:
Total receivables $ 5.6 $ 6.6 $ 6.0
90 days past due as a % of total 3.1% 1.8% 2.3%
Net loss ratio as a % of
charge volume 0.24% 0.26% 0.26%
Cardmember lending:
Total loans(c) $ 9.5 $ 11.2 $ 9.7
30 days past due loans as a % of total 3.6% 2.8% 2.9%
Average loans(d) $ 10.9 $ 10.0 $ 8.8
Net write-off rate(e) 4.8% 4.9% 5.9%
Net interest yield on cardmember
loans(f) 9.8% 8.9% 8.4%
(a) See Glossary of Selected Terminology for the definitions of certain key
terms and related information.
(b) Segment capital represents capital allocated to a segment based upon specific
business operational needs, risk measures, and regulatory capital requirements.
(c) Return on average segment capital is calculated by dividing (i) segment
income ($351 million, $291 million, and $343 million for 2008, 2007,
and 2006, respectively) by (ii) average segment capital ($2.1 billion,
$1.9 billion, and $1.9 billion for 2008, 2007, and 2006, respectively).
Return on average tangible segment capital is computed in the same
manner as return on average segment capital except the computation
of average tangible segment capital excludes average goodwill and
other intangibles of $543 million, $539 million, and $552 million at
December 31, 2008, 2007, and 2006, respectively. The Company believes
the return on average tangible segment capital is a useful measure of the
profitability.
(d) Loan balances used to calculate average loans for all periods presented has
been revised in connection with the Company’s conversion to a bank holding
company. Specifically, deferred card fees net of deferred direct acquisition
costs for cardmember loans were reclassified from other liabilities to
cardmember loans for all periods.
(e) In the third quarter of 2008, the Company revised its method of reporting
the cardmember lending net write-off rate. Historically, the net write-off
rate has been presented using net write-off amounts for principal, interest,
and fees. However, industry convention is generally to include only the net
write-offs related to principal in write-off rate disclosures. The Company
is presenting the net write-off rate using the net write-off amounts for
principal only, consistent with industry convention. 2006 historical data
for ICS was not available to present the write-off rate for principal only.
Accordingly, the ICS write-off rate includes write-offs of interest and fees.
(f) See below for calculations of net interest yield on cardmember loans. The
Company believes net interest yield on cardmember loans is useful to
investors because it provides a measure of profitability of the Company’s
cardmember lending portfolio.
calculation of net interest yield on
cardmember loans(a)
(Millions, except percentage
and where indicated) 2008 2007
Net interest income $1,023 $ 832
Average loans (billions)(b) $ 10.9 $10.0
Adjusted net interest income $1,072 $ 889
Adjusted average loans (billions) $ 10.9 $10.0
Net interest yield on cardmember loans 9.8% 8.9%
(a) See Glossary of Selected Terminology for the definitions of certain key terms
and related information.
(b) Loan balances used to calculate average loans for all periods presented
have been revised in connection with the Company's conversion to a bank
holding company. Specifically, deferred card fees net of deferred direct
acquisition costs for cardmember loans were reclassified from other liabilities
to cardmember loans for all periods.
results of operations for the three
years ended december 31, 2008
International Card Services reported segment income of
$351 million for 2008, a $60 million or 21 percent increase
from $291 million in 2007, which decreased $52 million or
15 percent from 2006. A significant portion of International
Card Services segment income in 2008 and 2007 pertains to
the Company’s internal tax allocation process. See further
discussion in the Income Tax section below.
Total Revenues Net of Interest Expense
In 2008, International Card Services’ total revenues net of
interest expense increased $450 million or 10 percent to
$4.8 billion due to higher discount revenue, net card fees and
other and increased interest income, partially offset by higher
interest expense. Discount revenue, net card fees, and other
revenues increased $259 million or 7 percent to $3.8 billion
in 2008, due to increases in all three categories. The 8 percent
increase in billed business in 2008 reflected a 6 percent increase
in average spending per proprietary basic card and a 1 percent
increase in basic cards-in-force. Assuming no changes in foreign
currency exchange rates from 2007 to 2008, billed business and
average spending per proprietary basic cards-in-force increased 7
percent and 5 percent, respectively, in 2008 and all International
Card Services’ major geographic regions experienced mid to
high single-digits billed business growth. Interest income rose
$243 million or 14 percent to $2.0 billion in 2008, primarily
due to 9 percent growth in the average cardmember loans and
a higher cardmember portfolio yield. Interest expense of $961
million in 2008, rose $52 million or 6 percent as compared to
a year ago, due to higher average loan balances and business
volumes. Total revenues net of interest expense of $4.3 billion
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