Slide 1: AMERICAN EXPRESS CENTURION BANK 1 Business American Express Centurion Bank (“AECB”) was incorporated under Utah law as an industrial loan company in 1987 and received Federal Deposit Insurance Corporation (“FDIC”) insurance in 1989. Its principal office is located at 4315 South 2700 West, Salt Lake City, Utah 84184. AECB is a whollyowned subsidiary of American Express Travel Related Services Company, Inc. (“TRS”). The information about AECB presented below is qualified in its entirety by reference to and should be read in conjunction with AECB’s Call Reports for each of the years ended December 31, 2006, 2005 and 2004. AECB issues the Optima Card, Blue from American Express, and other American Express branded revolving credit cards in the United States and owns most of the receivables arising from the use of these cards. AECB is also the issuer of certain consumer charge cards. In addition, AECB has outstanding lines of credit in association with certain charge cards and offers unsecured loans to cardmembers in connection with the Extended Payment Option. The Extended Payment Option gives qualified United States cardmembers the option of extended payments for airline, cruise, and certain travel charges that are purchased with the charge card. In addition to earning finance charge revenues, AECB also receives revenue from cardmember fees and discount revenue from service establishments. Proprietary charge and lending cards are offered with a variety of features and terms, including cards with differing rates, fees and grace periods, and cards with additional features such as rebates. In April 2004, AECB entered into a transaction with an affiliate, American Express Bank, FSB (“FSB”) wherein AECB sold the Co-Brand, OPEN from American Express and Consumer Banking assets to FSB and FSB assumed certain AECB liabilities including the retail deposit portfolio. The transaction was based on net book value and no gain or loss was recorded. Total loans were $18.0 billion, $13.9 billion, and $10.7 billion as of December 31, 2006, 2005, and 2004, respectively. AECB’s charge-offs, net of recoveries, as a percentage of average loans were 3.07 percent, 2.97 percent, and 3.50 percent in 2006, 2005, and 2004, respectively. Reserve rates as a percentage of total revolving loans were 2.47 percent, 2.93, percent and 3.03 percent as of December 31, 2006, 2005, and 2004, respectively. Delinquency rates as a percentage of total revolving loans were 3.25 percent, 3.04 percent, and 2.55 percent as of December 31, 2006, 2005 and 2004, respectively. AECB funds its lending activities principally through the sale of certificates of deposits to the public and to affiliates of TRS and through borrowings from banks and affiliates. As of December 31, 2006, AECB had $4.4 billion of certificates of deposit and foreign deposits outstanding, $10.6 billion in bank notes outstanding, and $1.2 billion in other borrowed funds and federal funds purchased. In 1996, TRS created the American Express Credit Account Master Trust (the “Trust”) to securitize certain United States cardmember revolving credit loans. At December 31, 2006, AECB sold $13.8 billion of loans to the Trust.
1
Document revised from previous disclosures.
Slide 2: AMERICAN EXPRESS CENTURION BANK
Results of Operations Years Ended December 31, 2006, 2005 and 2004 In 2006, 2005, and 2004, AECB reported earnings of $1.4 billion, $1.0 billion, and $1.1 billion, respectively. These earning levels were supported by loans outstanding of $18.0 billion, $13.9 billion, and $10.7 billion as of December 31, 2006, 2005, and 2004, respectively. In 2006, 2005, and 2004, average return on assets was 8.42 percent, 7.68 percent, and 7.14 percent, respectively. At December 31, 2006, AECB reserves as a percent of delinquencies were 75 percent. Accounts are charged-off when six contractual payments become past due or earlier if the account is deemed uncollectible. The charge-off rates for the years ended December 31, 2006, 2005, and 2004 were 3.07 percent, 2.97 percent, and 3.50 percent, respectively. As of December 31, 2006, AECB exceeded the FDIC “well-capitalized” levels for tier 1, total capital, and minimum leverage rates. The tier 1 rates in 2006, 2005, and 2004 were 9.62 percent, 8.48 percent, and 9.17 percent, respectively. Total capital rates in 2006, 2005, and 2004 were 10.95 percent, 9.80 percent, and 10.53 percent, respectively. The minimum leverage ratios in 2006, 2005, and 2004 were 12.15 percent, 11.63 percent, and 11.95 percent, respectively. The following financial information of AECB for each of the three years ended December 31, 2006, was derived from AECB’s Call Reports.
Slide 3: CAPITALIZATION OF AMERICAN EXPRESS CENTURION BANK The following table sets forth the consolidated capitalization of AECB: As of December 31, 2005 2004
(in millions) Deposits liabilities: Less than one year Greater than one year Total Short-term indebtedness: Federal funds purchased and other borrowings Medium-term bank notes Total Long-term indebtedness: Medium-term bank notes due after 1 year Shareholder’s equity: Common stock Capital surplus Undivided profits and capital reserves Total shareholder’s equity Total capitalization
2006
$ 4,446 $ 4,446
$ 5,587 $ 5,587
$ 3,316 $ 3,316
$ 1,150 3,000 $ 4,150
$ 1,622 1,650 $ 3,272
$ 1,361 1,328 $ 2,689
$ 7,550
$ 4,350
$ 4,050
$
421 1,892
$
420 1,304 $ 1,724 $14,933
$
420 979
$ 2,313 $18,459
$ 1,399 $11,454
Slide 4: SELECTED FINANCIAL INFORMATION OF AMERICAN EXPRESS CENTURION BANK
(in millions) 2006 Balance Sheet Data: Assets: Cash and cash equivalents Investments Federal funds sold Loans Reserves Loans, net Other assets Total assets Liabilities and Shareholder’s Equity: Deposit liabilities Federal funds purchased Other borrowing Total debt Other liabilities Total liabilities Total shareholder’s equity Total liabilities and shareholder’s equity
As of December 31, 2005 2004
156 1,042 600 17,998 (403) 17,595 1,704 $21,097
$
117 1,022 100 13,925 (356) 13,569 2,005 $16,813
$
119 1,002 70 10,720 (314) 10,406 1,582 $13,179
$
$ 4,446 165 11,535 16,146 2,638 18,784 2,313 $21,097
$ 5,587 373 7,249 13,209 1,880 15,089 1,724 $16,813
$ 3,316 50 7,048 10,414 1,366 11,780 1,399 $13,179
As of December 31, 2006 2005 2004 Selected Ratios: Return on average assets Return on average shareholder’s equity Tier 1 capital ratio Total capital ratio Net charge-offs/average loans (1) Reserves/past due & non-accrual loans (2)
8.42% 62.35% 9.62% 10.95% 3.07% 75%
7.68% 60.72% 8.48% 9.80% 2.97% 96%
7.14% 63.10% 9.17% 10.53% 3.50% 115%
(1) Net charge-offs/average loans are calculated by dividing gross charge-offs less recoveries by full year average loans. (2) Past due and non-accrual loans are based on the Call Report definitions for all balances that are 30 days past due and still accruing plus all non-accrual loans.
Slide 5: SELECTED FINANCIAL INFORMATION OF AMERICAN EXPRESS CENTURION BANK (in millions) 2006 Operating Data: Interest income Interest expense Net interest income Provision for loan losses Income after provision for loan losses Non-interest income Non-interest expense Net non-interest (expense) income Pretax income Income tax provision Net income As of December 31, 2005 2004
$ 1,698 505 1,193 464 729 3,352 1,952 1,400 2,129 773 1,356
$ 1,164 376 788 364 424 2,805 1,682 1,123 1,547 553 $ 994
$ 1,291 302 989 383 606 2,729 1,684 1,045 1,651 597 $ 1,054
$
(in millions)
As of December 31, 2006 2005 2004
Key Statistics: Average assets Average equity Average loans Risk-based assets (net) Tier 1 capital Total capital Past-due & nonaccrual loans Net charge-offs
$16,097 2,175 13,648 23,521 2,262 2,576 537 419
$12,950 1,637 10,796 19,500 1,654 1,911 369 320
$14,753 1,670 12,573 15,377 1,410 1,618 273 440
