American Express Company (the Company), a bank holding company, is a leading global payments and travel company. The Company's principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. The Company's businesses are organized into two customer-focused groups, the Global Consumer Group and the Global Business-to-Business Group. The Global Consumer Group's range of products and services include charge and credit card products for consumers and small businesses worldwide primarily through its U.S. bank subsidiaries and affiliates; consumer travel services; and stored value products such as Travelers Cheques and prepaid products. The Global Business-to-Business Group offers business travel, corporate cards and other expense management products and services; network services for the Company's network partners; and merchant acquisition and merchant processing, point-of-sale, servicing and settlement and marketing products and services for merchants. The Company's various products and services are sold globally to diverse customer groups, including consumers, small businesses, middle-market companies, and large corporations. These products and services are sold through various channels including direct mail, on-line applications, targeted sales forces, and direct response advertising.

The Company's products and services generate the following types of revenue for the Company:

• Discount revenue, which is the Company's largest revenue source, represents fees charged to merchants when cardmembers use their cards to purchase goods and services on the Company's network;

• Net card fees, which represent revenue earned for annual charge card memberships;

• Travel commissions and fees, which are earned by charging a transaction or management fee for airline or other travel-related transactions;

• Other commissions and fees, which are earned on foreign exchange conversion fees and card-related fees and assessments;

• Securitization income, net, which is the net earnings related to cardmember loans financed through securitization activities;

• Other revenue, which represents insurance premiums earned from cardmember travel and other insurance programs, revenues arising from contracts with Global Network Services' (GNS) partners including royalties and signing fees, publishing revenues, and other miscellaneous revenue and fees; and

• Interest and fees on loans, which represents interest income earned on outstanding balances, card fees and balance transfer fees related to the cardmember lending portfolio.

In addition to funding and operating costs associated with these types of revenue, other major expense categories are related to marketing and reward programs that add new cardmembers and promote cardmember loyalty and spending, and provisions for anticipated cardmember credit and fraud losses.

Historically, the Company has sought to achieve a number of financial targets, on average and over time:

• Total revenues net of interest expense growth of at least 8 percent;

• Earnings per share growth of 12 to 15 percent;

• Return on average equity (ROE) of 33 to 36 percent.

In addition, assuming achievement of such financial targets, the Company has sought to return at least 65 percent of the capital it generates to shareholders as a dividend or through the repurchase of common stock.

The Company met or exceeded these targets for most of the past decade. However, during 2008 and the first half of 2009, its performance fell short of the targets as economic and market conditions deteriorated in many parts of the world. As long as these difficult conditions persist, it is unlikely that the Company will achieve its on average and over time financial objectives. The share repurchase program was suspended in 2008 and, as a result, the portion of capital generated that is returned to shareholders is likely to be significantly below recent levels.

When economic conditions improve, the Company believes it will be positioned, over the long term, to generate revenue and earnings growth in line with its historical target levels. However, evolving market, regulatory and rating agency expectations will likely cause the Company, as well as other financial institutions, to maintain in future years a higher level of capital than they would have historically maintained. These higher capital requirements would in turn lead, all other things being equal, to lower future ROE than the Company has historically targeted. While the Company is not establishing a new target at this time, it currently believes that it will ultimately be positioned to deliver a ROE in excess of 20 percent over time. As the capital requirements for financial institutions become clearer, management will have greater visibility into this area. At that time, the Company will provide updated long-term ROE and capital distribution targets.

Certain reclassifications of prior year amounts have been made to conform to the current presentation. These reclassifications did not have an impact on the Company's results of operations or cash flows.

During the fourth quarter of 2008, the Company became a bank holding company under the Bank Holding Company Act of 1956, and the Federal Reserve Board (Federal Reserve) became the Company's primary federal regulator.

Certain of the statements in this Form 10-Q report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See the "Forward-Looking Statements" section below.

Current Economic Environment/Outlook

During the second quarter of 2009, cardmember spending remained under pressure within all of the Company's businesses. While the year-over-year spending decline was fairly consistent through the first five months of the year, the decline has moderated slightly in June and July, and will likely moderate further as comparisons to last year results continue to get easier.

In addition to the challenging economic environment, all card issuers continue to face increased regulation as policy makers around the world step up efforts to modify practices in the payments industry.

To address the current economic conditions and to better position the Company's cost structure for an anticipated slower economic growth environment over the medium term after the recession, the Company undertook additional reengineering initiatives as described below, which resulted in the recognition of a restructuring charge in this quarter. The Company's operating expense trends in the second quarter reflected the cost reduction resulting from these reengineering programs. Based on its progress to date, the Company is on track to realize additional operating expense benefits this year.

Consistent with the business and economic environments, the Company has begun to change its pricing structure for certain products. Through a combination of cost reduction and revenue-building actions, the Company expects to further increase its financial flexibility. As discussed further below, the Company will continue to selectively and prudently invest in longer-term business-building actions and programs with the objective of capitalizing on its strong brand and competitive position in the payments industry.

The Company continues to remain cautious about the business environment. While cardmember spending remained weak during the second quarter, increases in net write-offs during the quarter were less than initially anticipated, due largely to lower than expected bankruptcy-driven write-offs. In addition, lending past due trends continued to improve due in part to actions taken by the Company that included a number of underwriting, customer management and collection initiatives. Assuming delinquency rates continue around current levels and bankruptcies increase somewhat, the Company now expects managed lending write-off rates in the U.S. during the next two quarters to be below 10 percent1.

1 The "managed basis" presentation includes on-balance sheet cardmember loans and off-balance sheet securitized cardmember loans. The difference between the "owned basis" (GAAP) information and the "managed basis" information is attributable to the effects of securitized activities. The Company is not presenting estimates of owned net write-of rates comparable to the managed data above because the owned write-off rates are not determinable at this time. For further discussion of the Company's owned and managed basis presentation, refer to the information set forth under U.S. Card Services in the section captioned "Differences Between GAAP and Managed Presentations".

The net result of all of these factors positions the Company to invest in its businesses at a somewhat greater level than previously expected. The $1.5 billion of investment-related reengineering savings included within the previously announced $2.6 billion of targeted reengineering savings would be offset to the extent of such investments.

Notwithstanding the challenging environment, the Company continues to be focused on generating earnings in excess of its dividend payment. The Company's objectives in this environment are maintaining liquidity and profitability and investing selectively for growth.

While some of the recent trends give the Company confidence in its ability to meet its key goals, the benefits related to the lower than expected provision costs will most likely be directed towards marketing and promotion, investments and other business initiatives. The Company's investments in the third and fourth quarters will focus on a number of key business goals, including:

• The Company's premium lending strategy, evidenced by the investments in its partnership expansion with Delta and the recent extension of the Starwood partnership;

• Activities surrounding the Company's more proactive charge card product and marketing efforts;

• Various merchant acceptance, corporate services and GNS expansion initiatives; and

• Activities surrounding the Company's data and information management capabilities.

Reengineering Initiatives

In response to the adverse economic conditions and to better position the Company's cost structure for an anticipated slower economic growth environment over the medium term after the recession, the Company took various actions in the latter part of 2008 that resulted in recording pretax reengineering charges of $449 million ($291 million after-tax) to reduce its cost structure. The reengineering plan included lowering staff levels and compensation expense and reducing operating costs and related investment spending.

The Company began the execution and implementation of these initiatives in the fourth quarter of 2008, primarily associated with severance and other costs related to the elimination of approximately 7,000 positions or approximately 10 percent of its total worldwide workforce. Actions taken under the reengineering plan were initially anticipated to generate benefits, from previously anticipated spending levels in 2009, of $700 million from staffing and compensation decisions, $125 million from lower operating costs, and $1.0 billion in reduced investment spending, for a total of approximately $1.8 billion. As described above, the Company may revise its targeted reengineering savings if operating results for the second half of 2009 improve due to continued favorable credit trends in its businesses.

The Company undertook another large companywide reengineering initiative in the second quarter of 2009 to help further reduce its operating costs in light of the challenging economic conditions that continued to exist in the first half of 2009. These latest reengineering activities, which affected virtually all of the Company's business units and staff groups, resulted in a pretax restructuring charge in the second quarter of 2009 of approximately $200 million ($130 million after-tax) before consideration of reversals of amounts accrued in prior quarters. The reengineering activities will result in the elimination of approximately 4,000 positions, which constitutes approximately 6 percent of the Company's worldwide workforce. The total pretax charge included approximately $177 million in employee severance obligations and other employee- related costs and approximately $23 million in other costs principally relating to the termination of certain real property leases and other contracts.

The reengineering activities commenced in the second quarter related principally to downsizing and reorganizing certain operations due to a contraction of some of the Company's businesses. Actions taken under the reengineering plan are anticipated to generate incremental cost benefits of $175 million from staffing and compensation decisions, $125 million from lower operating costs, and $500 million in reduced investment spending, for a total of approximately $0.8 billion in 2009.

Substantially all of the reengineering activities are expected to be completed by the end of 2009, with the remainder expected to be completed by the first half of 2010. The Company estimates that all of the severance and employee-related costs and a significant majority of the other costs will result in future cash expenditures.

Cumulatively through these reengineering initiatives, the Company is expecting to eliminate approximately 11,000 positions, which accounts for approximately 17 percent of the global workforce at the end of the third quarter of 2008. While the Company believes it is on track to realize estimated savings of $2.6 billion through these reengineering initiatives over the course of 2009, the better than expected credit trends discussed earlier will likely lead to increased marketing and promotion and other investment spending, thus reducing the $1.5 billion of savings included within the Company's total reengineering targets to the extent of such increased spending.

Discontinued Operations

For the appropriate periods, the operating results, assets and liabilities, and cash flows of American Express Bank Ltd. (AEB), which was sold to Standard Chartered PLC (Standard Chartered) in 2008, and American Express International Deposit Company (AEIDC), which will be sold to Standard Chartered in the third quarter of 2009, have been removed from the Corporate & Other segment and reported separately within the discontinued operations captions on the Company's Consolidated Financial Statements and notes related thereto.

Refer to Note 2 to the Consolidated Financial Statements for further discussion of the Company's discontinued operations.

                            American Express Company

                        Selected Statistical Information

(Billions, except percentages and where indicated)



                                                    Three Months Ended           Six Months Ended
                                                         June 30,                    June 30,
                                                    2009           2008          2009         2008
Card billed business (a):
United States                                     $   104.8       $ 123.5      $  202.2      $ 238.1
Outside the United States                              46.6          57.4          88.4        109.2

Total                                             $   151.4       $ 180.9      $  290.6      $ 347.3

Total cards-in-force (millions) (b):
United States                                          49.8          53.5          49.8         53.5
Outside the United States                              38.7          36.6          38.7         36.6

Total                                                  88.5          90.1          88.5         90.1

Basic cards-in-force (millions) (b):
United States                                          38.7          41.9          38.7         41.9
Outside the United States                              33.9          31.6          33.9         31.6

Total                                                  72.6          73.5          72.6         73.5


Average discount rate (c)                              2.55 %        2.56 %        2.55 %       2.56 %
Average basic cardmember spending (dollars) (d)   $   2,712       $ 3,199      $  5,155      $ 6,185
Average fee per card (dollars) (d)                $      35       $    34      $     35      $    34
Average fee per card adjusted (dollars)(d)        $      39       $    39      $     39      $    39

(a) Card billed business includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements, and certain insurance fees charged on proprietary cards. Card billed business is reflected in the United States or outside the United States based on where the cardmember is domiciled.

(b) Total cards-in-force represents the number of cards that are issued and outstanding. Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner and does not include additional supplemental cards issued on that account. Proprietary basic small business and corporate cards-in-force include basic and supplemental cards issued to employee cardmembers. Non-proprietary basic cards-in-force includes all cards that are issued and outstanding under network partnership agreements.

(c) This calculation is designed to approximate merchant pricing. It represents the percentage of billed business (both proprietary and GNS) retained by the Company from merchants it acquires, prior to payments to third parties unrelated to merchant acceptance.

(d) Average basic cardmember spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees, including the amortization of deferred direct acquisition costs, plus card fees included in interest and fees on loans (including related amortization of deferred direct acquisition costs), divided by average worldwide proprietary cards-in-force. The card fees related to cardmember loans included in interest and fees on loans were $45 million and $34 million for the quarters ended June 30, 2009 and 2008, respectively. The card fees related to cardmember loans included in interest and fees on loans were $85 million and $70 million for the six months ended June 30, 2009 and 2008, respectively. The adjusted average fee per card is computed in the same manner, but excludes amortization of deferred direct acquisition costs (a portion of which is charge card related and included in net card fees and a portion of which is lending related and included in interest and fees on loans). The amount of amortization excluded was $62 million and $82 million for the quarters ended June 30, 2009 and 2008, respectively. The amount of amortization excluded was $132 million and $159 million for the six months ended June 30, 2009 and 2008, respectively. The Company presents adjusted average fee per card because management believes that this metric presents a useful indicator of card fee pricing across a range of its proprietary card products.

                  Selected Statistical Information (continued)

(Billions, except percentages and where indicated)



                                                        Three Months Ended             Six Months Ended
                                                             June 30,                      June 30,
                                                       2009            2008           2009           2008
Worldwide cardmember receivables:
Total receivables                                    $    31.4        $  39.9       $   31.4       $   39.9
Loss reserves (millions):
Beginning balance                                    $     810        $ 1,221       $    810       $  1,149
Provision                                                  237            241            573            586
Net write-offs                                            (340 )         (293 )         (672 )         (550 )
Other                                                        7            (23 )            3            (39 )

Ending balance                                       $     714        $ 1,146       $    714       $  1,146

% of receivables                                           2.3 %          2.9 %          2.3 %          2.9 %
Net write-off rate USCS                                    5.2 %          3.9 %          5.0 %          3.8 %
30 days past due as a % of total - USCS                    2.6 %          3.0 %          2.6 %          3.0 %
Net loss ratio as a % of charge volume - ICS              0.36 %         0.22 %         0.35 %         0.21 %
90 days past due as a % of total - ICS                     3.0 %          2.4 %          3.0 %          2.4 %
Net loss ratio as a % of total - GCS                      0.22 %         0.10 %         0.20 %         0.11 %
90 days past due as a % of total - GCS                     1.9 %          1.6 %          1.9 %          1.6 %

Worldwide cardmember lending - owned basis (a):
Total loans                                          $    32.5        $  49.6       $   32.5       $   49.6
30 days past due loans as a % of total                     4.3 %          3.4 %          4.3 %          3.4 %
Loss reserves (millions):
Beginning balance                                    $   3,013        $ 1,919       $  2,570       $  1,831
Provision                                                1,291          1,506          2,692          2,282
Net write-offs - principal                                (847 )         (678 )       (1,629 )       (1,244 )
Net write-offs - interest and fees                        (131 )         (149 )         (286 )         (276 )
Other (b)                                                 (107 )           (4 )         (128 )            1

Ending balance                                       $   3,219        $ 2,594       $  3,219       $  2,594

Ending Reserves - principal                          $   3,035        $ 2,395       $  3,035       $  2,395
Ending Reserves - interest and fees                  $     184        $   199       $    184       $    199
% of loans                                                 9.9 %          5.2 %          9.9 %          5.2 %
% of past due                                              230 %          155 %          230 %          155 %
Average loans                                        $    35.2        $  49.6       $   37.2       $   50.2
Net write-off rate                                         9.6 %          5.5 %          8.8 %          5.0 %
Net interest yield on cardmember loans (c)                 9.7 %          8.5 %         10.2 %          8.7 %

Worldwide cardmember lending - managed basis (d):
Total loans                                          $    62.9        $  76.5       $   62.9       $   76.5
30 days past due loans as a % of total                     4.3 %          3.3 %          4.3 %          3.3 %
Net write-offs-principal (millions)                  $   1,541        $   974       $  2,933       $  1,794
Average loans                                        $    63.9        $  75.8       $   66.0       $   75.9
Net write-off rate                                         9.7 %          5.1 %          8.9            4.7 %
Net interest yield on cardmember loans (c)                 9.9 %          9.0 %         10.4 %          9.3 %

(a) "Owned," a GAAP basis measurement, reflects only cardmember loans included on the Company's Consolidated Balance Sheets.

(b) For the quarter and six months ended June 30, 2009, other primarily includes $144 million of reserves that were removed in connection with securitizations during the period. The offset is in the allocated cost of the associated retained subordinated securities. This amount also includes foreign currency translation adjustments. The prior period primarily includes foreign currency translation adjustments.

(d) Includes on-balance sheet cardmember loans and off-balance sheet securitized cardmember loans. The difference between the "owned basis" (GAAP) information and "managed basis" information is attributable to the effects of securitization activities. Refer to the information set forth under U.S. Card Services Selected Financial Information for further discussion of the managed basis presentation.

                  Selected Statistical Information (continued)

Calculation of net interest yield on cardmember loans



                                                    Three Months Ended           Six Months Ended
                                                         June 30,                    June 30,
(Millions)                                          2009           2008          2009         2008
Owned Basis:
Net interest income                               $     741       $   954      $  1,660      $ 1,925
Average loans (billions)                          $    35.2       $  49.6      $   37.2      $  50.2
Adjusted net interest income (a)                  $     853       $ 1,056      $  1,886      $ 2,180
Adjusted average loans (billions) (b)             $    35.4       $  49.7      $   37.3      $  50.3

Net interest yield on cardmember loans (c)              9.7 %         8.5 %        10.2 %        8.7 %

Managed Basis (d):
Net interest income (e)                           $   1,464       $ 1,594      $  3,186      $ 3,248
Average loans (billions)                          $    63.9       $  75.8      $   66.0      $  75.9
Adjusted net interest income (f)                  $   1,576       $ 1,695      $  3,411      $ 3,503
Adjusted average loans (billions) (g)             $    64.0       $  76.0      $   66.1      $  75.9
Net interest yield on cardmember loans (c)              9.9 %         9.0 %        10.4 %        9.3 %

(a) Represents net interest income allocable to the Company's owned cardmember lending portfolio, which excludes the impact of card fees on loans and balance transfer fees attributable to the Company's owned cardmember lending portfolio.

(b) Represents average owned loans excluding the impact of deferred card fees net of deferred direct acquisition costs for owned cardmember loans.

(c) Net interest yield on cardmember loans represents the net spread earned on cardmember loans. Net interest yield on cardmember loans (both on an owned and managed basis) is computed by dividing adjusted net interest income by adjusted average loans, computed on an annualized basis. The calculation of net interest yield on cardmember loans (both on an owned and managed basis) includes interest and fees that are deemed uncollectible. For the owned basis presentation, reserves and net write-offs related to uncollectible interest and fees are recorded through provisions for losses - cardmember lending, and for the managed basis presentation, reserves and net write-offs related to uncollectible interest and fees are included as a reduction to securitization income, net; therefore, such reserves and net write-offs are not included in the net interest yield calculation.

. . .