American Express 2012 Annual Report Download - page 27

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AMERICAN EXPRESS COMPANY
2012 FINANCIAL REVIEW
Travel commissions and fees decreased $31 million or 2
percent in 2012 as compared to the prior year, primarily due to a
1 percent decline in worldwide travel sales. Business travel sales
declined 4 percent, while U.S. consumer travel sales increased 12
percent. Travel commissions and fees increased $198 million or
11 percent in 2011 as compared to the prior year, primarily due
to a 13 percent increase in worldwide travel sales.
Other commissions and fees increased $48 million or 2 percent
in 2012 as compared to the prior year, driven primarily by higher
fee revenues from the Loyalty Partner business. Assuming no
changes in foreign exchange rates, other commissions and fees
increased 5 percent in 2012 as compared to the prior year.1Other
commissions and fees increased $238 million or 12 percent in
2011 as compared to the prior year, primarily driven by fee
revenues from the Loyalty Partner business.
Other revenues increased $288 million or 13 percent in 2012 as
compared to the prior year, primarily reflecting higher gains on
the sale of investment securities, higher GNS partner royalty
revenues, and the favorable effects of revised estimates in the
liability for uncashed Travelers Cheques in international
markets. Other revenues increased $237 million or 12 percent in
2011 as compared to the prior year, primarily reflecting higher
royalties from GNS partners, a contractual payment from a GNS
partner and greater merchant-related fee revenues.
Interest income increased $158 million or 2 percent in 2012 as
compared to the prior year. Interest on loans increased $239
million or 4 percent, primarily reflecting higher average
cardmember loans. Interest and dividends on investment
securities decreased $81 million or 25 percent, primarily
reflecting decreased levels of investment securities. Interest on
deposits with banks and other remained flat year over year.
Interest income decreased $377 million or 5 percent in 2011 as
compared to the prior year. Interest on loans decreased $292
million or 4 percent, driven by a lower net yield on cardmember
loans, partially offset by a slight increase in average cardmember
loans. Interest and dividends on investment securities decreased
$116 million or 26 percent, primarily reflecting decreased levels
of investment securities. Interest on deposits with banks and
other increased $31 million or 47 percent, primarily due to
higher average deposit balances.
Interest expense decreased $94 million or 4 percent in 2012 as
compared to the prior year. Interest on deposits decreased $48
million or 9 percent, primarily due to a lower cost of funds,
partially offset by an increase in average customer deposit
balances. Interest on long-term debt and other decreased $46
million or 3 percent, reflecting a lower average long-term debt
balance. Interest expense decreased $103 million or 4 percent in
2011 as compared to the prior year. Interest on deposits
1The foreign currency adjusted information, a non-GAAP measure, assumes a
constant exchange rate between the periods being compared for purposes of
currency translation into U.S. dollars (i.e., assumes the foreign exchange
rates used to determine results for the current year apply to the
corresponding year period against which such results are being compared).
The Company believes the presentation of information on a foreign
currency adjusted basis is helpful to investors by making it easier to compare
the Company’s performance in one period to that of another period without
the variability caused by fluctuations in currency exchange rates.
decreased $18 million or 3 percent, primarily due to a lower cost
of funds, partially offset by an increase in average customer
deposit balances. Interest on long-term debt and other decreased
$85 million or 5 percent, reflecting a lower average long-term
debt balance, partially offset by a higher cost of funds.
Provisions for Losses
Provisions for losses increased $878 million or 79 percent in
2012 as compared to the prior year. Charge card provisions for
losses decreased $28 million or 4 percent, primarily due to a net
reserve release in 2012 compared to a reserve build in 2011.
Cardmember loans provisions for losses increased $896 million
or over 100 percent, primarily reflecting a smaller reserve release
in 2012 than in 2011 due to the slowing pace of improved credit
conditions. Other provisions for losses increased $10 million or
11 percent in 2012 as compared to the prior year.
Provisions for losses decreased $1.1 billion or 50 percent in
2011 as compared to the prior year. Charge card provisions for
losses increased $175 million or 29 percent, primarily driven by
higher average cardmember receivables, higher net write-offs and
a release of reserves in the prior year due to improved credit
performance. Cardmember loans provisions for losses decreased
$1.3 billion or 83 percent, primarily reflecting lower net write-
offs and a lower cardmember loan reserve requirement in 2011 as
compared to the prior year. Other provisions for losses increased
$4 million or 5 percent in 2011 as compared to the prior year.
Expenses
Consolidated expenses increased $1.2 billion or 6 percent in 2012
as compared to the prior year. The increase reflects higher other
expenses, higher salaries and employee benefits costs, higher
occupancy and equipment expenses and higher cardmember
services expenses, partially offset by lower marketing and
promotion expenses. Consolidated expenses increased $2.5
billion or 13 percent in 2011 as compared to the prior year. The
increase reflected higher cardmember rewards expenses, salaries
and employee benefits costs, other expenses, cardmember
services expenses, professional services expenses and occupancy
and equipment expenses, partially offset by lower marketing and
promotion expenses. Consolidated expenses in 2012, 2011 and
2010 also included $461 million, $153 million and $127 million,
respectively, of reengineering costs, of which $403 million, $119
million and $96 million, respectively, represent restructuring
charges.
Marketing and promotion expenses decreased $106 million or
4 percent in 2012 as compared to the prior year, primarily
reflecting lower loyalty and brand spending. Marketing and
promotion expenses decreased $151 million or 5 percent in 2011
as compared to the prior year, due to lower product media and
brand spending. Marketing and promotion spending represented
9.2 percent of total revenues in 2012 as compared to 10.0 percent
and 11.4 percent of total revenues in 2011 and 2010, respectively.
Cardmember rewards expenses increased $64 million or 1
percent in 2012 as compared to the prior year due to an increase
25