UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20152016
or
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York | 13-4922250 | |||||
incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
200 Vesey Street, New York, | 10285 | |||||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (212) 640-2000
None |
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X ☑ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X ☑ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐ No X ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at October | |
Common Shares (par value $0.20 per share) |
FORM 10-Q
INDEX
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended September 30,(Millions, except per share amounts) | 2015 | 2014 | ||||||||||||
Three Months Ended September 30 (Millions, except per share amounts) | 2016 | 2015 | ||||||||||||
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Revenues | ||||||||||||||
Non-interest revenues | ||||||||||||||
Discount revenue | $ | 4,778 | $ 4,889 | $ | 4,516 | $ | 4,778 | |||||||
Net card fees | 679 | 680 | 747 | 679 | ||||||||||
Travel commissions and fees | 87 | 104 | ||||||||||||
Other commissions and fees | 640 | 642 | ||||||||||||
Other fees and commissions | 694 | 727 | ||||||||||||
Other | 504 | 593 | 483 | 504 | ||||||||||
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Total non-interest revenues | 6,688 | 6,908 | 6,440 | 6,688 | ||||||||||
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Interest income | ||||||||||||||
Interest on loans | 1,847 | 1,753 | 1,690 | 1,847 | ||||||||||
Interest and dividends on investment securities | 38 | 45 | 34 | 38 | ||||||||||
Deposits with banks and other | 19 | 17 | 40 | 19 | ||||||||||
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Total interest income | 1,904 | 1,815 | 1,764 | 1,904 | ||||||||||
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Interest expense | ||||||||||||||
Deposits | 125 | 91 | 150 | 125 | ||||||||||
Long-term debt and other | 274 | 329 | 280 | 274 | ||||||||||
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Total interest expense | 399 | 420 | 430 | 399 | ||||||||||
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Net interest income | 1,505 | 1,395 | 1,334 | 1,505 | ||||||||||
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Total revenues net of interest expense | 8,193 | 8,303 | 7,774 | 8,193 | ||||||||||
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Provisions for losses | ||||||||||||||
Charge card | 203 | 196 | 174 | 203 | ||||||||||
Card Member loans | 309 | 265 | 319 | 309 | ||||||||||
Other | 17 | 27 | 11 | 17 | ||||||||||
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Total provisions for losses | 529 | 488 | 504 | 529 | ||||||||||
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Total revenues net of interest expense after provisions for losses | 7,664 | 7,815 | 7,270 | 7,664 | ||||||||||
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Expenses | ||||||||||||||
Marketing and promotion | 847 | 783 | 930 | 847 | ||||||||||
Card Member rewards | 1,763 | 1,695 | 1,566 | 1,763 | ||||||||||
Card Member services and other | 269 | 205 | 278 | 269 | ||||||||||
Salaries and employee benefits | 1,212 | 1,290 | 1,263 | 1,212 | ||||||||||
Other, net | 1,635 | 1,596 | 1,498 | 1,635 | ||||||||||
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Total expenses | 5,726 | 5,569 | 5,535 | 5,726 | ||||||||||
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Pretax income | 1,938 | 2,246 | 1,735 | 1,938 | ||||||||||
Income tax provision | 672 | 769 | 593 | 672 | ||||||||||
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Net income | $ | 1,266 | $ 1,477 | $ | 1,142 | $ | 1,266 | |||||||
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Earnings per Common Share (Note 15): (a) | ||||||||||||||
Basic | $ | 1.24 | $ 1.41 | $ | 1.21 | $ | 1.24 | |||||||
Diluted | $ | 1.24 | $ 1.40 | $ | 1.20 | $ | 1.24 | |||||||
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Average common shares outstanding for earnings per common share: | ||||||||||||||
Basic | 994 | 1,041 | 920 | 994 | ||||||||||
Diluted | 997 | 1,047 | 923 | 997 | ||||||||||
Cash dividends declared per common share | $ | 0.29 | $ 0.26 | $ | 0.32 | $ | 0.29 | |||||||
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(a) | Represents net income less (i) earnings allocated to participating share awards of |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Nine Months Ended September 30,(Millions, except per share amounts) | 2015 | 2014 | ||||||||||||
Nine Months Ended September 30(Millions, except per share amounts) | 2016 | 2015 | ||||||||||||
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Revenues | ||||||||||||||
Non-interest revenues | ||||||||||||||
Discount revenue | $ | 14,384 | $ 14,428 | $ | 13,983 | $ | 14,384 | |||||||
Net card fees | 2,013 | 2,041 | 2,161 | 2,013 | ||||||||||
Travel commissions and fees | 271 | 1,027 | ||||||||||||
Other commissions and fees | 1,891 | 1,884 | ||||||||||||
Other fees and commissions | 2,076 | 2,162 | ||||||||||||
Other | 1,493 | 1,679 | 1,514 | 1,493 | ||||||||||
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Total non-interest revenues | 20,052 | 21,059 | 19,734 | 20,052 | ||||||||||
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Interest income | ||||||||||||||
Interest on loans | 5,418 | 5,160 | 5,446 | 5,418 | ||||||||||
Interest and dividends on investment securities | 120 | 136 | 104 | 120 | ||||||||||
Deposits with banks and other | 60 | 54 | 104 | 60 | ||||||||||
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Total interest income | 5,598 | 5,350 | 5,654 | 5,598 | ||||||||||
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Interest expense | ||||||||||||||
Deposits | 337 | 276 | 450 | 337 | ||||||||||
Long-term debt and other | 886 | 1,026 | 841 | 886 | ||||||||||
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Total interest expense | 1,223 | 1,302 | 1,291 | 1,223 | ||||||||||
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Net interest income | 4,375 | 4,048 | 4,363 | 4,375 | ||||||||||
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Total revenues net of interest expense | 24,427 | 25,107 | 24,097 | 24,427 | ||||||||||
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Provisions for losses | ||||||||||||||
Charge card | 542 | 594 | 496 | 542 | ||||||||||
Card Member loans | 829 | 797 | 831 | 829 | ||||||||||
Other | 45 | 71 | 74 | 45 | ||||||||||
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Total provisions for losses | 1,416 | 1,462 | 1,401 | 1,416 | ||||||||||
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Total revenues net of interest expense after provisions for losses | 23,011 | 23,645 | 22,696 | 23,011 | ||||||||||
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Expenses | ||||||||||||||
Marketing and promotion | 2,217 | 2,329 | 2,445 | 2,217 | ||||||||||
Card Member rewards | 5,202 | 5,050 | 5,035 | 5,202 | ||||||||||
Card Member services and other | 772 | 619 | 841 | 772 | ||||||||||
Salaries and employee benefits | 3,767 | 4,488 | 4,052 | 3,767 | ||||||||||
Other, net | 4,569 | 4,393 | 3,388 | 4,569 | ||||||||||
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Total expenses | 16,527 | 16,879 | 15,761 | 16,527 | ||||||||||
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Pretax income | 6,484 | 6,766 | 6,935 | 6,484 | ||||||||||
Income tax provision | 2,220 | 2,328 | 2,352 | 2,220 | ||||||||||
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Net income | $ | 4,264 | $ 4,438 | $ | 4,583 | $ | 4,264 | |||||||
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Earnings per Common Share (Note 15): (a) | ||||||||||||||
Basic | $ | 4.16 | $ 4.19 | $ | 4.77 | $ | 4.16 | |||||||
Diluted | $ | 4.15 | $ 4.17 | $ | 4.76 | $ | 4.15 | |||||||
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Average common shares outstanding for earnings per common share: | ||||||||||||||
Basic | 1,007 | 1,051 | 940 | 1,007 | ||||||||||
Diluted | 1,011 | 1,057 | 943 | 1,011 | ||||||||||
Cash dividends declared per common share | $ | 0.84 | $ 0.75 | $ | 0.90 | $ | 0.84 | |||||||
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(a) | Represents net income less (i) earnings allocated to participating share awards of |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||
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Net income | $ | 1,266 | $ | 1,477 | $ | 4,264 | $ 4,438 | |||||||
Other comprehensive (loss) income: | ||||||||||||||
Net unrealized securities (losses) gains, | (7) | (11) | (27) | 31 | ||||||||||
Foreign currency translation adjustments, | (220) | (167) | (464) | (195) | ||||||||||
Net unrealized pension and other postretirement benefit gains, | 7 | 7 | 36 | 48 | ||||||||||
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Other comprehensive loss | (220) | (171) | (455) | (116) | ||||||||||
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Comprehensive income | $ | 1,046 | $ | 1,306 | $ | 3,809 | $ 4,322 | |||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
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(Millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
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Net income | $ | 1,142 | $ | 1,266 | $ | 4,583 | $ | 4,264 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Net unrealized securities losses, net of tax of: 2016, $(9) and $(7); 2015, $(2) and $(13) | (15 | ) | (7 | ) | (8 | ) | (27 | ) | ||||||||
Foreign currency translation adjustments, net of tax of: 2016, $(24) and $37; 2015, $181 and $221 | 11 | (220 | ) | (115 | ) | (464 | ) | |||||||||
Net unrealized pension and other postretirement benefit gains, net of tax of: 2016, $7 and $36; 2015, $8 and $24 | 7 | 7 | 39 | 36 | ||||||||||||
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Other comprehensive income (loss) | 3 | (220 | ) | (84 | ) | (455 | ) | |||||||||
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Comprehensive income | $ | 1,145 | $ | 1,046 | $ | 4,499 | $ | 3,809 | ||||||||
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See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, | December 31, | |||||||||||||
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(Millions, except share data) | 2015 | 2014 | | September 30, 2016 | | | December 31, 2015 | | ||||||
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Assets | ||||||||||||||
Cash and cash equivalents | ||||||||||||||
Cash and due from banks | $ | 2,613 | $ 2,628 | $ | 2,524 | $ | 2,935 | |||||||
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2015, $222; 2014, $204) | 16,716 | 19,190 | ||||||||||||
Interest-bearing deposits in banks (includes securities purchased under resale agreements: 2016, $243; 2015, $41) | 22,988 | 19,569 | ||||||||||||
Short-term investment securities | 609 | 470 | 1,008 | 258 | ||||||||||
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Total cash and cash equivalents | 19,938 | 22,288 | 26,520 | 22,762 | ||||||||||
Card Member loans and receivables held for sale (includes gross loans and receivables available to settle obligations of consolidated variable interest entities: 2016, nil; 2015, $4,966) | — | 14,992 | ||||||||||||
Accounts receivable | ||||||||||||||
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2015, $5,959; 2014, $7,025), less reserves: 2015, $441; 2014, $465 | 43,890 | 44,386 | ||||||||||||
Other receivables, less reserves: 2015, $61; 2014, $61 | 2,517 | 2,614 | ||||||||||||
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2016, $5,485; 2015, $6,649), less reserves: 2016, $437; 2015, $462 | 44,821 | 43,671 | ||||||||||||
Other receivables, less reserves: 2016, $48; 2015, $43 | 2,510 | 3,024 | ||||||||||||
Loans | ||||||||||||||
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: | 67,731 | 69,184 | ||||||||||||
Other loans, less reserves: 2015, $18; 2014, $12 | 1,054 | 920 | ||||||||||||
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2016, $24,752; 2015, $23,559), less reserves: 2016, $1,114; 2015, $1,028 | 59,504 | 57,545 | ||||||||||||
Other loans, less reserves: 2016, $30; 2015, $20 | 1,157 | 1,254 | ||||||||||||
Investment securities | 3,947 | 4,431 | 3,728 | 3,759 | ||||||||||
Premises and equipment, less accumulated depreciation and amortization: 2015, $6,733; 2014, $6,270 | 4,032 | 3,938 | ||||||||||||
Other assets (includes restricted cash of consolidated variable interest entities: 2015, $748; 2014, $64) | 11,107 | 11,342 | ||||||||||||
Premises and equipment, less accumulated depreciation and amortization: 2016, $4,995; 2015, $6,801 | 4,301 | 4,108 | ||||||||||||
Other assets (includes restricted cash of consolidated variable interest entities: 2016, $612; 2015, $155) | 10,836 | 10,069 | ||||||||||||
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Total assets | $ | 154,216 | $ 159,103 | $ | 153,377 | $ | 161,184 | |||||||
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Liabilities and Shareholders’ Equity | ||||||||||||||
Liabilities | ||||||||||||||
Customer deposits | $ | 49,301 | $ 44,171 | $ | 53,500 | $ | 54,997 | |||||||
Travelers Cheques and other prepaid products | 3,044 | 3,673 | 2,656 | 3,247 | ||||||||||
Accounts payable | 11,340 | 11,300 | 11,372 | 11,822 | ||||||||||
Short-term borrowings | 3,160 | 3,480 | ||||||||||||
Long-term debt (includes debt issued by consolidated variable interest entities: 2015, $13,285; 2014, $19,516) | 48,653 | 57,955 | ||||||||||||
Short-term borrowings (includes debt issued by a consolidated variable interest entity: 2016, nil; 2015, $100) | 2,861 | 4,812 | ||||||||||||
Long-term debt (includes debt issued by consolidated variable interest entities: 2016, $14,759; 2015, $13,602) | 44,894 | 48,061 | ||||||||||||
Other liabilities | 17,383 | 17,851 | 17,077 | 17,572 | ||||||||||
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Total liabilities | 132,881 | 138,430 | 132,360 | 140,511 | ||||||||||
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Contingencies (Note 8) | ||||||||||||||
Commitments and Contingencies (Note 8) | ||||||||||||||
Shareholders’ Equity | ||||||||||||||
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of | — | — | ||||||||||||
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 985 million shares as of | 197 | 205 | ||||||||||||
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of September 30, 2016 and December 31, 2015 | — | — | ||||||||||||
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 917 million shares as of September 30, 2016 and 969 million shares as of December 31, 2015 | 184 | 194 | ||||||||||||
Additional paid-in capital | 13,487 | 12,874 | 12,790 | 13,348 | ||||||||||
Retained earnings | 10,025 | 9,513 | 10,661 | 9,665 | ||||||||||
Accumulated other comprehensive loss | ||||||||||||||
Net unrealized securities gains, net of tax: 2015, $39; 2014, $52 | 69 | 96 | ||||||||||||
Foreign currency translation adjustments, net of tax: 2015, $(96); 2014, $(317) | (1,963) | (1,499) | ||||||||||||
Net unrealized pension and other postretirement benefit losses, net of tax: 2015, $(199); 2014, $(223) | (480) | (516) | ||||||||||||
Net unrealized securities gains, net of tax: 2016, $25; 2015, $32 | 50 | 58 | ||||||||||||
Foreign currency translation adjustments, net of tax: 2016, $(63); 2015, $(100) | (2,159 | ) | (2,044 | ) | ||||||||||
Net unrealized pension and other postretirement benefit losses, net of tax: 2016, $(188); 2015, $(223) | (509 | ) | (548 | ) | ||||||||||
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Total accumulated other comprehensive loss | (2,374) | (1,919) | (2,618 | ) | (2,534 | ) | ||||||||
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Total shareholders’ equity | 21,335 | 20,673 | 21,017 | 20,673 | ||||||||||
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Total liabilities and shareholders’ equity | $ | 154,216 | $ 159,103 | $ | 153,377 | $ | 161,184 | |||||||
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See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended September 30,(Millions) | 2015 | 2014 | ||||||||||||
Nine Months Ended September 30 (Millions) | 2016 | 2015 | ||||||||||||
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Cash Flows from Operating Activities | Cash Flows from Operating Activities |
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Net income | $ | 4,264 | $ 4,438 | $ | 4,583 | $ | 4,264 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Provisions for losses | 1,416 | 1,462 | 1,401 | 1,416 | ||||||||||
Depreciation and amortization | 780 | 764 | 810 | 780 | ||||||||||
Deferred taxes and other | 25 | (497) | (1,076 | ) | 135 | |||||||||
Stock-based compensation | 200 | 210 | 190 | 200 | ||||||||||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | ||||||||||||||
Other receivables | (166) | 275 | 485 | (203 | ) | |||||||||
Other assets | 1,864 | 850 | 115 | 1,864 | ||||||||||
Accounts payable and Other liabilities | 270 | 1,793 | ||||||||||||
Accounts payable and other liabilities | (1,028 | ) | (53 | ) | ||||||||||
Travelers Cheques and other prepaid products | (579) | (709) | (594 | ) | (579 | ) | ||||||||
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Net cash provided by operating activities | 8,074 | 8,586 | 4,886 | 7,824 | ||||||||||
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Cash Flows from Investing Activities | ||||||||||||||
Sales of available-for-sale investment securities | 12 | 122 | 51 | 12 | ||||||||||
Maturities and redemptions of available-for-sale investment securities | 1,821 | 966 | 1,209 | 1,821 | ||||||||||
Purchase of investments | (1,564) | (825) | ||||||||||||
Net increase in Card Member receivables/loans | (1,292) | (2,349) | ||||||||||||
Purchase of premises and equipment, net of sales: 2015, $32; 2014, $3 | (879) | (854) | ||||||||||||
Business acquisitions, net of cash acquired | (122) | (130) | ||||||||||||
Net (increase) decrease in restricted cash | (683) | 90 | ||||||||||||
Purchases of investments | (1,355 | ) | (1,564 | ) | ||||||||||
Net decrease (increase) in Card Member receivables and loans, including held for sale (a) | 11,818 | (1,292 | ) | |||||||||||
Purchase of premises and equipment, net of sales: 2016, $2; 2015, $32 | (975 | ) | (879 | ) | ||||||||||
Acquisitions/dispositions, net of cash acquired | (191 | ) | (122 | ) | ||||||||||
Net increase in restricted cash | (427 | ) | (683 | ) | ||||||||||
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Net cash used in investing activities | (2,707) | (2,980) | ||||||||||||
Net cash provided by (used in) investing activities | 10,130 | (2,707 | ) | |||||||||||
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Cash Flows from Financing Activities | ||||||||||||||
Net increase in customer deposits | 5,171 | 917 | ||||||||||||
Net (decrease) increase in customer deposits | (1,499 | ) | 5,171 | |||||||||||
Net decrease in short-term borrowings | (273) | (1,595) | (2,040 | ) | (273 | ) | ||||||||
Issuance of long-term debt | 7,925 | 11,329 | 5,926 | 7,923 | ||||||||||
Principal payments on long-term debt | (17,110) | (10,659) | (9,349 | ) | (16,858 | ) | ||||||||
Issuance of American Express preferred shares | 841 | — | — | 841 | ||||||||||
Issuance of American Express common shares | 169 | 251 | 78 | 169 | ||||||||||
Repurchase of American Express common shares | (3,330) | (3,205) | (3,477 | ) | (3,330 | ) | ||||||||
Dividends paid | (868) | (770) | (892 | ) | (868 | ) | ||||||||
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Net cash used in financing activities | (7,475) | (3,732) | (11,253 | ) | (7,225 | ) | ||||||||
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Effect of foreign currency exchange rates on cash and cash equivalents | (242) | (96) | (5 | ) | (242 | ) | ||||||||
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Net (decrease) increase in Cash and cash equivalents | (2,350) | 1,778 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 3,758 | (2,350 | ) | |||||||||||
Cash and cash equivalents at beginning of period | 22,288 | 19,486 | 22,762 | 22,288 | ||||||||||
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Cash and cash equivalents at end of period | $ | 19,938 | $ 21,264 | $ | 26,520 | $ | 19,938 | |||||||
|
|
| ||||||||||||
Supplemental cash flow information | ||||||||||||||
Non-cash financing activities | ||||||||||||||
Gain on business travel joint venture transaction | $ | — | $ 641 |
(a) | Refer to Note 2 for additional information. |
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Basis of Presentation |
The Company
American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. 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. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, these business travel operations were wholly owned. The Company also focuses on generating alternative sources of revenue on a global basis in areas such as online and mobile payments, and fee-based services. The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, targeted directin-house and third-party sales forces and direct response advertising.
Effective for the first quarter of 2016, the Company realigned its segment presentation to reflect the organizational changes announced during the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments, which are as follows:
Corporate functions and certain other businesses and operations are included in Corporate & Other.
The accompanying Consolidated Financial Statements should be read in conjunction with the consolidated financial statements incorporated by referenceConsolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20142015 (the Annual Report). If not materially different, certain footnote disclosures included in the Annual Reporttherein have been omitted from this Quarterly Report on Form 10-Q.
The interim consolidated financial information in this report has not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial information, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The preparation of consolidated financial statementsConsolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.
In the first quarterCertain reclassifications of 2015, the Company changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. Priorprior period amounts have been reclassifiedmade to conform to the current period presentation. NoneDuring 2016, the Company determined that in the Consolidated Statements of Cash Flows for the prior period financial statementscomparative periods ended June 30, 2015, September 30, 2015 and December 31, 2015, certain activities related to long-term debt repayments were materially misstated frommisclassified between financing activities and operating activities.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
There is no impact to the Consolidated Statements of Income or Consolidated Balance Sheets. The Company has evaluated the effects of these misclassifications and concluded that none are material to any of its previously issued quarterly or annual Consolidated Financial Statements. Nevertheless, the Company has elected to revise prospectively the comparative periods mentioned above. For the nine months ended September 30, 2015, this misclassification.revision resulted in a $250 million decrease to both Net cash used in financing activities and Net cash provided by operating activities. In addition, travel commissions and fees, which were separately disclosed on the Consolidated Statements of Income historically, are now included within Other fees and commissions.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The guidance establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows. The guidance, as amended, supersedes most of the current revenue recognition requirements, and is effective January 1, 2018, with early adoption as of January 1, 2017, permitted. The Company does not intend to adopt the new standard early and continues to evaluate the method of implementation and the impact this guidance including the method of implementation, will have on its financial position, results of operations and cash flows, among other items.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2014,2016, the FASB issued new accounting guidance on investments in Qualified Affordable Housing projects. Providedthe recognition and measurement of financial assets and financial liabilities. The guidance, which is effective January 1, 2018, makes targeted changes to current GAAP, specifically to the classification and measurement of equity securities, and to certain conditions are met, this standard permits entities to account for investments in Qualified Affordable Housing projects usingdisclosure requirements associated with the proportional amortization method. The standard also requires new disclosures about all investments in Qualified Affordable Housing projects irrespectivefair value of the method used to account for the investments.financial instruments. The Company has adoptedcontinues to evaluate the impact this guidance inwill have on its financial position, results of operations and cash flows, among other items.
In February 2016, the first quarter of 2015 and has elected not to use the proportional amortization method, but continues to account for these investments using the equity method ofFASB issued new accounting which has been the Company’s historical practice.
During the three and nine months ended September 30, 2015, the Company recognized equity method losses related to Qualified Affordable Housing of $14 million and $34 million, respectively, which were recognized in Other, net expenses; and associated tax credits of $15 million and $39 million, respectively, which were recognized in Income tax provision. Similarly, during the three and nine months ended September 30, 2014, the Company recognized equity method losses of $7 million and $39 million, respectively; and associated tax credits of $12 million and $30 million, respectively.guidance on leases. The carrying value of these investments was $605 million and $522 million as of September 30, 2015 and December 31, 2014, respectively. In addition, as of September 30, 2015, the Company is contractually committed to provide additional funding related to certain of these investments, resulting in a liability of $134 million for unfunded commitments reported in Other liabilities,guidance, which is expectedeffective January 1, 2019, with early adoption permitted, requires virtually all leases to be paid between 2015 and 2023.
On June 30, 2014, the Company completed a transaction to establish a non-consolidated joint venture comprising the former Global Business Travel (GBT) operations of the Company and an external cash investment. As a result of this transaction, the Company deconsolidated the GBT net assets, effective June 30, 2014, and began accounting for the GBT JV as an equity method investment reported in Other assets withinrecognized on the Consolidated Balance Sheets. PriorThe Company does not intend to adopt the deconsolidation,new standard early and continues to evaluate the carrying amountimpact this guidance will have on its financial position, results of GBT’s assetsoperations and liabilities werecash flows, among other items.
In March 2016, the FASB issued new accounting guidance on employee share-based payments. The guidance, which is effective January 1, 2017, with early adoption permitted, simplifies various aspects of the accounting for share-based payment transactions, including the income tax consequences, accounting for award forfeitures, and classification on the Consolidated Statements of Cash Flows. Among other items, the guidance requires excess tax benefits and deficiencies, which under previous guidance would have been recorded within additional paid-in capital, to now be recognized in the income tax provision within the results of operations. The Company continues to evaluate the impact this guidance will have on its financial position, results of operations and cash flows, among other items, but does not expect the impacts of the standard to be material upon adoption. The Company will adopt the standard, prospectively, effective January 1, 2017.
In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial instruments, which is effective January 1, 2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information and will likely result in earlier recognition of credit reserves. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the new CECL model will alter the assumptions used in calculating credit losses on Card Member loans and receivables, among other financial instruments, and may result in material changes to the Company’s financial position and its operations were reported within the Global Commercial Services (GCS) segment.
On October 26, 2015, the Company reached an agreement to sell the outstanding Card Member loan portfolio related to its co-brand partnership with JetBlue Airways Corporation (JetBlue). The carrying amount of the portfolio of JetBlue Card Member loans is not material to the Company’s financial position. The sale is subject to customary closing conditions, and is expected to be consummated in the first quarter of 2016 and is reported within the U.S. Card Services (USCS) segment, at which time the related gain will be recognized.credit reserves.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. | Business Events |
During the first half of 2016, the Company completed the sales of substantially all of its outstanding Card Member loans and receivables held for sale (HFS) and recognized gains, as an expense reduction in Other expenses, of $127 million and $1.1 billion during the three months ended March 31, 2016 and June 30, 2016, respectively. The impact of the sales is reported within the investing section of the Consolidated Statements of Cash Flows as a net decrease in Card Member receivables and loans, including held for sale.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. | Loans and Accounts Receivable |
The Company’s chargelending and lendingcharge payment card products result in the generation of Card Member receivablesloans and Card Member receivables, respectively. This Note is presented excluding amounts associated with the Card Member loans respectively.
Accounts receivable by segmentand receivables HFS as of December 31, 2015; the Company did not have any Card Member loans and receivables HFS as of September 30, 20152016.
Card Member loans by segment and Other loans as of September 30, 2016 and December 31, 2014,2015, consisted of:
| ||||||
(Millions) | 2015 | 2014 | ||||
|
|
|
| |||
U.S. Card Services(a) | $ | 21,965 | $ 22,468 | |||
International Card Services | 6,511 | 7,653 | ||||
Global Commercial Services(b) | 15,748 | 14,583 | ||||
Global Network & Merchant Services(c) | 107 | 147 | ||||
|
|
|
| |||
Card Member receivables(d) | 44,331 | 44,851 | ||||
Less: Reserve for losses | 441 | 465 | ||||
|
|
|
| |||
Card Member receivables, net | $ | 43,890 | $ 44,386 | |||
|
|
|
| |||
Other receivables, net(e) | $ | 2,517 | $ 2,614 | |||
|
| ||||||||
(Millions) | 2016 | 2015 | ||||||
|
|
|
|
| ||||
U.S. Consumer Services(a) | $ | 44,857 | $ | 43,495 | ||||
International Consumer and Network Services | 6,700 | 7,072 | ||||||
Global Commercial Services | 9,061 | 8,006 | ||||||
|
|
|
|
| ||||
Card Member loans | 60,618 | 58,573 | ||||||
Less: Reserve for losses | 1,114 | 1,028 | ||||||
|
|
|
|
| ||||
Card Member loans, net | $ | 59,504 | $ | 57,545 | ||||
|
|
|
|
| ||||
Other loans, net(b) | $ | 1,157 | $ | 1,254 | ||||
|
(a) | Includes |
(b) |
|
Card Member accounts receivable by segment and Other receivables as of September 30, 2016 and December 31, 2015 consisted of:
| ||||||||
(Millions) | 2016 | 2015 | ||||||
|
|
|
|
| ||||
U.S. Consumer Services (a) | $ | 10,101 | $ | 11,807 | ||||
International Consumer and Network Services | 5,551 | 5,599 | ||||||
Global Commercial Services | 29,606 | 26,727 | ||||||
|
|
|
|
| ||||
Card Member receivables (b) | 45,258 | 44,133 | ||||||
Less: Reserve for losses | 437 | 462 | ||||||
|
|
|
|
| ||||
Card Member receivables, net | $ | 44,821 | $ | 43,671 | ||||
|
|
|
|
| ||||
Other receivables, net (c) | $ | 2,510 | $ | 3,024 | ||||
|
Includes $5.5 billion and $6.6 billion of gross Card Member receivables |
Includes approximately |
Other receivables primarily represent amounts related to (i) certain merchants for billed discount revenue, |
Loans by segment as of September 30, 2015 and December 31, 2014, consisted of:
| ||||||
(Millions) | 2015 | 2014 | ||||
|
|
|
| |||
U.S. Card Services(a) | $ | 62,133 | $ 62,592 | |||
International Card Services | 6,710 | 7,744 | ||||
Global Commercial Services | 52 | 49 | ||||
|
|
|
| |||
Card Member loans | 68,895 | 70,385 | ||||
Less: Reserve for losses | 1,164 | 1,201 | ||||
|
|
|
| |||
Card Member loans, net | $ | 67,731 | $ 69,184 | |||
|
|
|
| |||
Other loans, net(b) | $ | 1,054 | $ 920 | |||
|
|
|
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Card Member Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of September 30, 20152016 and December 31, 2014:2015:
| ||||||||||||||||||
30-59 | 60-89 | 90+ | ||||||||||||||||
Days | Days | Days | ||||||||||||||||
Past | Past | Past | ||||||||||||||||
2015 (Millions) | Current | Due | Due | Due | Total | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: | ||||||||||||||||||
U.S. Card Services | $ | 61,530 | $ | 191 | $ | 131 | $ | 281 | $ 62,133 | |||||||||
International Card Services | 6,604 | 35 | 22 | 49 | 6,710 | |||||||||||||
Card Member Receivables: | ||||||||||||||||||
U.S. Card Services | $ | 21,612 | $ | 133 | $ | 73 | $ | 147 | $ 21,965 | |||||||||
International Card Services | 6,412 | 29 | 22 | 48 | 6,511 | |||||||||||||
Global Commercial Services(a) | (b) | (b) | (b) | 112 | 15,748 | |||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
30-59 | 60-89 | 90+ | ||||||||||||||||
Days | Days | Days | ||||||||||||||||
Past | Past | Past | ||||||||||||||||
2014 (Millions) | Current | Due | Due | Due | Total | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: | ||||||||||||||||||
U.S. Card Services | $ | 61,995 | $ | 179 | $ | 128 | $ | 290 | $ 62,592 | |||||||||
International Card Services | 7,621 | 39 | 27 | 57 | 7,744 | |||||||||||||
Card Member Receivables: | ||||||||||||||||||
U.S. Card Services | $ | 22,096 | $ | 129 | $ | 72 | $ | 171 | $ 22,468 | |||||||||
International Card Services | 7,557 | 29 | 20 | 47 | 7,653 | |||||||||||||
Global Commercial Services(a) | (b) | (b) | (b) | 120 | 14,583 | |||||||||||||
|
| ||||||||||||||||||||
2016(Millions) | Current |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
| | 90+ Days Past Due | | Total | |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Card Member Loans: | ||||||||||||||||||||
U.S. Consumer Services | $ | 44,367 | $ | 149 | $ | 105 | $ | 236 | $ | 44,857 | ||||||||||
International Consumer and Network Services | 6,589 | 34 | 25 | 52 | 6,700 | |||||||||||||||
Global Commercial Services | ||||||||||||||||||||
Global Small Business Services | 8,918 | 29 | 20 | 46 | 9,013 | |||||||||||||||
Global Corporate Payments(a) | (b | ) | (b | ) | (b | ) | 1 | 48 | ||||||||||||
Card Member Receivables: | ||||||||||||||||||||
U.S. Consumer Services | $ | 9,963 | $ | 51 | $ | 28 | $ | 59 | $ | 10,101 | ||||||||||
International Consumer and Network Services | 5,470 | 25 | 17 | 39 | 5,551 | |||||||||||||||
Global Commercial Services | ||||||||||||||||||||
Global Small Business Services | 13,605 | 77 | 44 | 83 | 13,809 | |||||||||||||||
Global Corporate Payments(a) | (b | ) | (b | ) | (b | ) | 124 | 15,797 | ||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
2015 (Millions) | Current |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
| | 90+ Days Past Due | | Total | |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Card Member Loans: | ||||||||||||||||||||
U.S. Consumer Services | $ | 43,063 | $ | 128 | $ | 94 | $ | 210 | $ | 43,495 | ||||||||||
International Consumer and Network Services | 6,961 | 34 | 25 | 52 | 7,072 | |||||||||||||||
Global Commercial Services | ||||||||||||||||||||
Global Small Business Services | 7,867 | 26 | 18 | 40 | 7,951 | |||||||||||||||
Global Corporate Payments(a) | (b | ) | (b | ) | (b | ) | 1 | 55 | ||||||||||||
Card Member Receivables: | ||||||||||||||||||||
U.S. Consumer Services | $ | 11,646 | $ | 54 | $ | 32 | $ | 75 | $ | 11,807 | ||||||||||
International Consumer and Network Services | 5,515 | 24 | 18 | 42 | 5,599 | |||||||||||||||
Global Commercial Services | ||||||||||||||||||||
Global Small Business Services | 12,734 | 69 | 45 | 102 | 12,950 | |||||||||||||||
Global Corporate Payments(a) | (b | ) | (b | ) | (b | ) | 124 | 13,777 | ||||||||||||
|
(a) | For GCP Card Member loans and receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member loan and receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. |
(b) | Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances. |
10 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the nine months ended September 30:
| ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Net Write-Off Rate | Net Write-Off Rate | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
30+ Days | 30+ Days | |||||||||||||||||||||||
Principal, | Past Due | Principal, | Past Due | |||||||||||||||||||||
Principal | Interest, & | as a % of | Principal | Interest, & | as a % of | |||||||||||||||||||
Only | (a) | Fees | (a) | Total | Only | (a) | Fees (a) | Total | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Card Member Loans: | ||||||||||||||||||||||||
U.S. Card Services | 1.4 | % | 1.6 | % | 1.0 | % | 1.6 | % | 1.8% | 1.0% | ||||||||||||||
International Card Services | 2.0 | % | 2.4 | % | 1.6 | % | 2.0 | % | 2.4% | 1.6% | ||||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||
U.S. Card Services | 1.8 | % | 2.0 | % | 1.6 | % | 1.7 | % | 1.9% | 1.6% | ||||||||||||||
International Card Services | 2.1 | % | 2.2 | % | 1.5 | % | 2.0 | % | 2.1% | 1.4% | ||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Net Loss | Net Loss | |||||||||||||||||||||||
Ratio as | 90+ Days | Ratio as | 90+ Days | |||||||||||||||||||||
a % of | Past Billing | a % of | Past Billing | |||||||||||||||||||||
Charge | as a % of | Charge | as a % of | |||||||||||||||||||||
Volume | Receivables | Volume | Receivables | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Card Member Receivables: |
| |||||||||||||||||||||||
Global Commercial Services |
| 0.09 | % | 0.7 | % | 0.09% | 0.8% | |||||||||||||||||
|
| ||||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Net Write-Off Rate | Net Write-Off Rate | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
| Principal Only(a) | | | Principal, Interest & Fees(a) | | | 30+ Days Past Due as a % of Total | | | Principal Only(a) | | | Principal, Interest & Fees(a) | | | 30+ Days Past Due as a % of Total | | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Card Member Loans: | ||||||||||||||||||||||||
U.S. Consumer Services | 1.5 | % | 1.8 | % | 1.1 | % | 1.4 | % | 1.6 | % | 1.0 | % | ||||||||||||
International Consumer and Network Services | 2.0 | % | 2.5 | % | 1.7 | % | 2.0 | % | 2.4 | % | 1.6 | % | ||||||||||||
Global Small Business Services | 1.4 | % | 1.7 | % | 1.1 | % | 1.3 | % | 1.5 | % | 1.0 | % | ||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||
U.S. Consumer Services | 1.4 | % | 1.6 | % | 1.4 | % | 1.6 | % | 1.8 | % | 1.6 | % | ||||||||||||
International Consumer and Network Services | 2.1 | % | 2.3 | % | 1.5 | % | 2.1 | % | 2.3 | % | 1.6 | % | ||||||||||||
Global Small Business Services | 1.6 | % | 1.8 | % | 1.5 | % | 1.9 | % | 2.2 | % | 1.6 | % | ||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
| Net Loss Ratio as a % of Charge Volume | | | 90+ Days Past Billing as a % of Receivables | | | Net Loss Ratio as a % of Charge Volume | | | 90+ Days Past Billing as a % of Receivables | | |||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||
Global Corporate Payments |
| 0.09 | % | 0.8 | % | 0.09 | % | 0.7 | % | |||||||||||||||
|
(a) | The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. |
Impaired Card Member Loans and Receivables
Impaired Card Member loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. In certain cases, these Card Member loans and receivables are included in one of the Company’s various modification programs. Beginning January 1, 2015, on a prospective basis the Company continues to classify Card Member accounts that have exited a modification program as a Troubled Debt Restructuring (TDR), with such accounts identified as “Out of Program TDRs.” modification programs.
11 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table providestables provide additional information with respect to the Company’s impaired Card Member loans (whichand receivables. Impaired Card Member receivables are not significant for GCS) and impaired Card Member receivables (which are not significant for International Card Services (ICS) and GCS)ICNS as of September 30, 20152016 and December 31, 2014:2015; therefore, the segment’s receivables are not included in the following tables.
| ||||||||||||||||||||||||||
As of September 30, 2015 | ||||||||||||||||||||||||||
Over 90 days | Accounts Classified as a TDR(c) | |||||||||||||||||||||||||
Past Due & | Total | Unpaid | ||||||||||||||||||||||||
Accruing | Non- | Out of | Impaired | Principal | Allowance | |||||||||||||||||||||
(Millions) | Interest | (a) | Accruals | (b) | In Program | (d) | Program | (e) | Balance | Balance | for TDRs | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Card Member Loans: | ||||||||||||||||||||||||||
U.S. Card Services | $ | 192 | $ | 175 | $ | 224 | $ | 109 | $ | 700 | $ 649 | $ 66 | ||||||||||||||
International Card Services | 49 | — | — | — | 49 | 49 | — | |||||||||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||||
U.S. Card Services | — | — | 26 | 4 | 30 | 30 | 18 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total | $ | 241 | $ | 175 | $ | 250 | $ | 113 | $ | 779 | $728 | $ 84 | ||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
As of December 31, 2014 | ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||
Over 90 days | ||||||||||||||||||||||||||
Past Due & | Total | Unpaid | ||||||||||||||||||||||||
Accruing | Non- | In Program | Impaired | Principal | Allowance | |||||||||||||||||||||
(Millions) | Interest | (a) | Accruals | (b) | TDRs | (c)(d) | Balance | Balance | for TDRs | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Card Member Loans: | ||||||||||||||||||||||||||
U.S. Card Services | $ | 161 | $ | 241 | $ | 286 | $ | 688 | $ | 646 | $67 | |||||||||||||||
International Card Services | 57 | — | — | 57 | 56 | — | ||||||||||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||||
U.S. Card Services | — | — | 48 | 48 | 48 | 35 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 218 | $ | 241 | $ | 334 | $ | 793 | $ | 750 | $102 | |||||||||||||||
|
| ||||||||||||||||||||||||||||
As of September 30, 2016 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Accounts Classified as a TDR(c) | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
2016(Millions) | Over 90 days Past Due & Accruing Interest(a) | Non- Accruals(b) | In Program(d) | Out of Program(e) | Total Impaired Balance | Unpaid Principal Balance | Allowance for TDRs | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Card Member Loans: | ||||||||||||||||||||||||||||
U.S. Consumer Services | $ | 156 | $ | 133 | 168 | $ | 124 | $ | 581 | $ | 532 | $ | 50 | |||||||||||||||
International Consumer and Network Services | 52 | — | — | — | 52 | 51 | — | |||||||||||||||||||||
Global Commercial Services | 27 | 29 | 27 | 25 | 108 | 100 | 10 | |||||||||||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||||||
U.S. Consumer Services | — | — | 9 | 5 | 14 | 14 | 6 | |||||||||||||||||||||
Global Commercial Services | — | — | 24 | 8 | 32 | 32 | 18 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 235 | $ | 162 | 228 | $ | 162 | $ | 787 | $ | 729 | $ | 84 | |||||||||||||||
| ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Accounts Classified as a TDR(c) | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
2015(Millions) | Over 90 days Past Due & Accruing Interest(a) | Non- Accruals(b) | In Program(d) | Out of Program(e) | Total Impaired | Unpaid Principal Balance | Allowance for TDRs | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Card Member Loans: | ||||||||||||||||||||||||||||
U.S. Consumer Services | $ | 140 | $ | 124 | 149 | $ | 89 | $ | 502 | $ | 463 | $ | 44 | |||||||||||||||
International Consumer and Network Services | 52 | — | — | — | 52 | 51 | — | |||||||||||||||||||||
Global Commercial Services | 24 | 26 | 23 | 18 | 91 | 85 | 9 | |||||||||||||||||||||
Card Member Receivables: | ||||||||||||||||||||||||||||
U.S. Consumer Services | — | — | 11 | 3 | 14 | 14 | 8 | |||||||||||||||||||||
Global Commercial Services | — | — | 16 | 3 | 19 | 19 | 12 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 216 | $ | 150 | 199 | $ | 113 | $ | 678 | $ | 632 | $ | 73 | |||||||||||||||
|
(a) | The Company’s policy is generally to accrue interest through the date of write-off |
(b) | Non-accrual loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest. |
(c) | Accounts classified as a TDR include $19 million and |
(d) | In Program TDRs include Card Member accounts that are currently enrolled in a modification program. |
(e) | Out of Program TDRs include |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information with respect to the Company’s average balances of, and interest income recognized from, impaired Card Member loans (which are not significant for GCS) and the average balances of impaired Card Member receivables (which are not significant for ICS and GCS) for the three and nine months ended September 30:
| ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2015 | September 30, 2015 | |||||||||||||||
|
|
|
| |||||||||||||
Average | Interest Income | Average | Interest Income | |||||||||||||
2015 (Millions) | Balance | Recognized | Balance | Recognized | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: | ||||||||||||||||
U.S. Card Services | $ | 693 | $ | 16 | $ | 685 | $ 43 | |||||||||
International Card Services | 53 | 3 | 55 | 10 | ||||||||||||
Card Member Receivables: | ||||||||||||||||
U.S. Card Services | 28 | — | 35 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 774 | $ | 19 | $ | 775 | $ 53 | |||||||||
| ||||||||||||||||
| ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2014 | September 30, 2014 | |||||||||||||||
|
|
|
| |||||||||||||
Average | Interest Income | Average | Interest Income | |||||||||||||
2014 (Millions) | Balance | Recognized | Balance | Recognized | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: | ||||||||||||||||
U.S. Card Services | $ | 675 | $ | 12 | $ | 734 | $ 37 | |||||||||
International Card Services | 63 | 4 | 63 | 12 | ||||||||||||
Card Member Receivables: | ||||||||||||||||
U.S. Card Services | 44 | — | 47 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 782 | $ | 16 | $ | 844 | $ 49 | |||||||||
|
| ||||||||||||||||
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||
(Millions) | Average Balance | Interest Income Recognized | Average Balance | Interest Income Recognized | ||||||||||||
|
|
|
|
| ||||||||||||
Card Member Loans: | ||||||||||||||||
U.S. Consumer Services | $ | 587 | $ | 14 | $ | 555 | $ | 38 | ||||||||
International Consumer and Network Services | 53 | 4 | 52 | 12 | ||||||||||||
Global Commercial Services | 111 | 4 | 102 | 10 | ||||||||||||
Card Member Receivables: | ||||||||||||||||
U.S. Consumer Services | 13 | — | 13 | — | ||||||||||||
Global Commercial Services | 29 | — | 24 | — | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 793 | $ | 22 | $ | 746 | $ | 60 | ||||||||
| ||||||||||||||||
| ||||||||||||||||
Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2015 | |||||||||||||||
(Millions) | Average Balance | Interest Income Recognized | Average Balance | Interest Income Recognized | ||||||||||||
|
|
|
|
| ||||||||||||
Card Member Loans: | ||||||||||||||||
U.S. Consumer Services | $ | 585 | $ | 13 | $ | 580 | $ | 34 | ||||||||
International Consumer and Network Services | 53 | 3 | 55 | 10 | ||||||||||||
Global Commercial Services | 108 | 3 | 105 | 9 | ||||||||||||
Card Member Receivables: | ||||||||||||||||
U.S. Consumer Services | 11 | — | 14 | — | ||||||||||||
Global Commercial Services | 17 | — | 21 | — | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 774 | $ | 19 | $ | 775 | $ | 53 | ||||||||
|
13 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Receivables Modified as TDRs
The following table provides additional information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs for the three and nine months ended September 30, 20152016 and 2014.2015. The ICSICNS Card Member loans and receivables modifications were not significant and the Company does not offer modification programs for its GCS Card Member receivables;significant; therefore, these segments arethis segment is not included in the following TDR disclosures.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2015 | September 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Payment | Average | Payment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Outstanding | Interest Rate | Term | Number of | Outstanding | Interest Rate | Term |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts | Balances (a) | Reduction | Extension | Accounts | Balances (a) | Reduction | Extension |
Three Months Ended
September 30, 2016 |
Nine Months Ended
September 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(thousands) | (millions) | (% Points) | (Months) | (thousands) | (millions) | (% Points) | (Months) |
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| Number of Accounts (in thousands) | Outstanding Balances(a) ($ in millions) | Average Interest Rate Reduction (% Points) | Average Payment Term Extension (# of Months) | Number of Accounts (in thousands) | Outstanding Balances(a) ($ in millions) | Average Interest Rate Reduction (% Points) | Average Payment Term Extension (# of Months) | ||||||||||||||||||||||||||||||||||||||||||||||
Troubled Debt Restructurings: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Card Member Loans | 10 | $ | 69 | 9 | (b) | 31 | $ | 218 | 10 | (b) | 8 | $ | 56 | 9 | (b | ) | 23 | $ | 163 | 10 | (b | ) | ||||||||||||||||||||||||||||||||||||||||
Card Member Receivables | 3 | 37 | (c) | 12 | 9 | 111 | (c) | 12 | 2 | 29 | (c | ) | 19 | 7 | 94 | (c | ) | 17 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 13 | $ | 106 | 40 | $ | 329 | 10 | $ | 85 | 30 | $ | 257 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended |
Three Months Ended
September 30, 2015 | Nine Months Ended
September 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2014 | September 30, 2014 |
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Number of Accounts (in thousands) | Outstanding Balances(a) ($ in millions) | Average Interest Rate Reduction (% Points) | Average Payment Term Extension (# of Months) | Number of Accounts (in thousands) | Outstanding Balances(a) ($ in millions) | Average Interest Rate Reduction (% Points) | Average Payment Term Extension (# of Months) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Payment | Average | Payment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Outstanding | Interest Rate | Term | Number of | Outstanding | Interest Rate | Term | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts | Balances (a) | Reduction | Extension | Accounts | Balances (a) | Reduction | Extension | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(thousands) | (millions) | (% Points) | (Months) | (thousands) | (millions) | (% Points) | (Months) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Troubled Debt Restructurings: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Card Member Loans | 11 | $ | 83 | 9 | (b) | 35 | $ | 261 | 11 | (b) | 10 | $ | 69 | 9 | (b | ) | 31 | $ | 218 | 10 | (b | ) | ||||||||||||||||||||||||||||||||||||||||
Card Member Receivables | 4 | 41 | (c) | 12 | 11 | 129 | (c) | 12 | 3 | 37 | (c | ) | 12 | 9 | 111 | (c | ) | 12 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 15 | $ | 124 | 46 | $ | 390 | 13 | $ | 106 | 40 | $ | 329 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
(a) | Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables. Modifications did not reduce the principal balance. |
(b) | For Card Member loans, there have been no payment term extensions. |
(c) | The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing. |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information for the three and nine months ended September 30, 2015 and 2014, with respect to the USCS and GCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification.modification, in the three and nine months ended September 30, 2016 and 2015. A Card Member is considered in default of a modification program after one and up to two consecutive missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables.
| ||||||||
Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2015 | |||||||
|
| |||||||
Number of Accounts (thousands) | Outstanding Upon Default | Number of Accounts (thousands) | Outstanding Upon Default | |||||
|
|
|
|
| ||||
Troubled Debt Restructurings That Subsequently Defaulted: | ||||||||
Card Member Loans | 1 | $ 14 | 6 | $ 39 | ||||
Card Member Receivables | 1 | 1 | 3 | 3 | ||||
|
|
|
|
| ||||
Total | 2 | $ 15 | 9 | $ 42 | ||||
| ||||||||
| ||||||||
Three Months Ended September 30, 2014 | Nine Months Ended September 30, 2014 | |||||||
|
| |||||||
Number of Accounts (thousands) | Outstanding Balances Upon Default (millions)(a)(b) | Number of Accounts (thousands) | Outstanding Balances Upon Default (millions)(a)(b) | |||||
|
|
|
|
| ||||
Troubled Debt Restructurings That Subsequently Defaulted: | ||||||||
Card Member Loans | 2 | $ 12 | 6 | $ 40 | ||||
Card Member Receivables | 1 | 2 | 2 | 9 | ||||
|
|
|
|
| ||||
Total | 3 | $ 14 | 8 | $ 49 | ||||
|
Three Months Ended
September 30, 2016 | Nine Months Ended
September 30, 2016 | |||||||||||||||
|
|
|
| |||||||||||||
Number of (in thousands) | Aggregated ($ in millions) | Number of (in thousands) | Aggregated ($ in millions) | |||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Troubled Debt Restructurings That Subsequently Defaulted: | ||||||||||||||||
Card Member Loans | 3 | $ | 12 | 5 | $ | 30 | ||||||||||
Card Member Receivables | 1 | 1 | 3 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Total | 4 | $ | 13 | 8 | $ | 33 | ||||||||||
| ||||||||||||||||
| ||||||||||||||||
Three Months Ended
September 30, 2015 | Nine Months Ended
September 30, 2015 | |||||||||||||||
|
|
|
| |||||||||||||
Number of (in thousands) | Aggregated ($ in millions) | Number of Accounts (in thousands) | Aggregated Outstanding Balances Upon Default(a) ($ in millions) | |||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Troubled Debt Restructurings That Subsequently Defaulted: | ||||||||||||||||
Card Member Loans | 1 | $ | 14 | 6 | $ | 39 | ||||||||||
Card Member Receivables | 1 | 1 | 3 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Total | 2 | $ | 15 | 9 | $ | 42 | ||||||||||
|
(a) | The outstanding balances upon default include principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables. |
|
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. | Reserves for Losses |
Reserves for losses relating to Card Member receivablesloans and loansreceivables represent management’s best estimate of the probable inherent losses in the Company’s outstanding portfolio of loans and receivables, as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments.
Changes in Card Member Receivables Reserve for Losses
The following table presents changes inThis Note is presented excluding amounts associated with the Card Member loans and receivables reserve for losses forHFS as of December 31, 2015; the nine months ended September 30:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Balance, January 1 | $ | 465 | $ 386 | |||||
Provisions(a) | 542 | 594 | ||||||
Net write-offs(b) | (544) | (527) | ||||||
Other(c) | (22) | (21) | ||||||
|
|
|
| |||||
Balance, September 30 | $ | 441 | $ 432 | |||||
|
|
|
|
Company did not have any Card Member Receivables Evaluated Individuallyloans and Collectively for Impairment
The following table presents Card Member receivables evaluated individually and collectively for impairment, and related reserves,HFS as of September 30, 2015 and December 31, 2014:2016.
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Card Member receivables evaluated individually for impairment(a) | $ | 30 | $ 48 | |||||
Related reserves(a) | $ | 18 | $ 35 | |||||
| ||||||||
Card Member receivables evaluated collectively for impairment | $ | 44,301 | $ 44,803 | |||||
Related reserves(b) | $ | 423 | $ 430 | |||||
|
|
|
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes in Card Member Loans Reserve for Losses
The following table presents changes in the Card Member loans reserve for losses for the nine months ended September 30:
|
|
| ||||||||||||||
(Millions) | 2015 | 2014 | 2016 | 2015 | ||||||||||||
|
|
|
|
| ||||||||||||
Balance, January 1 | $ | 1,201 | $ 1,261 | $ | 1,028 | $ | 1,201 | |||||||||
Provisions(a) | 829 | 797 | 831 | 829 | ||||||||||||
Net write-offs | ||||||||||||||||
Principal(b) | (733) | (786) | (687 | ) | (733 | ) | ||||||||||
Interest and fees(b) | (122) | (124) | (128 | ) | (122 | ) | ||||||||||
Other(c) | (11) | (2) | 70 | (11 | ) | |||||||||||
|
|
|
|
| ||||||||||||
Balance, September 30 | $ | 1,164 | $ 1,146 | $ | 1,114 | $ | 1,164 | |||||||||
|
|
|
(a) | Provisions for principal, interest and fee reserve components. |
(b) | Consists of principal write-offs, less recoveries of |
(c) |
|
Card Member Loans Evaluated Individually and Collectively for Impairment
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of September 30, 20152016 and December 31, 2014:2015:
|
|
| ||||||||||||||
(Millions) | 2015 | 2014 | 2016 | 2015 | ||||||||||||
|
|
|
|
| ||||||||||||
Card Member loans evaluated individually for impairment(a) | $ | 333 | $ 286 | $ | 344 | $ | 279 | |||||||||
Related reserves(a) | $ | 66 | $ 67 | $ | 60 | $ | 53 | |||||||||
|
|
| ||||||||||||||
Card Member loans evaluated collectively for impairment(b) | $ | 68,562 | $ 70,099 | $ | 60,274 | $ | 58,294 | |||||||||
Related reserves(b) | $ | 1,098 | $ 1,134 | $ | 1,054 | $ | 975 | |||||||||
|
|
|
(a) | Represents loans modified as a TDR and related reserves. |
(b) | Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are specific to individual pools of loans, and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment. |
Changes in Card Member Receivables Reserve for Losses
The following table presents changes in the Card Member receivables reserve for losses for the nine months ended September 30:
| ||||||||
(Millions) | 2016 | 2015 | ||||||
|
|
|
|
| ||||
Balance, January 1 | $ | 462 | $ | 465 | ||||
Provisions(a) | 496 | 542 | ||||||
Net write-offs(b) | (518 | ) | (544 | ) | ||||
Other(c) | (3 | ) | (22 | ) | ||||
|
|
|
|
| ||||
Balance, September 30 | $ | 437 | $ | 441 | ||||
|
(a) | Provisions for principal and fee reserve components. |
(b) | Consists of principal and fee components, less recoveries of $301 million and $302 million, including net write-offs from TDRs of $16 million and $49 million, for the nine months ended September 30, 2016 and 2015, respectively. |
(c) | Includes foreign currency translation adjustments of nil and $(13) million and other adjustments of $(3) million and $(9) million for the nine months ended September 30, 2016 and 2015, respectively. |
16 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Receivables Evaluated Individually and Collectively for Impairment
The following table presents Card Member receivables evaluated individually and collectively for impairment, and related reserves, as of September 30, 2016 and December 31, 2015:
| ||||||||
(Millions) | 2016 | 2015 | ||||||
|
|
|
|
| ||||
Card Member receivables evaluated individually for impairment(a) | $ | 46 | $ | 33 | ||||
Related reserves(a) | $ | 24 | $ | 20 | ||||
| ||||||||
Card Member receivables evaluated collectively for impairment | $ | 45,212 | $ | 44,100 | ||||
Related reserves(b) | $ | 413 | $ | 442 | ||||
|
(a) | Represents receivables modified as a TDR and related reserves. |
(b) | The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are collectively evaluated for impairment. |
5. | Investment Securities |
Investment securities principally include debt securities that the Company classifies as available-for-sale and carries at fair value on the Consolidated Balance Sheets, with unrealized gains (losses)and losses recorded in Accumulated Other Comprehensive Loss (AOCI), net of income taxes. Realized gains and losses are recognized upon disposition of securities on a trade-date basis in resultsthe Consolidated Statements of operations upon disposition of the securitiesIncome using the specific identification method.
The following is a summary of investment securities as of September 30, 20152016 and December 31, 2014:2015:
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 |
2014 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of Securities (Millions) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Value | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Value | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Value | ||||||||||||||||||||||||||||||||||||||||||||||||
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State and municipal obligations | $ | 2,971 | $ | 97 | $ | (4) | $ | 3,064 | $ | 3,366 | $ | 129 | $ | (2) | $ 3,493 | $ | 2,255 | $ | 50 | $ | — | $ | 2,305 | $ | 2,813 | $ | 85 | $ | (5 | ) | $ | 2,893 | ||||||||||||||||||||||||||||||||
U.S. Government agency obligations | 2 | — | — | 2 | 3 | — | — | 3 | 12 | — | — | 12 | 2 | — | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government treasury obligations | 297 | 5 | — | 302 | 346 | 4 | — | 350 | 529 | 12 | — | 541 | 406 | 4 | (1 | ) | 409 | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate debt securities | 30 | 1 | — | 31 | 37 | 3 | — | 40 | 20 | 1 | — | 21 | 29 | 1 | — | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities(a) | 109 | 5 | — | 114 | 128 | 8 | — | 136 | 103 | 5 | — | 108 | 117 | 4 | — | 121 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | — | 1 | — | 1 | — | 1 | — | 1 | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign government bonds and obligations | 379 | 6 | (1) | 384 | 350 | 9 | — | 359 | 682 | 10 | — | 692 | 250 | 6 | (1 | ) | 255 | |||||||||||||||||||||||||||||||||||||||||||||||
Other(b) | 50 | — | (1) | 49 | 50 | — | (1) | 49 | 50 | — | (2 | ) | 48 | 50 | — | (2 | ) | 48 | ||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 3,838 | $ | 115 | $ | (6) | $ | 3,947 | $ | 4,280 | $ | 154 | $ | (3) | $ 4,431 | $ | 3,652 | $ | 78 | $ | (2 | ) | $ | 3,728 | $ | 3,668 | $ | 100 | $ | (9 | ) | $ | 3,759 | |||||||||||||||||||||||||||||||
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(a) | Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. |
(b) | Other comprises investments in various mutual funds. |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information about the Company’s investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 20152016 and December 31, 2014:2015:
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2015 |
2014 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Less than 12 months | 12 months or more | Less than 12 months | 12 months or more | Less than 12 months | 12 months or more | Less than 12 months | 12 months or more | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Description of Securities (Millions) | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||||||||
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State and municipal obligations | $ | 59 | $ | (2) | $ | 13 | $ | (2) | $ | — | $ | — | $ | 72 | $ (2) | $ | — | $ | — | $ | — | — | $ | 100 | $ | (3 | ) | $ | 13 | $ | (2 | ) | ||||||||||||||||||||||||||||||||
U.S. Government treasury obligations | — | — | — | — | 253 | (1 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign government bonds and obligations | 31 | (1) | — | — | — | — | — | — | — | — | — | — | 99 | (1 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | 33 | (1) | — | — | 33 | (1) | — | — | 33 | (1 | ) | — | — | 33 | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 90 | $ | (3) | $ | 46 | $ | (3) | $ | — | $ | — | $ | 105 | $ (3) | $ | — | $ | — | $ | 33 | $ | (1 | ) | $ | 452 | $ | (5 | ) | $ | 46 | $ | (4 | ) | ||||||||||||||||||||||||||||||
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The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of September 30, 20152016 and December 31, 2014:2015:
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Less than 12 months | 12 months or more | Total | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Ratio of Fair Value to Amortized Cost ($ in Millions) | Number of Securities | Estimated Fair Value | Gross Unrealized Losses | Number of Securities | Estimated Fair Value | Gross Unrealized Losses | Number of Securities | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of Fair Value to Amortized Cost (Dollars in millions) | Number of Securities | Estimated Fair Value | Gross Unrealized Losses | Number of Securities | Estimated Fair Value | Gross Unrealized Losses | Number of Securities | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2016: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
90%–100% | — | $ | — | $ | — | 6 | $ | 33 | $ | (1 | ) | 6 | $ | 33 | $ | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total as of September 30, 2016 | — | $ | — | $ | — | 6 | $ | 33 | $ | (1 | ) | 6 | $ | 33 | $ | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2015: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
90%–100% | 35 | $ | 88 | $ | (3) | 12 | $ | 37 | $ | (2) | 47 | $ | 125 | $ (5) | 52 | $ | 450 | $ | (5 | ) | 15 | $ | 37 | $ | (2 | ) | 67 | $ | 487 | $ | (7 | ) | ||||||||||||||||||||||||||||||||||||||||
Less than 90% | — | — | — | 2 | 9 | (1) | 2 | 9 | (1) | — | — | — | 2 | 9 | (2 | ) | 2 | 9 | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total as of September 30, 2015 | 35 | $ | 88 | $ | (3) | 14 | $ | 46 | $ | (3) | 49 | $ | 134 | $ (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total as of December 31, 2015 | 52 | $ | 450 | $ | (5 | ) | 17 | $ | 46 | $ | (4 | ) | 69 | $ | 496 | $ | (9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2014: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
90%–100% | — | $ | — | $ | — | 15 | $ | 105 | $ | (3) | 15 | $ | 105 | $ (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total as of December 31, 2014 | — | $ | — | $ | — | 15 | $ | 105 | $ | (3) | 15 | $ | 105 | $ (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The gross unrealized losses are attributed to overall wider credit spreads for state and municipal securities, wider credit spreads for specific issuers, adverse changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired.
Overall, for the investment securities in gross unrealized loss positions (i) the Company does not intend to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.
Contractual maturities of investment securities with stated maturities as of September 30, 2015,2016 were as follows:
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(Millions) | Cost | Estimated Fair Value | Cost | Estimated Fair Value | ||||||||||||
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Due within 1 year | $ | 459 | $ 459 | $ | 788 | $ | 789 | |||||||||
Due after 1 year but within 5 years | 324 | 331 | 347 | 352 | ||||||||||||
Due after 5 years but within 10 years | 259 | 275 | 399 | 418 | ||||||||||||
Due after 10 years | 2,746 | 2,832 | 2,067 | 2,120 | ||||||||||||
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Total | $ | 3,788 | $ 3,897 | $ | 3,601 | $ | 3,679 | |||||||||
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The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.
Supplemental Information
18 |
Gross realized gains on the sales of investment securities, included in Other revenues, were $1 million for both the three and nine months ended September 30, 2015, and $20 million and $100 million for the three and nine months ended September 30, 2014, respectively. There were no realized losses during any of these periods.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. | Asset Securitizations |
The Company periodically securitizes Card Member receivablesloans and loansreceivables arising from its card businessbusinesses, including, prior to the sales discussed in Note 2, Card Member loans and receivables HFS, through the transfer of those assets to securitization trusts. The trusts then issue debt securities to third-party investors, collateralized by the transferred assets.
The following table provides information on the restricted cash held by the American Express Issuance Trust II (the Charge Trust) and the American Express Credit Account Master Trust (the Lending Trust) and the American Express Issuance Trust andII (the Charge Trust, collectively the Trusts) as of September 30, 20152016 and December 31, 2014,2015, included in Other assets on the Company’s Consolidated Balance Sheets:
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(Millions) | 2015 | 2014 | 2016 | 2015 | ||||||||||||
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Lending Trust | $ | 611 | $ | 153 | ||||||||||||
Charge Trust | $ | 1 | $ 2 | 1 | 2 | |||||||||||
Lending Trust | 747 | 62 | ||||||||||||||
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Total | $ | 748 | $ 64 | $ | 612 | $ | 155 | |||||||||
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These amounts relate to collections of Card Member receivablesloans and loansreceivables to be used by the Trusts to fund future expenses and obligations, including interest on investordebt securities, credit losses and upcoming debt maturities.
American Express Travel Related Services Company, Inc. (TRS), in its role as servicer of the Trusts, has the power to direct the most significant activity of the Trusts, which is a consolidated subsidiarythe collection of the Company,underlying Card Member loans and receivables. In addition, TRS directly and indirectly (through its consolidated subsidiaries) holds all of the variable interests in both Trusts, with the exception of the debt securities issued to third-party investors. As of September 30, 2016, TRS’ direct and indirect ownership of variable interests was $13.3 billion for the Lending Trust and $2.0 billion for the Charge Trust. These variable interests held by TRS provide it with the right to receive benefits and the obligation to absorb losses, which could be significant to both the Lending Trust and the Charge Trust. Based on these considerations, TRS is the primary beneficiary of both Trusts and therefore consolidates both Trusts. Excluding its consolidated subsidiaries, TRS owns approximately $1.0 billion of subordinated securities issued by the Lending Trust as of September 30, 2015.
Under the respective terms of the ChargeLending Trust and Lendingthe Charge Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each trustTrust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of investordebt securities. During the nine months ended September 30, 20152016 and the year ended December 31, 2014,2015, no such triggering events occurred.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. | Customer Deposits |
As of September 30, 20152016 and December 31, 2014,2015, customer deposits were categorized as interest bearing ornon-interest bearing as follows:
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(Millions) | 2015 | 2014 | 2016 | 2015 | ||||||||||||
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U.S.: | ||||||||||||||||
Interest bearing | $ | 48,513 | $ 43,279 | $ | 52,767 | $ | 54,102 | |||||||||
Non-interest bearing (includes Card Member credit balances of: | ||||||||||||||||
2015, $312; 2014, $372) | 356 | 418 | ||||||||||||||
Non-interest bearing (includes Card Member credit balances of: 2016, $297 million; 2015, $389 million) | 333 | 478 | ||||||||||||||
Non-U.S.: | ||||||||||||||||
Interest bearing | 106 | 115 | 88 | 82 | ||||||||||||
Non-interest bearing (includes Card Member credit balances of: | ||||||||||||||||
2015, $314; 2014, $347) | 326 | 359 | ||||||||||||||
Non-interest bearing (includes Card Member credit balances of: 2016, $297 million; 2015, $323 million) | 312 | 335 | ||||||||||||||
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Total customer deposits | $ | 49,301 | $ 44,171 | $ | 53,500 | $ | 54,997 | |||||||||
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Customer deposits by deposit type as of September 30, 20152016 and December 31, 2014,2015 were as follows:
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(Millions) | 2015 | 2014 | 2016 | 2015 | ||||||||||||
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| ||||||||||||
U.S. retail deposits: | ||||||||||||||||
Savings accounts – Direct | $ | 28,229 | $ 26,159 | $ | 30,672 | $ | 29,023 | |||||||||
Certificates of deposit: | ||||||||||||||||
Direct | 291 | 333 | 290 | 281 | ||||||||||||
Third-party | 11,053 | 7,838 | ||||||||||||||
Sweep accounts – Third-party | 8,940 | 8,949 | ||||||||||||||
Third-party (brokered) | 12,879 | 13,856 | ||||||||||||||
Sweep accounts – Third-party (brokered) | 8,926 | 10,942 | ||||||||||||||
Other retail deposits: | ||||||||||||||||
Non-U.S. deposits and U.S. non-interest bearing deposits | 162 | 173 | 139 | 183 | ||||||||||||
Card Member credit balances — U.S. and non-U.S. | 626 | 719 | 594 | 712 | ||||||||||||
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| ||||||||||||
Total customer deposits | $ | 49,301 | $ 44,171 | $ | 53,500 | $ | 54,997 | |||||||||
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The scheduled maturities of certificates of deposit as of September 30, 2015,2016 were as follows:
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| ||||||||||||||||||||||
(Millions) | U.S. | Non-U.S. | Total | U.S. | Non-U.S. | Total | ||||||||||||||||||
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| ||||||||||||||||||
2015 | $ | 398 | $ | 18 | $ 416 | |||||||||||||||||||
2016 | 2,411 | 5 | 2,416 | $ | 1,416 | $ | 2 | $ | 1,418 | |||||||||||||||
2017 | 2,730 | — | 2,730 | 3,662 | 8 | 3,670 | ||||||||||||||||||
2018 | 2,527 | — | 2,527 | 3,203 | — | 3,203 | ||||||||||||||||||
2019 | 1,846 | — | 1,846 | 2,336 | — | 2,336 | ||||||||||||||||||
2020 | 2,518 | — | 2,518 | |||||||||||||||||||||
After 5 years | 1,432 | — | 1,432 | 34 | — | 34 | ||||||||||||||||||
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| ||||||||||||||||||
Total | $ | 11,344 | $ | 23 | $ 11,367 | $ | 13,169 | $ | 10 | $ | 13,179 | |||||||||||||
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As of September 30, 20152016 and December 31, 2014,2015, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:
|
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(Millions) | 2015 | 2014 | 2016 | 2015 | ||||||||||||
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| ||||||||||||
U.S. | $ | 106 | $ 111 | $ | 116 | $ | 105 | |||||||||
Non-U.S. | 17 | 17 | 1 | 1 | ||||||||||||
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Total | $ | 123 | $ 128 | $ | 117 | $ | 106 | |||||||||
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20 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. | Contingencies |
In the ordinary course of business, the Company and its subsidiaries are subject to various claims, investigations, examinations, pending and potential legal actions, and other matters relating to compliance with laws and regulations (collectively, legal proceedings). The Company discloses its material legal proceedings under Part II, Item 1. “Legal Proceedings” in this Quarterly Report on Form 10-Q and Part I, Item 3. “Legal Proceedings” in the Annual Report.
The Company has recorded reserves for certain of its outstanding legal proceedings. A reserve is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the recorded reserve. The Company evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable.
The Company’s legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members. These legal proceedings involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff or class, many seek an unspecified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss.
Otherloss, while other matters have progressed sufficiently through discovery and/or development of important factual information and legal issues sosuch that the Company is able to estimate an amount of loss or a range of possible loss. Accordingly,
The Company has recorded reserves for certain of its outstanding legal proceedings. A reserve is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the recorded reserve. The Company evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable.
For those disclosed material legal proceedings where a loss is reasonably possible in future periods, whether in excess of a related reserve for legal contingencies or where there is no such liability,reserve, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $370$190 million in excess of any reserves related to thesethose matters. This range represents management’s estimate based on currently available information and does not represent the Company’s maximum loss exposure; actual results may vary significantly. As such proceedings evolve, including the merchant claims described under Part II, Item 1. “Legal Proceedings” in this Quarterlythe Annual Report, on Form 10-Q, wethe Company may need to increase ourits range of possible loss or reserves for legal contingencies.
Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes it is not a party to, nor are any of its properties the subject of, any legal proceeding that would have a material adverse effect on the Company’s consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims, could have a material impact on the Company’s results of operations.
21 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. | Derivatives and Hedging Activities |
The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rate,rates, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Company’s market risk management. The Company does not transact in derivatives for trading purposes.
In relation to the Company’s credit risk, under the terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on theits assessment of the credit risk of the Company’s derivative counterparties as of September 30, 20152016 and December 31, 2014,2015, the Company does not have derivative positions that warrant credit valuation adjustments.
The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 20152016 and December 31, 2014:2015:
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Other Assets Fair Value | Other Liabilities Fair Value | Other Assets Fair Value | Other Liabilities Fair Value | |||||||||||||||||||||||||||||
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(Millions) | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
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Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||
Fair value hedges | $ | 391 | $ | 314 | $ | — | $ 4 | |||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||
Net investment hedges | 385 | 492 | 102 | 46 | ||||||||||||||||||||||||||||
Interest rate contracts - Fair value hedges | $ | 330 | $ | 236 | $ | — | $ | 9 | ||||||||||||||||||||||||
Foreign exchange contracts - Net investment hedges | 189 | 191 | 92 | 57 | ||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||
Total derivatives designated as hedging instruments | 776 | 806 | 102 | 50 | 519 | 427 | 92 | 66 | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Foreign exchange contracts, including certain embedded derivatives(a) | 146 | 185 | 116 | 114 | 201 | 117 | 149 | 135 | ||||||||||||||||||||||||
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| ||||||||||||||||||||||||
Total derivatives, gross | 922 | 991 | 218 | 164 | 720 | 544 | 241 | 201 | ||||||||||||||||||||||||
Less: Cash collateral netting(b) | (307) | (158) | — | (4) | ||||||||||||||||||||||||||||
Less: Cash collateral netting on interest rate contracts(b) | (256 | ) | (155 | ) | — | — | ||||||||||||||||||||||||||
Derivative asset and derivative liability netting(c) | (130) | (122) | (130) | (122) | (99 | ) | (107 | ) | (99 | ) | (107 | ) | ||||||||||||||||||||
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Total derivatives, net(d) | $ | 485 | $ | 711 | $ | 88 | $ 38 | $ | 365 | $ | 282 | $ | 142 | $ | 94 | |||||||||||||||||
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(a) | Includes foreign currency derivatives embedded in certain operating agreements. |
(b) | Represents the offsetting of |
(c) | Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement. |
(d) | The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and net derivative liabilities are presented within Other assets and Other liabilities, respectively, on the |
A majority of the Company’s derivative assets and liabilities as of September 30, 20152016 and December 31, 20142015 are subject to master netting agreements with its derivative counterparties. In addition, theThe Company has no derivative amounts subject to enforceable master netting arrangements that are not offset on the Company’s Consolidated Balance Sheets.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value Hedges
Interest Rate Contracts
The Company is exposed to interest rate risk associated with its fixed-rate long-term debt. The Company uses interest rate swaps to economically convert certain fixed-rate debt obligations to floating-rate obligations at the time of issuance. As of September 30, 2015 and December 31, 2014, theThe Company hedged $18.5$17.0 billion and $17.6$18.8 billion respectively, of its fixed-rate debt to floating-rate debt using interest rate swaps.swaps as of September 30, 2016 and December 31, 2015, respectively.
Total Return Contract
22 |
AMERICAN EXPRESS COMPANY
The Company hedged its exposure to changes in the fair value of its equity investment in Industrial and Commercial Bank of China (ICBC) in local currency. The Company used a total return contract (TRC) to transfer its exposure to its derivative counterparty. On July 18, 2014, the Company sold its remaining shares in ICBC and terminated the TRC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the impact on the Consolidated Statements of Incomegains (losses) recognized in Other expenses associated with the Company’s fair value hedges for the three and nine months ended September 30:
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Three Months Ended September 30:(Millions) | ||||||||||||||||||||||||||
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Gains (losses) recognized in income | ||||||||||||||||||||||||||
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Derivative contract | Hedged item | Net hedge | ||||||||||||||||||||||||
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Amount | Amount | ineffectiveness | ||||||||||||||||||||||||
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Derivative relationship | Income Statement Line Item | 2015 | 2014 | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
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Interest rate contracts | Other expenses | $ | 108 | $ | (109) | Other expenses | $ | (114) | $ | 112 | $ | (6) | $ 3 | |||||||||||||
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Nine Months Ended September 30:(Millions) | ||||||||||||||||||||||||||
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Gains (losses) recognized in income | ||||||||||||||||||||||||||
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Derivative contract | Hedged item | Net hedge | ||||||||||||||||||||||||
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Amount | Amount | ineffectiveness | ||||||||||||||||||||||||
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Derivative relationship | Income Statement Line Item | 2015 | 2014 | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
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Interest rate contracts | Other expenses | $ | 82 | $ | (170) | Other expenses | $ | (85) | $ | 176 | $ | (3) | $ 6 | |||||||||||||
Total return contract | Other non-interest revenues | — | 11 | Other non-interest revenues | — | (11) | — | — | ||||||||||||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
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(Millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
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Interest rate derivative contracts | $ | (123 | ) | $ | 108 | $ | 103 | $ | 82 | |||||||
Hedged items | 134 | (114 | ) | (90 | ) | (85 | ) | |||||||||
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Net hedge ineffectiveness | $ | 11 | $ | (6 | ) | $ | 13 | $ | (3 | ) | ||||||
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The Company also recognized a net reduction in interest expense on long-term debt of $73$55 million and $74$73 million for the three months ended September 30, 20152016 and 2014,2015, respectively, and $214$173 million and $217$214 million for the nine months ended September 30, 20152016 and 2014,2015, respectively, primarily related to the net settlements (interest accruals) on the Company’s interest rate derivatives designated as fair value hedges.
Net Investment Hedges
The effective portion of the gain or loss on net investment hedges, net of taxes, recorded in Accumulated Other Comprehensive LossAOCI as part of the cumulative translation adjustment, was $384a loss of $18 million and $246a gain of $384 million for the three months ended September 30, 20152016 and 2014,2015, respectively, and $545gains of $25 million and $113$545 million for the nine months ended September 30, 20152016 and 2014,2015, respectively, with any ineffective portion recognized in Other expenses during the period of change. DuringSpecifically, the three months ended September 30, 2015 and 2014, the Company reclassifiednet hedge ineffectiveness recognized was nil and $(1) million, respectively, anda gain of $1 million and $9 million for the nine months ended September 30, 2016 and 2015, and 2014, respectively,respectively. Other amounts related to foreign exchange contracts reclassified from Accumulated Other Comprehensive Loss to earnings as a component ofAOCI into Other expenses including ineffectiveness associated withincluded a gain of $5 million and nil for the nine months ended September 30, 2016 and 2015, respectively. There were no amounts related to foreign exchange contracts reclassified from AOCI into Other expenses during the three months ended September 30, 2016 and 2015.
Derivatives Not Designated as Hedges
The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in net investmentlosses of $4 million and $3 million for the three months ended September 30, 2016 and 2015, respectively, and a net loss of $12 million and a net gain of $102 million for the nine months ended September 30, 2016 and 2015, respectively, and are recognized in Other expenses.
Related to its derivatives not designated as hedges, the Company previously disclosed in Note 9 to the Consolidated Financial Statements in its Quarterly Report on Form 10-Q for the period ended September 30, 2015, gains of nil$19 million and $1$15 million for the three and nine months ended September 30, 2015, respectively. These amounts should have been disclosed as gains of $8 million and $389 million, respectively, which are the amounts used to calculate the above-referenced net loss of $3 million and net gain of $102 million. These changes to the previously disclosed amounts have no impact on the Consolidated Statements of Income, Balance Sheets or Cash Flows.
The changes in the fair value of an embedded derivative resulted in a gain of $1 million and a loss of $4 million for the three months ended September 30, 2016 and 2015, respectively, and a gain of $7 million and a loss of $2 million for the nine months ended September 30, 2016 and 2015, respectively, and are recognized in Card Member services and other expense.
23 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s derivatives not designated as hedges:
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Pretax (losses) gains | ||||||||||||||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
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Amount | Amount | |||||||||||||||||||
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Description (Millions) | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
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Foreign exchange contracts (a) | Other expenses | $ | (19) | $ | 2 | $ | 15 | $ 84 | ||||||||||||
Cost of Card Member services | 4 | — | (2) | 4 | ||||||||||||||||
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Total | $ | (15) | $ | 2 | $ | 13 | $ 88 | |||||||||||||
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10. | Fair Values |
Financial Assets and Financial Liabilities Carried at Fair Value
The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s valuation hierarchy, as of September 30, 20152016 and December 31, 2014:2015:
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2015 | 2014 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(Millions) | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment securities:(a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | $ | 1 | $ | 1 | $ | — | $ | — | $ | 1 | $ | 1 | $ | — | $ — | |||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities and other | 3,946 | 302 | 3,644 | — | 4,430 | 350 | 4,080 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities and other | $ | 49 | $ | 1 | $ | 48 | $ | — | $ | 50 | $ | 1 | $ | 49 | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities | 3,679 | 541 | 3,138 | — | 3,709 | 409 | 3,300 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives(a) | 922 | — | 922 | — | 991 | — | 991 | — | 720 | — | 720 | — | 544 | — | 544 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total assets | 4,869 | 303 | 4,566 | — | 5,422 | 351 | 5,071 | — | 4,448 | 542 | 3,906 | — | 4,303 | 410 | 3,893 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives(a) | 218 | — | 218 | — | 164 | — | 164 | — | 241 | — | 241 | — | 201 | — | 201 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total liabilities | $ | 218 | $ | — | $ | 218 | $ | — | $ | 164 | $ | — | $ | 164 | $ — | $ | 241 | $ | — | $ | 241 | $ | — | $ | 201 | $ | — | $ | 201 | $ | — | |||||||||||||||||||||||||||||||||
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(a) | Refer to Note 5 for the fair values of investment securities and to Note 9 for the fair values of derivative assets and liabilities, on a further disaggregated basis. |
24 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the estimated fair values of the Company’s financial assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of September 30, 20152016 and December 31, 2014.2015. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of September 30, 20152016 and December 31, 2014,2015, and require managementmanagement’s judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented.
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Carrying | Corresponding Fair Value Amount | |||||||||||||||||||||||||||||||||||||||
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2016(Billions) | Value | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||
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Financial Assets: | ||||||||||||||||||||||||||||||||||||||||
Financial assets for which carrying values equal or approximate fair value | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents(a) | $ | 27 | $ | 27 | $ | 25 | $ | 2 | $ | — | ||||||||||||||||||||||||||||||
Other financial assets(b) | 48 | 48 | — | 48 | — | |||||||||||||||||||||||||||||||||||
Financial assets carried at other than fair value | ||||||||||||||||||||||||||||||||||||||||
Loans, net(c) | 61 | 61 | — | — | 61 | |||||||||||||||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Financial liabilities for which carrying values equal or approximate fair value | 63 | 63 | — | 63 | — | |||||||||||||||||||||||||||||||||||
Financial liabilities carried at other than fair value | ||||||||||||||||||||||||||||||||||||||||
Certificates of deposit(d) | 13 | 13 | — | 13 | — | |||||||||||||||||||||||||||||||||||
Long-term debt(c) | $ | 45 | $ | 46 | $ | — | $ | 46 | $ | — | ||||||||||||||||||||||||||||||
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Carrying | Corresponding Fair Value Amount | Carrying | Corresponding Fair Value Amount | |||||||||||||||||||||||||||||||||||||
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2015(Billions) | Value | Total | Level 1 | Level 2 | Level 3 | Value | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
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Financial Assets: | ||||||||||||||||||||||||||||||||||||||||
Financial assets for which carrying values equal or approximate fair value | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 20 | $ | 20 | $ | 19 | $ | 1 | (a) | $ — | ||||||||||||||||||||||||||||||
Cash and cash equivalents(a) | $ | 23 | $ | 23 | $ | 22 | $ | 1 | $ | — | ||||||||||||||||||||||||||||||
Other financial assets(b) | 48 | 48 | — | 48 | — | 47 | 47 | — | 47 | — | ||||||||||||||||||||||||||||||
Financial assets carried at other than fair value | ||||||||||||||||||||||||||||||||||||||||
Loans, net | 69 | 69 | (c) | — | — | 69 | ||||||||||||||||||||||||||||||||||
Card Member loans and receivables HFS(e) | 15 | 15 | — | — | 15 | |||||||||||||||||||||||||||||||||||
Loans, net(c) | 59 | 60 | — | — | 60 | |||||||||||||||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Financial liabilities for which carrying values equal or approximate fair value | 62 | 62 | — | 62 | — | 67 | 67 | — | 67 | — | ||||||||||||||||||||||||||||||
Financial liabilities carried at other than fair value | ||||||||||||||||||||||||||||||||||||||||
Certificates of deposit(d) | 11 | 11 | — | 11 | — | 14 | 14 | — | 14 | — | ||||||||||||||||||||||||||||||
Long-term debt | $ | 49 | $ | 50 | (c) | $ | — | $ | 50 | $ — | ||||||||||||||||||||||||||||||
Long-term debt(c) | $ | 48 | $ | 49 | $ | — | $ | 49 | $ | — | ||||||||||||||||||||||||||||||
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Carrying | Corresponding Fair Value Amount | |||||||||||||||||||||||||||||||||||||||
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2014 (Billions) | Value | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||
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Financial Assets: | ||||||||||||||||||||||||||||||||||||||||
Financial assets for which carrying values equal or approximate fair value | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 22 | $ | 22 | $ | 21 | $ | 1 | (a) | $ — | ||||||||||||||||||||||||||||||
Other financial assets(b) | 48 | 48 | — | 48 | — | |||||||||||||||||||||||||||||||||||
Financial assets carried at other than fair value | ||||||||||||||||||||||||||||||||||||||||
Loans, net | 70 | 71 | (c) | — | — | 71 | ||||||||||||||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Financial liabilities for which carrying values equal or approximate fair value | 61 | 61 | — | 61 | — | |||||||||||||||||||||||||||||||||||
Financial liabilities carried at other than fair value | ||||||||||||||||||||||||||||||||||||||||
Certificates of deposit(d) | 8 | 8 | — | 8 | — | |||||||||||||||||||||||||||||||||||
Long-term debt | $ | 58 | $ | 60 | (c) | $ | — | $ | 60 | $ — | ||||||||||||||||||||||||||||||
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(a) |
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(b) | Includes |
(c) |
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(d) | Presented as a component of customer deposits on the Consolidated Balance Sheets. |
(e) | Does not include any fair value associated with the Card Member account relationships. Refer to Note 2 for additional information. |
25 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nonrecurring Fair Value Measurements
The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the nine months ended September 30, 2015 and during the year ended December 31, 2014,2016, the Company did not have any material assets that were measured at fair value due to impairment.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. | Guarantees |
The Company provides Card Member protection plans that cover losses associated with purchased products, as well as certain other guarantees and indemnifications in the ordinary course of business.
In relation to its maximum potential undiscounted future payments as shown in the table that follows, to date the Company has not experienced any significant losses related to guarantees or indemnifications. The Company’s initial recognition of these instruments is at fair value. In addition, the Company establishes reserves when a loss is probable and the amount can be reasonably estimated.
The following table provides information related to such guarantees and indemnifications as of September 30, 20152016 and December 31, 2014:2015:
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| Maximum potential (Billions) | Related liability(b) (Millions) | |||||||||||||||||||||
Maximum potential (Billions) | Related liability(b) |
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Type of Guarantee | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||
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Return and Merchant Protection | $ 42 | $ 37 | $ 49 | $ 44 | $ | 42 | $ | 42 | $ | 41 | $ | 49 | ||||||||||||
Other(c) | 6 | 8 | 57 | 67 | 6 | 6 | 49 | 37 | ||||||||||||||||
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Total | $ 48 | $ 45 | $ 106 | $ 111 | $ | 48 | $ | 48 | $ | 90 | $ | 86 | ||||||||||||
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(a) | Represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed or indemnified parties. The maximum potential undiscounted future payments for Merchant Protection are measured using management’s best estimate of the maximum exposure, which is based on all eligible claims in relation to annual billed business volumes. |
(b) | Included in Other liabilities on the |
(c) | Primarily includes guarantees related to the Company’s purchase protection, real estate and business dispositions. |
26 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. | Changes In Accumulated Other Comprehensive |
Accumulated Other Comprehensive LossAOCI is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component for the three and nine months ended September 30, 20152016 and 20142015 were as follows:
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Three Months Ended September 30, 2015(Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities | Foreign Currency Translation Adjustments | Net Unrealized Other | Accumulated Other Comprehensive (Loss) Income | ||||||||||||
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Balances as of June 30, 2015 | $ | 76 | $ | (1,743) | $ | (487) | $ (2,154) | |||||||||
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Net unrealized loss | (6) | — | — | (6) | ||||||||||||
Decrease due to amounts reclassified into earnings | (1) | — | — | (1) | ||||||||||||
Net translation loss on investments in foreign operations | — | (604) | — | (604) | ||||||||||||
Net gains related to hedges of investments in foreign operations | — | 384 | — | 384 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 7 | 7 | ||||||||||||
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Net change in accumulated other comprehensive (loss) income | (7) | (220) | 7 | (220) | ||||||||||||
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Balances as of September 30, 2015 | $ | 69 | $ | (1,963) | $ | (480) | $ (2,374) | |||||||||
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Three Months Ended September 30, 2016 (Millions), net of tax | | Net Unrealized Gains (Losses) on Investment Securities | | | Foreign Currency Translation Adjustments | | | Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains | | | Accumulated Other Comprehensive (Loss) Income | | ||||
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Balances as of June 30, 2016 | $ | 65 | $ | (2,170 | ) | $ | (516 | ) | $ | (2,621 | ) | |||||
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Net unrealized losses | (14 | ) | — | — | (14 | ) | ||||||||||
Decrease due to amounts reclassified into earnings | (1 | ) | — | — | (1 | ) | ||||||||||
Net translation gain of investments in foreign operations | — | 29 | — | 29 | ||||||||||||
Net losses related to hedges of investments in foreign operations | — | (18 | ) | — | (18 | ) | ||||||||||
Pension and other postretirement benefit gains | — | — | 7 | 7 | ||||||||||||
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Net change in accumulated other comprehensive loss | (15 | ) | 11 | 7 | 3 | |||||||||||
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Balances as of September 30, 2016 | $ | 50 | $ | (2,159 | ) | $ | (509 | ) | $ | (2,618 | ) | |||||
| ||||||||||||||||
| ||||||||||||||||
Nine Months Ended September 30, 2016 (Millions), net of tax | | Net Unrealized Gains (Losses) on Investment Securities | | | Foreign Currency Translation Adjustments | | | Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains | | | Accumulated Other Comprehensive (Loss) Income | | ||||
|
|
|
|
|
|
|
|
| ||||||||
Balances as of December 31, 2015 | $ | 58 | $ | (2,044 | ) | $ | (548 | ) | $ | (2,534 | ) | |||||
|
|
|
|
|
|
|
|
| ||||||||
Net unrealized losses | (5 | ) | — | — | (5 | ) | ||||||||||
Decrease due to amounts reclassified into earnings | (3 | ) | — | — | (3 | ) | ||||||||||
Net translation loss of investments in foreign operations | — | (140 | ) | — | (140 | ) | ||||||||||
Net gains related to hedges of investments in foreign operations | — | 25 | — | 25 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 39 | 39 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Net change in accumulated other comprehensive loss | (8 | ) | (115 | ) | 39 | (84 | ) | |||||||||
|
|
|
|
|
|
|
|
| ||||||||
Balances as of September 30, 2016 | $ | 50 | $ | (2,159 | ) | $ | (509 | ) | $ | (2,618 | ) | |||||
|
| ||||||||||||||||
Nine Months Ended September 30, 2015(Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities | Foreign Currency Translation Adjustments | Net Unrealized Other | Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of December 31, 2014 | $ | 96 | $ | (1,499) | $ | (516) | $ (1,919) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized loss | (26) | — | — | (26) | ||||||||||||
Decrease due to amounts reclassified into earnings | (1) | (1) | — | (2) | ||||||||||||
Net translation loss on investments in foreign operations | — | (1,009) | — | (1,009) | ||||||||||||
Net gains related to hedges of investments in foreign operations | — | 546 | — | 546 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 36 | 36 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive (loss) income | (27) | (464) | 36 | (455) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2015 | $ | 69 | $ | (1,963) | $ | (480) | $ (2,374) | |||||||||
|
27 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| ||||||||||||||||
Three Months Ended September 30, 2014(Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities | Foreign Currency Translation Adjustments | Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains | Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of June 30, 2014 | $ | 105 | $ | (1,118) | $ | (358) | $ (1,371) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized gains | 2 | — | — | 2 | ||||||||||||
(Decrease) increase due to amounts reclassified into earnings | (13) | 1 | — | (12) | ||||||||||||
Net translation loss on investments in foreign operations | — | (414) | — | (414) | ||||||||||||
Net gains related to hedges of investments in foreign operations | — | 246 | — | 246 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 7 | 7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive (loss) income | (11) | (167) | 7 | (171) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2014 | $ | 94 | $ | (1,285) | $ | (351) | $ (1,542) | |||||||||
|
| ||||||||||||||||
Nine Months Ended September 30, 2014 (Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities | Foreign Currency Translation Adjustments | Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains | Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of December 31, 2013 | $ | 63 | $ | (1,090) | $ | (399) | $ (1,426) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized gains | 102 | — | — | 102 | ||||||||||||
(Decrease) increase due to amounts reclassified into earnings | (71) | 5 | — | (66) | ||||||||||||
Net translation loss on investments in foreign operations | — | (313) | — | (313) | ||||||||||||
Net gains related to hedges of investments in foreign operations | — | 113 | — | 113 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 48 | 48 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive income (loss) | 31 | (195) | 48 | (116) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2014 | $ | 94 | $ | (1,285) | $ | (351) | $ (1,542) | |||||||||
|
| ||||||||||||||||
Three Months Ended September 30, 2015 (Millions), net of tax | | Net Unrealized Gains (Losses) on Investment Securities | | | Foreign Currency Translation Adjustments | | | Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains | | | Accumulated Other Comprehensive (Loss) Income | | ||||
|
|
|
|
|
|
|
|
| ||||||||
Balances as of June 30, 2015 | $ | 76 | $ | (1,743 | ) | $ | (487 | ) | $ | (2,154 | ) | |||||
|
|
|
|
|
|
|
|
| ||||||||
Net unrealized losses | (6 | ) | — | — | (6 | ) | ||||||||||
Decrease due to amounts reclassified into earnings | (1 | ) | — | — | (1 | ) | ||||||||||
Net translation loss of investments in foreign operations | — | (604 | ) | — | (604 | ) | ||||||||||
Net gains related to hedges of investments in foreign operations | — | 384 | — | 384 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 7 | 7 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Net change in accumulated other comprehensive loss | (7 | ) | (220 | ) | 7 | (220 | ) | |||||||||
|
|
|
|
|
|
|
|
| ||||||||
Balances as of September 30, 2015 | $ | 69 | $ | (1,963 | ) | $ | (480 | ) | $ | (2,374 | ) | |||||
| ||||||||||||||||
| ||||||||||||||||
Nine Months Ended September 30, 2015 (Millions), net of tax | | Net Unrealized Gains (Losses) on Investment Securities | | | Foreign Currency Translation Adjustments | | | Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains | | | Accumulated Other Comprehensive (Loss) Income | | ||||
|
|
|
|
|
|
|
|
| ||||||||
Balances as of December 31, 2014 | $ | 96 | $ | (1,499 | ) | $ | (516 | ) | $ | (1,919 | ) | |||||
|
|
|
|
|
|
|
|
| ||||||||
Net unrealized losses | (26 | ) | — | — | (26 | ) | ||||||||||
Decrease due to amounts reclassified into earnings | (1 | ) | (1 | ) | — | (2 | ) | |||||||||
Net translation loss of investments in foreign operations | — | (1,009 | ) | — | (1,009 | ) | ||||||||||
Net gains related to hedges of investments in foreign operations | — | 546 | — | 546 | ||||||||||||
Pension and other postretirement benefit gains | — | — | 36 | 36 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Net change in accumulated other comprehensive loss | (27 | ) | (464 | ) | 36 | (455 | ) | |||||||||
|
|
|
|
|
|
|
|
| ||||||||
Balances as of September 30, 2015 | $ | 69 | $ | (1,963 | ) | $ | (480 | ) | $ | (2,374 | ) | |||||
|
The following table presents the effects of reclassifications out of Accumulated Other Comprehensive LossAOCI and into the Consolidated Statements of Income:
| ||||||||||||||||||||||||||||||||||||||||||||||
Gains (losses) recognized in earnings | ||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Gains (losses) recognized in earnings | ||||||||||||||||||||||||||||||||||||||||||||
|
|
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||
Amount | Amount | Amount | Amount | |||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||
Description (Millions) | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | Income Statement Line Item | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||||||||||||||||
Reclassifications for previously unrealized net gains on investment securities | Other non-interest revenues | $ | 1 | $ | 21 | $ | 1 | $ | 111 | Other non-interest revenues | $ | 1 | $ | 1 | $ | 5 | $ | 1 | ||||||||||||||||||||||||||||
Related income tax expense | Income tax provision | — | (8) | — | (40) | Income tax provision | — | — | (2 | ) | — | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Reclassification to net income related to available-for-sale securities | 1 | 13 | 1 | 71 | 1 | 1 | 3 | 1 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | ||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of realized losses on translation adjustments and related hedges | Other expenses | — | — | 1 | (8) | |||||||||||||||||||||||||||||||||||||||||
Reclassification of realized losses on translation adjustments and related net investments hedges | Other expenses | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||
Related income tax benefit | Income tax provision | — | (1) | — | 3 | Income tax provision | — | — | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Reclassification of foreign currency translation adjustments | — | (1) | 1 | (5) | ||||||||||||||||||||||||||||||||||||||||||
Reclassification to net income related to foreign currency translation adjustments | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total | $ | 1 | $ | 12 | $ | 2 | $ | 66 | Total | $ | 1 | $ | 1 | $ | 3 | $ | 2 | |||||||||||||||||||||||||||||
|
|
|
28 |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. | Non-Interest Revenue and Expense Detail |
The following is a detail of Other commissionsfees and fees:commissions:
|
| |||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended |
| ||||||||||||||||||||||||||||
September 30, | September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||
Foreign currency conversion fee revenue | $ | 213 | $ | 225 | $ | 646 | $ 665 | $ | 207 | $ | 213 | $ | 610 | $ | 646 | |||||||||||||||
Delinquency fees | 197 | 184 | 586 | 539 | 183 | 197 | 575 | 586 | ||||||||||||||||||||||
Loyalty coalition-related fees | 101 | 100 | 280 | 286 | 106 | 100 | 304 | 279 | ||||||||||||||||||||||
Travel commissions and fees | 89 | 87 | 256 | 271 | ||||||||||||||||||||||||||
Service fees | 97 | 94 | 279 | 274 | 71 | 97 | 228 | 279 | ||||||||||||||||||||||
Other(a) | 32 | 39 | 100 | 120 | 38 | 33 | 103 | 101 | ||||||||||||||||||||||
Total Other commissions and fees | $ | 640 | $ | 642 | $ | 1,891 | $ 1,884 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total Other fees and commissions | $ | 694 | $ | 727 | $ | 2,076 | $ | 2,162 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
(a) Other primarily includes revenues from fees related to Membership Rewards programs.
The following is a detail of Other revenues:
|
(a) Other primarily includes revenues from fees related to Membership Rewards programs.
The following is a detail of Other revenues:
|
| ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||
(Millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||
Global Network Services partner revenues | $ | 156 | $ | 156 | $ | 498 | $ | 474 | ||||||||||||||||||||||
Gross realized gains on sale of investment securities | 1 | 1 | 5 | 1 | ||||||||||||||||||||||||||
Other(a) | 326 | 347 | 1,011 | 1,018 | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||
Total Other revenues | $ | 483 | $ | 504 | $ | 1,514 | $ | 1,493 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
(a) Other includes revenues arising from net revenue earned on cross-border Card Member spending, insurance premiums earned from Card Member travel and other insurance programs, merchant-related fees, Travelers Cheques-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.
The following is a detail of Other expenses:
|
(a) Other includes revenues arising from net revenue earned on cross-border Card Member spending, insurance premiums earned from Card Member travel and other insurance programs, merchant-related fees, Travelers Cheques-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.
The following is a detail of Other expenses:
|
| ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||
(Millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||
Professional services | $ | 630 | $ | 687 | $ | 1,862 | $ | 1,966 | ||||||||||||||||||||||
Occupancy and equipment | 429 | 523 | 1,332 | 1,372 | ||||||||||||||||||||||||||
Communications | 68 | 84 | 231 | 257 | ||||||||||||||||||||||||||
Card and merchant-related fraud losses | 67 | 64 | 182 | 247 | ||||||||||||||||||||||||||
Gain on sale of HFS portfolios(a) | — | — | (1,218 | ) | — | |||||||||||||||||||||||||
Other(b) | 304 | 277 | 999 | 727 | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||
Total Other expenses | $ | 1,498 | $ | 1,635 | $ | 3,388 | $ | 4,569 | ||||||||||||||||||||||
|
|
(a) |
|
The following is a detail of Other revenues:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||
Global Network Services partner revenues | $ | 156 | $ | 173 | $ | 474 | $ 513 | |||||||
Net realized gains on investment securities | 1 | 20 | 1 | 100 | ||||||||||
Other(a) | 347 | 400 | 1,018 | 1,066 | ||||||||||
Total Other revenues | $ | 504 | $ | 593 | $ | 1,493 | $ 1,679 | |||||||
|
|
The following is a detail of Other expenses:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Professional services | $ | 687 | $ | 731 | $ | 1,966 | $ 2,240 | |||||||
Occupancy and equipment | 523 | 432 | 1,372 | 1,361 | ||||||||||
Card and merchant-related fraud losses(a) | 64 | 96 | 247 | 282 | ||||||||||
Communications | 84 | 91 | 257 | 285 | ||||||||||
Gain on business travel joint venture transaction | — | (15) | — | (641) | ||||||||||
Other(b) | 277 | 261 | 727 | 866 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total Other expenses | $ | 1,635 | $ | 1,596 | $ | 4,569 | $ 4,393 | |||||||
|
|
(b) | Other expense primarily includes general operating expenses, gains |
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. | Income Taxes |
The effective tax rate was 34.2 percent and 34.7 percent for the three months ended September 30, 2016 and 2015, respectively, and 33.9 percent and 34.2 percent for the three and nine months ended September 30, 2016 and 2015, respectively, and 34.2 percent and 34.4 percent for the three and nine months ended September 30, 2014, respectively.
The changes in tax rates for all periods reflectprimarily reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business.
The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The IRS has completed its field examination of the Company’s federal tax returns for years through 2007; however, refund claims for certain years continue to be reviewed by the IRS. In addition, the Company is currently under examination by the IRS for the years 2008 through 2011.2014.
The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $431$527 million principally as a result of potential resolutions of prior years’ tax items with various taxing authorities. The prior years’ tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $431$527 million of unrecognized tax benefits, approximately $288$310 million relates to amounts that if recognized would be recorded in shareholders’ equity and would not impact the Company’s results of operations or its effective tax rate.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
15. | Earnings Per Common Share (EPS) |
EPS
The computations of basic and diluted EPS were as follows:
|
| |||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended |
| ||||||||||||||||||||||||||||
September 30, | September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
(Millions, except per share amounts) | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||
Basic and diluted: | ||||||||||||||||||||||||||||||
Net income | $ | 1,266 | $ | 1,477 | $ | 4,264 | $ 4,438 | $ | 1,142 | $ | 1,266 | $ | 4,583 | $ | 4,264 | |||||||||||||||
Preferred dividends | (22) | — | (42) | — | (21 | ) | (22 | ) | (61 | ) | (42 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net income available to common shareholders | 1,244 | 1,477 | 4,222 | 4,438 | 1,121 | 1,244 | 4,522 | 4,222 | ||||||||||||||||||||||
Earnings allocated to participating share awards(a) | (10) | (11) | (32) | (35) | (9 | ) | (10 | ) | (37 | ) | (32 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net income attributable to common shareholders | $ | 1,234 | $ | 1,466 | $ | 4,190 | $ 4,403 | $ | 1,112 | $ | 1,234 | $ | 4,485 | $ | 4,190 | |||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Denominator: (a) | ||||||||||||||||||||||||||||||
Basic: Weighted-average common stock | 994 | 1,041 | 1,007 | 1,051 | 920 | 994 | 940 | 1,007 | ||||||||||||||||||||||
Add: Weighted-average stock options(b) | 3 | 6 | 4 | 6 | 3 | 3 | 3 | 4 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Diluted | 997 | 1,047 | 1,011 | 1,057 | 923 | 997 | 943 | 1,011 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Basic EPS | $ | 1.24 | $ | 1.41 | $ | 4.16 | $ 4.19 | $ | 1.21 | $ | 1.24 | $ | 4.77 | $ | 4.16 | |||||||||||||||
Diluted EPS | $ | 1.24 | $ | 1.40 | $ | 4.15 | $ 4.17 | $ | 1.20 | $ | 1.24 | $ | 4.76 | $ | 4.15 | |||||||||||||||
|
|
|
(a) | The Company’s unvested restricted stock awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator. |
(b) | The dilutive effect of unexercised stock options excludes from the computation of EPS |
For the three and nine months ended September 30, 2015 and 2014, the Company met specified performance measures related to the $750 million of Subordinated Debentures issued in 2006, and maturing in 2036. If the performance measures were not achieved in any given quarter, the Company would be required to issue common shares and apply the proceeds to make interest payments.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Preferred Shares
The Board of Directors is authorized to permit the Company to issue up to 20 million Preferred Shares at a par value of $1.662/3 without further shareholder approval. The Company has the following perpetual Fixed Rate/Floating Rate Noncumulative Preferred Share series issued and outstanding as of September 30, 2015:
| ||||
Series B | Series C | |||
| ||||
Issuance date | November 10, 2014 | March 2, 2015 | ||
Securities issued | 750 Preferred Shares; represented by 750,000 depositary shares | 850 Preferred Shares; represented by 850,000 depositary shares | ||
Aggregate liquidation preference | $750 million | $850 million | ||
Fixed dividend rate per annum | 5.20% | 4.90% | ||
Semi-annual fixed dividend payment dates | Beginning May 15, 2015 | Beginning September 15, 2015 | ||
Floating dividend rate per annum | 3 month LIBOR+ 3.428% | 3 month LIBOR+ 3.285% | ||
Quarterly floating dividend payment dates | Beginning February 15, 2020 | Beginning June 15, 2020 | ||
Fixed to floating rate conversion date(a) | November 15, 2019 | March 15, 2020 | ||
|
(a) The date on which dividends convert from a fixed rate calculation to a floating rate calculation.
The Company may redeem these Preferred Shares at $1 million per Preferred Share (equivalent to $1,000 per depositary share) plus any declared but unpaid dividends in whole or in part, from time to time, on any dividend payment date on or after the respective fixed to floating rate conversion date, or in whole, but not in part, within 90 days of certain bank regulatory changes.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. | Reportable Operating Segments |
The Company is a global services company that is principally engaged in businesses comprising four reportable operating segments: USCS, ICS,ICNS, GCS and Global Network & Merchant Services (GNMS).GMS. Corporate functions and certain other businesses including the Company’s Enterprise Growth business, as well as other Companyand operations are included in Corporate & Other.
The following table presents certain selected financial information for the Company’s reportable operating segments and Corporate & Other:
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Three Months Ended | Nine Months Ended | |||||||||||||
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(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||
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Non-interest revenues: | ||||||||||||||
USCS | $ | 3,302 | $ | 3,188 | $ | 9,822 | $ 9,375 | |||||||
ICS | 1,071 | 1,206 | 3,214 | 3,571 | ||||||||||
GCS | 858 | 957 | 2,653 | 3,538 | ||||||||||
GNMS | 1,302 | 1,368 | 3,898 | 4,027 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) | 155 | 189 | 465 | 548 | ||||||||||
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Total | $ | 6,688 | $ | 6,908 | $ | 20,052 | $ 21,059 | |||||||
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Interest income: | ||||||||||||||
USCS | $ | 1,593 | $ | 1,465 | $ | 4,639 | $ 4,296 | |||||||
ICS | 226 | 273 | 706 | 825 | ||||||||||
GCS | 3 | 4 | 10 | 11 | ||||||||||
GNMS | 26 | 14 | 69 | 35 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) | 56 | 59 | 174 | 183 | ||||||||||
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Total | $ | 1,904 | $ | 1,815 | $ | 5,598 | $ 5,350 | |||||||
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Interest expense: | ||||||||||||||
USCS | $ | 166 | $ | 152 | $ | 481 | $455 | |||||||
ICS | 59 | 85 | 183 | 259 | ||||||||||
GCS | 44 | 61 | 138 | 186 | ||||||||||
GNMS | (42) | (68) | (143) | (208) | ||||||||||
Corporate & Other, including adjustments and eliminations(a) | 172 | 190 | 564 | 610 | ||||||||||
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Total | $ | 399 | $ | 420 | $ | 1,223 | $ 1,302 | |||||||
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Total revenues net of interest expense: | ||||||||||||||
USCS | $ | 4,729 | $ | 4,501 | $ | 13,980 | $13,216 | |||||||
ICS | 1,238 | 1,394 | 3,737 | 4,137 | ||||||||||
GCS | 817 | 900 | 2,525 | 3,363 | ||||||||||
GNMS | 1,370 | 1,450 | 4,110 | 4,270 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) | 39 | 58 | 75 | 121 | ||||||||||
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Total | $ | 8,193 | $ | 8,303 | $ | 24,427 | $ 25,107 | |||||||
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Net income (loss): | ||||||||||||||
USCS | $ | 794 | $ | 889 | $ | 2,614 | $ 2,535 | |||||||
ICS | 89 | 142 | 348 | 378 | ||||||||||
GCS | 151 | 204 | 534 | 949 | ||||||||||
GNMS | 462 | 427 | 1,354 | 1,243 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) | (230) | (185) | (586) | (667) | ||||||||||
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Total | $ | 1,266 | $ | 1,477 | $ | 4,264 | $ 4,438 | |||||||
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Three Months Ended September 30, 2016 (Millions, except where indicated) | USCS | ICNS | GCS | GMS | Corporate & Other(a) | Consolidated | ||||||||||||||||||
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Non-interest revenues | $ | 1,849 | $ | 1,205 | $ | 2,240 | $ | 1,044 | $ | 102 | $ | 6,440 | ||||||||||||
Interest income | 1,178 | 231 | 282 | — | 73 | 1,764 | ||||||||||||||||||
Interest expense | 125 | 55 | 98 | (60 | ) | 212 | 430 | |||||||||||||||||
Total revenues net of interest expense | 2,902 | 1,381 | 2,424 | 1,104 | (37 | ) | 7,774 | |||||||||||||||||
Net income (loss) | $ | 401 | $ | 155 | $ | 466 | $ | 359 | $ | (239 | ) | $ | 1,142 | |||||||||||
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Total assets(billions) | $ | 79 | $ | 34 | $ | 47 | $ | 23 | $ | (30 | ) | $ | 153 | |||||||||||
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Total equity (billions) | $ | 8 | $ | 3 | $ | 7 | $ | 2 | $ | 1 | $ | 21 | ||||||||||||
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Nine Months Ended September 30, 2016 (Millions, except where indicated) | USCS | ICNS | GCS | GMS | Corporate & Other(a) | Consolidated | ||||||||||||||||||
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Non-interest revenues | $ | 5,947 | $ | 3,587 | $ | 6,710 | $ | 3,172 | $ | 318 | $ | 19,734 | ||||||||||||
Interest income | 3,847 | 692 | 913 | 1 | 201 | 5,654 | ||||||||||||||||||
Interest expense | 404 | 167 | 297 | (180 | ) | 603 | 1,291 | |||||||||||||||||
Total revenues net of interest expense | 9,390 | 4,112 | 7,326 | 3,353 | (84 | ) | 24,097 | |||||||||||||||||
Net income (loss) | $ | 2,162 | $ | 571 | $ | 1,527 | $ | 1,089 | $ | (766 | ) | $ | 4,583 | |||||||||||
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Total assets(billions) | $ | 79 | $ | 34 | $ | 47 | $ | 23 | $ | (30 | ) | $ | 153 | |||||||||||
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Total equity (billions) | $ | 8 | $ | 3 | $ | 7 | $ | 2 | $ | 1 | $ | 21 | ||||||||||||
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Three Months Ended September 30, 2015 (Millions, except where indicated) | USCS | ICNS | GCS | GMS | Corporate & Other(a) | Consolidated | ||||||||||||||||||
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Non-interest revenues | $ | 2,117 | $ | 1,141 | $ | 2,217 | $ | 1,123 | $ | 90 | $ | 6,688 | ||||||||||||
Interest income | 1,324 | 228 | 297 | — | 55 | 1,904 | ||||||||||||||||||
Interest expense | 123 | 55 | 91 | (46 | ) | 176 | 399 | |||||||||||||||||
Total revenues net of interest expense | 3,318 | 1,314 | 2,423 | 1,169 | (31 | ) | 8,193 | |||||||||||||||||
Net income (loss) | $ | 542 | $ | 154 | $ | 468 | $ | 397 | $ | (295 | ) | $ | 1,266 | |||||||||||
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Total assets(billions) | $ | 84 | $ | 35 | $ | 46 | $ | 23 | $ | (34 | ) | $ | 154 | |||||||||||
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Total equity (billions) | $ | 7 | $ | 3 | $ | 7 | $ | 3 | $ | 1 | $ | 21 | ||||||||||||
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Nine Months Ended September 30, 2015 (Millions, except where indicated) | USCS | ICNS | GCS | GMS | Corporate & Other(a) | Consolidated | ||||||||||||||||||
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Non-interest revenues | $ | 6,324 | $ | 3,449 | $ | 6,677 | $ | 3,323 | $ | 279 | $ | 20,052 | ||||||||||||
Interest income | 3,849 | 710 | 864 | 1 | 174 | 5,598 | ||||||||||||||||||
Interest expense | 358 | 176 | 271 | (154 | ) | 572 | 1,223 | |||||||||||||||||
Total revenues net of interest expense | 9,815 | 3,983 | 7,270 | 3,478 | (119 | ) | 24,427 | |||||||||||||||||
Net income (loss) | $ | 1,814 | $ | 544 | $ | 1,535 | $ | 1,135 | $ | (764 | ) | $ | 4,264 | |||||||||||
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Total assets(billions) | $ | 84 | $ | 35 | $ | 46 | $ | 23 | $ | (34 | ) | $ | 154 | |||||||||||
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Total equity (billions) | $ | 7 | $ | 3 | $ | 7 | $ | 3 | $ | 1 | $ | 21 | ||||||||||||
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(a) | Corporate & Other includes adjustments and eliminations for intersegment activity. |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Business Introduction
When we use the terms “American Express,” “the Company,” “we,” “our” or “us,” we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
We are a global services company with four reportable operating segments: U.S. Card Services (USCS), International Card Services (ICS), Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). We providethat provides our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through theour non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, these business travel operations were wholly owned. Our range of products and services includes:
chargeCharge and credit card products;
expense management products and services;
travel-related services;
stored-value/prepaid products;
network services;
merchantMerchant acquisition and processing, servicing and settlement, and point-of-sale, marketing and information products and services for merchants; and
feeFee services, including fraud prevention services and the design and operation of customized customer loyalty and rewards programs.programs
Our various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising.
We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, as well as evolving and growing alternative payment providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customers’ existing accounts and relationships to create payment or other fee-based solutions. We are transforming our existing businesses and creating new products and services for the digital marketplace as we seek to enhance our customers’ digital experiences and develop platforms for online and mobile commerce.
Our products and services generate the following types of revenue for the Company:
Discount revenue, our largest revenue source, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services at merchants on our network;
TravelOther fees and commissions, and fees, which are earned by charging a transaction or management fee to both customerson card-related fees (such as late fees and suppliers for travel-related transactions (businessassessments), foreign exchange conversions, loyalty coalition-related fees, travel commissions and fees included through June 30, 2014);
Other commissions and fees, which are earned on foreign exchange conversions, card-related fees, such as late fees and assessments, loyalty coalition-related fees and other service fees;
Other revenue, which represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees), insurance premiums earned from Card Member travel and other insurance programs, prepaid card-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV after June 30, 2014)JV) and other miscellaneous revenue and fees; and
Interest on loans,
32 |
Effective for the first quarter of 2016, we realigned our segment presentation to reflect the organizational changes announced during the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments, which principally represents interest income earned on outstanding balances.are: U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global Merchant Services (GMS), with corporate functions and certain other businesses and operations included in Corporate & Other. Refer to Note 1 to the Consolidated Financial Statements for additional information.
Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the “Cautionary Note Regarding Forward-Looking Statements” section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-Q constitute non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
Bank Holding Company
American Express Company is a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserve’s regulations, policies and minimum capital leverage and liquidity requirements.standards.
Current Business Environment/OutlookEnvironment
Our third quarter performance was in line with our 2015 financial outlook, reflecting the headwinds that we have been managing throughout 2015, including a challenging economic, competitive and regulatory environment. Results for the quarter were significantly affected by higher spending on growth initiatives, as well as the continued impact of certain previously renewed co-brand partnerships and the stronger U.S. dollar. While our reported third quarter earnings reflected the impact of these discrete items, our performance continued to reflect healthy loan growth, write-off rates at historically low levels, disciplined operating expense control and the benefits of our strong capital position, as well as strong Card Member and merchant acquisitions.
On a reported basis, the Card Member billed business growth rate in the third quarter was modestly slower relative to the second quarter of 2015, and billings were flat when compared with the third quarter of 2014. Billings growth, particularly in the U.S., continued to be impacted by a number of headwinds during 2015. We saw lower average transaction sizes, although there has been an increase in the number of transactions. In addition, we saw a slowdown in growth in spending by middle market corporate customers in the U.S. We also saw spending by Costco U.S. co-brand Card Members soften compared to the prior year. While we will continue to face an evolving regulatory landscape, we have seen very solid performance trends across our international regions over the last several quarters. Overall, international volumes were up compared to the third quarter of 2014 excluding Canada (due to the termination of our relationship with Costco Canada last year) and after adjusting for foreign currency exchange rates.
We have continued to see strong growth in worldwide Card Member loans, which along with a reduction in borrowing costs during the quarter, contributed to an increase in net interest income. U.S. loan growth was steady and loan growth internationally, excluding the negative impact of foreign currency exchange rates and changes in Canadian loan balances, which were negatively impacted by the end of our Costco relationship in Canada, improved during the quarter. Our credit performance during the quarter, combined with higher loan balances, drove an increase in provision versus last year. While credit metrics had been steadily improving since the latter half of 2009, following the economic downturn, they have generally stabilized at their current levels over the course of the past year. Therefore, reserve releases from improved credit performance are no longer offsetting the additional reserves needed for higher loan balances. This performance is in line with our expectation that provision would increase year-over-year and, in part, reflects the steady growth that we are seeing in the loan portfolio. Going forward, we do anticipate that write-off rates will gradually increase from today’s low levels, in part due to the seasoning of our newer loan vintages.
We have increased our spending on growth initiatives, which appears in our marketing and promotion expenses, as well as in operating expenses and contra-discount revenue. Operating expenses for the third quarter of 2015 decreased on a reported basis, but are higher after adjusting for foreign currency exchange rates. We continue to remain committed to containing operating expense growth in 2015. For the third quarter of 2015, operating expenses include a $91 million impairment charge related to previously capitalized software development costs, primarily in our Enterprise Growth (EG) business, including our decision not to continue with certain investments in the business. We continuously evaluate our investments across the Company to ensure that we are deploying the right level of resources against our most attractive opportunities.
In this context, we decided to pull back on certain initiatives in our EG business during the current quarter, including the decision not to proceed with the launch of our Serve product in Mexico. These decisions are consistent with recent organizational changes designed to better align EG’s capabilities with the overall strategy and priorities of the Company, while focusing on those opportunities that can produce the best returns, and ensure that we have the proper operating structure to deliver results in the most efficient and effective way. We plan to continue to evaluate the strategic direction of the EG business in the fourth quarter, which could result in additional impairment.
While our business is diversified by product and geography, including a range of consumer and commercial card offerings, a large international business and GNS partners around the world, which we believe provide a range of growth opportunities, we will continue to face a number of challenges throughout the remainder of 2015 and 2016.
Global economic growth remains uneven. In addition, our results continued to be adversely impacted by the strengthening U.S. dollar, and we expect foreign exchange will continue to have an adverse impact for the remainder of 2015, and could impact 2016 as well. Our results could also be adversely affected by increases in interest rates and U.S. income tax law changes.
Regulation of the payments industry has increased significantly in recent years and various governments around the world have established or are proposing to establish payment system regulatory regimes. See “Certain Legislative, Regulatory and Other Developments” for additional information on the legislative and regulatory environment, including the potential impacts of regulatory changes in the card payment sector in the European Union (EU).
Competition is extremely intense across the payments industry, including within the co-brand space, which has generally led to increased costs in our renewed co-brand partnerships. During the third quarter we remained focused on our key initiatives to accelerate revenue growth, optimize our investments and reset our cost base. Our results reflected progress on our cost reduction efforts and steady credit performance, partially offset by a higher level of 2015, both Card Member rewards expenseinvestment spending and cost of Card Member services continued to grow when compared to the prior year, reflecting a portion of the increased costs related to recently renewed co-brand partnerships.
As previously announced, our co-brand and merchant acceptance agreements with Costco in the U.S. will not be renewed and are contractually set to expire on March 31, 2016. Although the softening in spending by existing Costco U.S. co-brand Card Members mentioned above has adversely impacted ourrestructuring charge. Reported billed business, volumes, we have not yet seen a significant earnings impact, as lower volume growth has been offset by reduced marketing expenses associated with the co-brand portfolio earlier this year. In early 2015, as we considered the implications ofloans and revenues declined year-over-year primarily due to the end of our relationship with Costco Wholesale Corporation in the U.S.,United States (Costco) and the sales of the Card Member loans and receivables related to our cobrand partnerships with Costco and JetBlue Airways Corporation (JetBlue) (collectively, the HFS portfolios). However, we made the decisionsaw underlying growth in billed business, loans and revenues on an adjusted basis, as described further below. In addition, our strong capital position allowed us to increase spending in 2015 across a range of business opportunitiesreturn capital to best position us for long-term growth.shareholders.
For the balancethird quarter, worldwide billings adjusted for foreign currency exchange rates were down year-over-year, but were up after excluding Costco-related billings from the prior year. Billings in the quarter were also impacted by lower gas and airline ticket prices, which remained headwinds across our U.S. businesses. We continued to see differing trends between spending by large corporations, which declined year-over-year, and spending by middle market and small businesses, which grew versus the prior year after adjusting for the effects of Costco. International billings continued to be strong.
Revenues net of interest expense declined year-over-year on a reported basis, reflecting lower billed business and a decline in Card Member loans. After excluding Costco-related revenues from the prior year, adjusted revenues net of interest expense grew year-over-year resulting from an increase in adjusted billed business and growth in net card fees across our premium card portfolios. Net interest income also declined year-over-year on a reported basis, reflecting lower Card Member loans and higher funding costs related to our charge card portfolio, due to an increase in interest rates versus the prior year. Excluding Costco cobrand card-related activity from the prior year, adjusted net interest income grew year-over-year as a result of growth in adjusted Card Member loans.
33 |
Card Member loans declined reflecting the sales of the HFS portfolios in the first half of the year. Adjusted Card Member loans grew year-over-year, after excluding from the prior year Card Member loans related to these portfolios. Provision expenses on a reported basis were also down year-over-year as the prior period included credit costs associated with the HFS portfolios. Provision expenses, adjusted for these credit costs, increased primarily as a result of growth in adjusted Card Member loans and seasoning of loans related to new Card Members. We expect that continued growth in adjusted loans and some modest upward pressure on our write-off rates, due primarily to this seasoning of loans related to new Card Members, will both contribute to an increase in provision expenses going forward.
Total expenses decreased versus the prior year, reflecting a decline in rewards expense, partially offset by an increase in investment spending on growth initiatives. The decrease in rewards expense was driven by the Costco cobrand expenses included in the prior year and the continued shift in volumes to cash rebate products, for which the rewards costs are classified as contra-discount revenue. After adjusting for the Costco cobrand, we expect resultsrewards expense, including costs associated with cash rebate products, to reflect some of the same headwindsgrow faster than billings as the current quarter, including incrementalwe continue to enhance our card product value propositions over time. In addition, we expect that our investment spending on growth initiatives, as well as the discrete impacts from changes in our co-brand relationshipsincluding marketing and a stronger U.S. dollar. Year-over-year earnings-per-share growth will also be negatively impacted by a net benefit inpromotion, during the fourth quarter of 2014 related to the sale of our investment in Concur. We estimate that full-year 2015 earnings per share will be between $5.20 and $5.35. We believesignificantly higher than in the third quarter.
Competition remains intense across our outlook to return to positive earnings per share growth in 2016 and within our target range of 12 to 15 percent earnings per share growth in 2017 remains appropriate. Our outlook for 2015 through 2017 does not contemplate the impact of any restructuring charges or other contingencies.
As previously disclosed, a trial court ruled in favor of the U.S. Department of Justice (DOJ) in its antitrust lawsuit against us. Following the decision, on April 30, 2015, the trial court issued an injunction requiring us to change the provisions in our agreements with merchants accepting American Express cardsbusinesses, particularly in the U.S. that historically prohibitedWhile our businesses are global and diversified, to remain competitive we need to continue to demonstrate the value we deliver to merchants, from engagingcustomers and business partners in various actionsall aspects of our relationships. More intense competition has and will continue to encourage Card Membersimpact our cost of renewing and ability to usewin or extend cobrand and other credit or charge card products or networks. The injunction became effective on July 20, 2015. We are vigorously pursuing an appeal of the decision and judgment, andrelationships. Throughout our business, we are vigorously defending similar antitrust claims initiated by merchants in other courtfocused on those products, services and arbitration proceedings. relationships that offer the best value to our customers while also providing appropriate returns to our business and shareholders.
See “Certain Legislative, Regulatorylegislative, regulatory and Other Developments”other developments” in this Report and Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q“Other Matters” for the quarter ended June 30, 2015 for additional information on the potential impacts of the trial court’s decision, the subsequent injunctionlegislative and the related merchant litigationregulatory changes that could have a material adverse effect on our business.results of operations and financial condition.
34 |
American Express Company
Consolidated Results of Operations
Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms and related information appearing within this section.
As a resultEffective December 1, 2015, we transferred the Card Member loans and receivables related to our HFS portfolios to Card Member loans and receivables HFS on the Consolidated Balance Sheets. On March 18, 2016 and June 17, 2016, we completed the sales of the GBT JV transaction, we deconsolidatedJetBlue and Costco cobrand card portfolios, respectively. For the Global Business Travel (GBT)periods from December 1, 2015, through the sale completion dates, the primary impacts beyond the HFS classification on the Consolidated Balance Sheets were to provisions for losses and credit metrics, which do not reflect amounts related to these HFS loans and receivables, as credit costs were reported in Other expenses through a valuation allowance adjustment. Other, non-credit related metrics (i.e., billed business, cards-in-force, net assets, effective June 30, 2014, resulting in a lack of comparability betweeninterest yield) reflect amounts related to the nine months ended September 30, 2015HFS portfolios through the sale completion dates. Additionally, for periods after the sale completion dates, activities associated with these cobrand partnerships and the same periodHFS portfolios are no longer included in our Consolidated Results of Operations. Specifically, these impacts include: Discount revenue from Costco in the prior year.U.S. for spend on all American Express cards and from other merchants for spend on the Costco cobrand card; Other fees and commissions and Interest income from Costco cobrand Card Members; and Card Member rewards expense related to the Costco cobrand card.
Table 1: Summary of Financial Performance
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(Millions, except percentages and | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
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per share amounts) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Total revenues net of interest expense | $ | 8,193 | $ | 8,303 | $ | (110) | (1) | % | $ | 24,427 | $ | 25,107 | $ | (680) | (3)% | |||||||||||||||
Provisions for losses | 529 | 488 | 41 | 8 | 1,416 | 1,462 | (46) | (3) | ||||||||||||||||||||||
Expenses | 5,726 | 5,569 | �� | 157 | 3 | 16,527 | 16,879 | (352) | (2) | |||||||||||||||||||||
Net income | 1,266 | 1,477 | (211) | (14) | 4,264 | 4,438 | (174) | (4) | ||||||||||||||||||||||
Earnings per common share — diluted(a) | $ | 1.24 | $ | 1.40 | $ | (0.16) | (11) | % | $ | 4.15 | $ | 4.17 | $ | (0.02) | — % | |||||||||||||||
Return on average equity(b) | �� | 26.8 | % | 28.8 | % | 26.8 | % | 28.8 | % | |||||||||||||||||||||
Return on average tangible common equity(c) | 34.2 | % | 35.6 | % | 34.2 | % | 35.6 | % | ||||||||||||||||||||||
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(a) Earnings per common share — diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $10 million and $11 million for three months ended September 30, 2015 and 2014, respectively, and $32 million and $35 million for the nine months ended September 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $22 million and nil for the three months ended September 30, 2015 and 2014, respectively, and $42 million and nil for the nine months ended September 30, 2015 and 2014, respectively. | ||||||||||||||||||||||||||||||
(b) Return on Average Equity (ROE) is computed by dividing (i) one-year period net income ($5.7 billion for both September 30, 2015 and 2014) by (ii) one-year average total shareholders’ equity ($21.4 billion and $19.9 billion for September 30, 2015 and 2014, respectively). | ||||||||||||||||||||||||||||||
(c) Return on average tangible common equity (ROTCE), a non-GAAP measure, is computed in the same manner as ROE except the computation excludes from one-year average total shareholders’ equity, one-year average goodwill and other intangibles of $3.8 billion and $3.9 billion as of September 30, 2015 and 2014, respectively, and one-year average preferred shares of $1.1 billion and nil as of September 30, 2015 and 2014, respectively. We believe ROTCE is a useful measure of the profitability of our business. | ||||||||||||||||||||||||||||||
Table 2: Total Revenue Net of Interest Expense Summary
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Discount revenue | $ | 4,778 | $ | 4,889 | $ | (111) | (2) | % | $ | 14,384 | $ | 14,428 | $ | (44) | — % | |||||||||||||||
Net card fees | 679 | 680 | (1) | — | 2,013 | 2,041 | (28) | (1) | ||||||||||||||||||||||
Travel commissions and fees | 87 | 104 | (17) | (16) | 271 | 1,027 | (756) | (74) | ||||||||||||||||||||||
Other commissions and fees | 640 | 642 | (2) | — | 1,891 | 1,884 | 7 | — | ||||||||||||||||||||||
Other | 504 | 593 | (89) | (15) | 1,493 | 1,679 | (186) | (11) | ||||||||||||||||||||||
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Total non-interest revenues | 6,688 | 6,908 | (220) | (3) | 20,052 | 21,059 | (1,007) | (5) | ||||||||||||||||||||||
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Total interest income | 1,904 | 1,815 | 89 | 5 | 5,598 | 5,350 | 248 | 5 | ||||||||||||||||||||||
Total interest expense | 399 | 420 | (21) | (5) | 1,223 | 1,302 | (79) | (6) | ||||||||||||||||||||||
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Net interest income | 1,505 | 1,395 | 110 | 8 | 4,375 | 4,048 | 327 | 8 | ||||||||||||||||||||||
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Total revenues net of interest expense | $ | 8,193 | $ | 8,303 | $ | (110) | (1) | % | $ | 24,427 | $ | 25,107 | $ | (680) | (3)% | |||||||||||||||
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Three Months Ended September 30, | Change | Nine Months Ended
September 30, | Change | |||||||||||||||||||||||||||||
(Millions, except percentages and per share amounts) | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||
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Total revenues net of interest expense | $ | 7,774 | $ | 8,193 | $ | (419 | ) | (5 | )% | $ | 24,097 | $ | 24,427 | $ | (330 | ) | (1 | )% | ||||||||||||||
Provisions for losses | 504 | 529 | (25 | ) | (5 | ) | 1,401 | 1,416 | (15 | ) | (1 | ) | ||||||||||||||||||||
Expenses | 5,535 | 5,726 | (191 | ) | (3 | ) | 15,761 | 16,527 | (766 | ) | (5 | ) | ||||||||||||||||||||
Net income | 1,142 | 1,266 | (124 | ) | (10 | ) | 4,583 | 4,264 | 319 | 7 | ||||||||||||||||||||||
Earnings per common share - diluted(a) | $ | 1.20 | $ | 1.24 | $ | (0.04 | ) | (3 | )% | $ | 4.76 | $ | 4.15 | $ | 0.61 | 15 | % | |||||||||||||||
Return on average equity(b) | 26.1 | % | 26.8 | % | 26.1 | % | 26.8 | % | ||||||||||||||||||||||||
|
(a) | Earnings per common share - diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $9 million and $10 million for the three months ended September 30, 2016 and 2015, respectively, and $37 million and $32 million for the nine months ended September 30, 2016 and 2015, respectively, and (ii) dividends on preferred shares of $21 million and $22 million for the three months ended September 30, 2016 and 2015, respectively, and $61 million and $42 million for the nine months ended September 30, 2016 and 2015, respectively. |
(b) | Return on average equity (ROE) is computed by dividing (i) one-year period net income ($5.5 billion and $5.7 billion for September 30, 2016 and 2015, respectively) by (ii) one-year average total shareholders’ equity ($21.0 billion and $21.4 billion for September 30, 2016 and 2015, respectively). |
Table 2: Total Revenue Net of Interest Expense Summary
| ||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
(Millions, except percentages) | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||
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Discount revenue | $ | 4,516 | $ | 4,778 | $ | (262 | ) | (5 | )% | $ | 13,983 | $ | 14,384 | $ | (401 | ) | (3 | )% | ||||||||||||||
Net card fees | 747 | 679 | 68 | 10 | 2,161 | 2,013 | 148 | 7 | ||||||||||||||||||||||||
Other fees and commissions | 694 | 727 | (33 | ) | (5 | ) | 2,076 | 2,162 | (86 | ) | (4 | ) | ||||||||||||||||||||
Other | 483 | 504 | (21 | ) | (4 | ) | 1,514 | 1,493 | 21 | 1 | ||||||||||||||||||||||
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Total non-interest revenues | 6,440 | 6,688 | (248 | ) | (4 | ) | 19,734 | 20,052 | (318 | ) | (2 | ) | ||||||||||||||||||||
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Total interest income | 1,764 | 1,904 | (140 | ) | (7 | ) | 5,654 | 5,598 | 56 | 1 | ||||||||||||||||||||||
Total interest expense | 430 | 399 | 31 | 8 | 1,291 | 1,223 | 68 | 6 | ||||||||||||||||||||||||
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Net interest income | 1,334 | 1,505 | (171 | ) | (11 | ) | 4,363 | 4,375 | (12 | ) | — | |||||||||||||||||||||
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Total revenues net of interest expense | $ | 7,774 | $ | 8,193 | $ | (419 | ) | (5 | )% | $ | 24,097 | $ | 24,427 | $ | (330 | ) | (1 | )% | ||||||||||||||
|
35 |
Total Revenues Net of Interest Expense
Discount revenue decreased $111$262 million or 25 percent for the three months ended September 30, 2015 and was relatively flat for the nine months ended September 30, 2015, as compared to the same periods in the prior year. Foreign currency-adjusted discount revenue, which excludes the impact of changes in foreign exchange (FX) rates, increased 1 percent and$401 million or 3 percent for the three and nine months ended September 30, 2015, respectively.1The2016, respectively, compared to the same periods in the prior year, primarily driven by the Costco-related revenue included in the prior year, as previously mentioned, as well as increases on an FX-adjusted basis were due to growth in billed business of 5 percent and 6 percent, also FX-adjusted, for the three and nine month periods, respectively,contra-discount revenues, including higher cash rebate rewards, partially offset by a decrease in the averagelower discount rate, faster growth inrevenue share with GNS billings than in overall Company billings, increases in cash rebate rewards (recognized as contra-discount revenue) and generally higher contra-revenues related to payments under previously renewed co-brand partnership agreements.1issuing partners.
Billed business in the U.S. increased 4decreased 3 percent and 5increased 1 percent for the three and nine months ended September 30, 2015,2016, respectively, andcompared to the same periods in the prior year. U.S. billed business decreased 89 percent and 51 percent outsidefor the U.S.,three and nine months ended September 30, 2016, respectively, primarily driven by Costco-related volumes in the prior year. Non-U.S. billed business increased 10 percent and 6 percent in the same respective periods, with FX-adjusted billed business outside the U.S. increasing 8 percent for both the three and nine month periods.1
The average discount rate was 2.47 percent and 2.45 percent for the three and nine months ended September 30, 2016, respectively, and 2.46 percent and 2.48 percent for the three and nine months ended September 30, 2015, respectively, and 2.48 percent and 2.49 percentrespectively. The increase for the three and nine months ended September 30, 2014, respectively. The decreasethree-month period reflects the absence of Costco merchant volumes in the average discount rate for both the three and nine month periods was driven in part by growth of the OptBlue program, changes in industry mix, and competition, partially offset by the decline in Costco merchant volume in Canada (which wascurrent year, which were at a lower discount rate than the average)average. The decrease for the nine-month period was driven primarily by a prior-year benefit related to certain merchant rebate accruals, growth of the OptBlue program and merchant negotiations, including those resulting from the recent European regulatory changes, partially offset by the benefit to the discount rate from the decline in Costco merchant volumes in the current period. We expect the average discount rate will likely decline over time due to the expirationfurther expansion of our merchant agreement, as well as changes in FX rates. As indicated in prior quarters,OptBlue, overall changes in the mix of spending by location and industry, volume-relatedmerchant incentives and concessions, volume related pricing discounts, strategic investments, certain pricing initiatives, competition, pricing regulation (including regulation of competitors’ interchange rates) and other factors will likely result in continued erosion of our discount rate over time.factors. See Tables 5, 6 and 67 for more details on billed business performance and the average discount rate.
Net card fees decreased $1increased $68 million and $28 million for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted net card fees increased 6or 10 percent and 5 percent for the respective periods, primarily driven by higher basic cards-in-force, as well as a benefit from certain pricing initiatives.1
Travel commissions and fees decreased $17$148 million or 16 percent and $756 million or 747 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, primarily due to the business travel joint venture transactiondriven by growth in the prior year, resulting in a lack of comparability between periods.Platinum, Gold and Delta portfolios.
Other fees and commissions and fees remained relatively flat for both the three and nine months ended September 30, 2015, as compared to the same periods in the prior year, while FX-adjusted other commissions and fees increased 9decreased $33 million or 5 percent and 10 percent for the respective periods.1 The increases on an FX-adjusted basis were driven in part by higher loyalty coalition revenues, as well as higher delinquency fees.
Other revenue decreased $89$86 million or 15 percent and $186 million or 114 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, while FX-adjusted other revenue decreased 7 percent and 4 percent for the respective periods.1 The decrease on an FX-adjusted basis for the three month period was primarily driven by gains related to the sale of investment securities in the Industrial and Commercial Bank of China (ICBC) and in Concur TechnologiesCostco-related fees included in the prior year, which for the nine month period was partially offset by higheran increase in delinquency and loyalty coalition-related fees.
Other revenues earneddecreased $21 million or 4 percent and increased $21 million or 1 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. Both periods reflect Costco-related revenues in the prior year and lower revenues related to the GBT JV transition services agreement in the current year.
1The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposesperiod, both 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). Certain amounts includedwere more than offset in the calculationsnine-month period by a contractual payment from a GNS partner in the second quarter of foreign currency-adjusted2016 and higher revenues and expenses, which constitute non-GAAP measures, are subject to management allocations. We believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to comparefrom our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.Prepaid Services business.
Interest income increased $89decreased $140 million or 57 percent and $248increased $56 million or 51 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year. Both periods reflect Costco-related interest income in the prior year, primarily reflectingwhich was more than offset in the nine-month period by modestly higher yields and an increase in average Card Member loans.loans (including Card Member loans HFS).
Interest expense decreased $21increased $31 million or 58 percent and $79$68 million or 6 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, primarily driven by a lower cost of funds andhigher average customer deposit balances, partially offset by lower average long-term debt.
36 |
Table 3: Provisions for Losses Summary
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Charge card | $ | 203 | $ | 196 | $ | 7 | 4 | % | $ | 542 | $ | 594 | $(52) | (9)% | ||||||||||||||||
Card Member loans | 309 | 265 | 44 | 17 | 829 | 797 | 32 | 4 | ||||||||||||||||||||||
Other | 17 | 27 | (10) | (37) | 45 | 71 | (26) | (37) | ||||||||||||||||||||||
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Total provisions for losses | $ | 529 | $ | 488 | $ | 41 | 8 | % | $ | 1,416 | $ | 1,462 | $ (46) | (3)% | ||||||||||||||||
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Provisions for Losses | ||||||||||||||||||||||||||||||
Charge card provisions for losses increased $7 million or 4 percent and decreased $52 million or 9 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The increase for the three month period was primarily driven by higher write-off rates in USCS, versus the prior year and the decrease in the nine month period was primarily driven by a reserve release in the current year versus a reserve build in the prior year. | ||||||||||||||||||||||||||||||
Card Member loans provision for losses increased $44 million or 17 percent and $32 million or 4 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The increases were driven by credit performance, combined with higher loan balances. | ||||||||||||||||||||||||||||||
Table 4: Expenses Summary
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Marketing and promotion | $ | 847 | $ | 783 | $ | 64 | 8 | % | $ | 2,217 | $ | 2,329 | $(112) | (5)% | ||||||||||||||||
Card Member rewards | 1,763 | 1,695 | 68 | 4 | 5,202 | 5,050 | 152 | 3 | ||||||||||||||||||||||
Card Member services and other | 269 | 205 | 64 | 31 | 772 | 619 | 153 | 25 | ||||||||||||||||||||||
Salaries and employee benefits | 1,212 | 1,290 | (78) | (6) | 3,767 | 4,488 | (721) | (16) | ||||||||||||||||||||||
Other, net | 1,635 | 1,596 | 39 | 2 | 4,569 | 4,393 | 176 | 4 | ||||||||||||||||||||||
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Total expenses | $ | 5,726 | $ | 5,569 | $ | 157 | 3 | % | $ | 16,527 | $ | 16,879 | $(352) | (2)% | ||||||||||||||||
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| ||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
(Millions, except percentages) | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||
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Charge card | $ | 174 | $ | 203 | $ | (29 | ) | (14 | )% | $ | 496 | $ | 542 | $ | (46 | ) | (8 | )% | ||||||||||||||
Card Member loans | 319 | 309 | 10 | 3 | 831 | 829 | 2 | — | ||||||||||||||||||||||||
Other | 11 | 17 | (6 | ) | (35 | ) | 74 | 45 | 29 | 64 | ||||||||||||||||||||||
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Total provisions for losses(a) | $ | 504 | $ | 529 | $ | (25 | ) | (5 | )% | $ | 1,401 | $ | 1,416 | $ | (15 | ) | (1 | )% | ||||||||||||||
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(a) | Beginning December 1, 2015 through to the sale completion dates, does not reflect the HFS portfolios. |
ExpensesProvisions for Losses
MarketingCharge card provision for losses decreased $29 million or 14 percent and promotion expense increased $64$46 million or 8 percent and decreased $112 million or 5 percent for the three and nine months ended September 30, 2015,2016, respectively, compared to the same periods in the prior year, primarily driven by lower net write-offs and improved delinquencies.
Card Member loans provision for losses increased $10 million or 3 percent and remained flat for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, as the current year periods do not reflect credit costs associated with the HFS portfolios, as previously mentioned, which was offset by strong momentum in our lending growth initiatives, resulting in higher loan balances and net write-offs.
Other provision for losses decreased $6 million and increased $29 million for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The increase forin the three monthnine-month period was primarily driven by higher net write-offs in the merchant financing loan portfolio as a result of historic growth, whereas the decrease in the three-month period was due to improving merchant financing loan credit performance.
Table 4: Expenses Summary
| ||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||||||||||
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(Millions, except percentages) | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||
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Marketing and promotion | $ | 930 | $ | 847 | $ | 83 | 10 | % | $ | 2,445 | $ | 2,217 | $ | 228 | 10 | % | ||||||||||||||||
Card Member rewards | 1,566 | 1,763 | (197 | ) | (11 | ) | 5,035 | 5,202 | (167 | ) | (3 | ) | ||||||||||||||||||||
Card Member services and other | 278 | 269 | 9 | 3 | 841 | 772 | 69 | 9 | ||||||||||||||||||||||||
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Total marketing, promotion, rewards, Card Member services and other | 2,774 | 2,879 | (105 | ) | (4 | ) | 8,321 | 8,191 | 130 | 2 | ||||||||||||||||||||||
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Salaries and employee benefits | 1,263 | 1,212 | 51 | 4 | 4,052 | 3,767 | 285 | 8 | ||||||||||||||||||||||||
Other, net(a) | 1,498 | 1,635 | (137 | ) | (8 | ) | 3,388 | 4,569 | (1,181 | ) | (26 | ) | ||||||||||||||||||||
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Total expenses | $ | 5,535 | $ | 5,726 | $ | (191 | ) | (3 | )% | $ | 15,761 | $ | 16,527 | $ | (766 | ) | (5 | )% | ||||||||||||||
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(a) | Beginning December 1, 2015 through to the sale completion dates, includes the valuation allowance adjustment associated with the HFS portfolios. |
Expenses
Marketing and promotion expenses increased $83 million or 10 percent and $228 million or 10 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, driven by higher levels of spending on incremental growth initiatives, whilepredominantly within the decrease for the nine month period was primarily driven by the prior-year reinvestment of a significant portion of the gain from the business travel joint venture transaction in growth initiatives.USCS and ICNS segments.
Card Member rewards expense increased $68expenses decreased $197 million or 411 percent and $152$167 million or 3 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, and FX-adjusted Card Memberyear. The decreases were primarily driven by lower cobrand rewards expense of $236 million and $289 million, in the same respective periods, primarily reflecting Costco-related expenses in the prior year, as well as, in the current year, a shift in volumes to cash rebate products for which the rewards costs are classified as contra-discount revenue, partially offset in both periods by increased 7 percentspending volumes across other cobrand card products. The lower cobrand rewards expense was partially offset by higher Membership Rewards expense of $38 million and 6 percent for$122 million, in the same respective periods.2
The increase for the three months ended September 30, 2015, wasperiods, primarily due todriven by an increase in co-brand rewards expense of $60 million, driven by rate impactsnew points earned as a result of the previously renewed co-brand partnership agreements, and an increase in Membership Rewards expense of $8 million. The latter was driven by an increase of $31 million related to new points earned, resulting from higher spending volumes partially offset by a $23 million decrease from slower growth in the Membership Rewards ultimate redemption rate (URR), and a declinelower benefit in the weighted average cost (WAC) per point.point (WAC).
The increase for the nine months ended September 30, 2015, was primarily due to an increase in co-brand rewards expense of $180 million, also driven by rate impacts, partially offset by a decrease in Membership Rewards expense of $28 million. The latter was driven by slower growth in the URR, and a charge in 2014 related to an enhancement in the Membership Rewards URR estimation process for certain international countries, partially offset by increased expenses related to new points earned, driven by higher spending volumes.
37 |
The Membership Rewards URR for current program participants remained atwas 95 percent (rounded up)(rounded down) at September 30, 2015, in line with June 30, 2015 and2016, compared to 95 percent (rounded up) at September 30, 2014.2015.
Card Member services and other expenseexpenses increased $64$9 million or 313 percent and $153$69 million or 259 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, while FX-adjusted Card Member services and other expense increased 38 percent and 32 percent for the respective periods, primarily driven by higher costs related to the previously renewed co-brand partnership agreements.2increased usage of travel-related benefits.
Salaries and employee benefits expense decreased $78expenses increased $51 million or 64 percent and $721$285 million or 168 percent for the three and nine months ended September 30, 2015,2016, respectively, ascompared to the same periods in the prior year, primarily driven by restructuring in the current year.
Other expenses decreased $137 million or 8 percent and $1.2 billion or 26 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decrease for the nine month period was primarily driven by the business travel joint venture transaction (resultingdecreases in a lack of comparability between periods), and the restructuring charge in the prior year. The restructuring initiatives in the prior year resulted in lower compensation costs and contributed to the current year decrease for both the three and nine month periods.
Other expenses increased $39 million or 2 percent and $176 million or 4 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted other expenses increased 6 percent and 8 percent for the respective periods.2 The increase in the three month period primarily reflected a $91 millionan impairment charge related to previously capitalized software development costs, primarily within our EG business, including our decision not to continue with certain initiatives within EG. Other expenses were also favorably impactedpartially offset by a litigation reserve release, of $64 million in the GNMS segment associated with the rejected 2013 merchant litigation settlement. See Part II, Item 1. “Legal Proceedings” for further information on this merchant litigation. The increase in the nine month period reflected the net gain recognized as a result of the business travel joint venture transactionboth in the prior year, (resulting in a lack of comparability between periods), as well as the previously mentioned impairment chargeand lower technology-related costs in the current year, which wereyear. The decrease in the nine-month period also reflected the gains on the sales of the HFS portfolios, partially offset by a favorable impactthe benefit in the prior year from both the reassessment of the functional currency of certain UK legal entities in the current year, the litigation reserve release mentioned previously, a contribution to the American Express Foundation and a change in the estimated value of certain investments in our Community Reinvestment Act (CRA) portfolio, the latter two in the prior year.other foreign exchange (FX) related activity.
2 Refer to footnote 1 on page 39 for details regarding foreign currency adjusted information.
Income Taxes
The effective tax rate was 34.2 percent and 33.9 percent for the three and nine months ended September 30, 2016, respectively, and 34.7 percent and 34.2 percent for the three months ended September 30, 2015 and 2014, respectively, and 34.2 percent and 34.4 percent for the nine months ended September 30, 2015, and 2014, respectively. The changes in tax rates for all periods reflectprimarily reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business.
38 |
Table 5: Selected Card-Related Statistical Information
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As of or for the | Change | As of or for the | Change | |||||||||||||||||||||||||||||||||||||||||||
|
| Three Months Ended | 2016 | Nine Months Ended | 2016 | |||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | vs. | September 30, | vs. | |||||||||||||||||||||||||||||||||||||||||
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2015 | 2014 | Change | 2015 | 2014 | Change | 2016 | 2015 | 2015 | 2016 | 2015 | 2015 | |||||||||||||||||||||||||||||||||||
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Card billed business:(billions) | ||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 180.3 | $ | 173.0 | 4 % | $ | 531.1 | $ | 505.6 | 5 % | $ | 164.6 | $ | 180.4 | (9 | )% | $ | 526.0 | $ | 531.6 | (1 | )% | ||||||||||||||||||||||||
Outside the United States | 78.6 | 85.1 | (8) | 235.4 | 248.7 | (5) | 86.6 | 78.5 | 10 | 248.3 | 234.9 | 6 | ||||||||||||||||||||||||||||||||||
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Total | $ | 258.9 | $ | 258.1 | — | $ | 766.5 | $ | 754.3 | 2 | ||||||||||||||||||||||||||||||||||||
Worldwide | $ | 251.2 | $ | 258.9 | (3 | ) | $ | 774.3 | $ | 766.5 | 1 | |||||||||||||||||||||||||||||||||||
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Total cards-in-force:(millions) | ||||||||||||||||||||||||||||||||||||||||||||||
United States | 56.4 | 54.5 | 3 | 56.4 | 54.5 | 3 | 47.1 | 56.4 | (16 | ) | 47.1 | 56.4 | (16 | ) | ||||||||||||||||||||||||||||||||
Outside the United States | 59.4 | 56.6 | 5 | 59.4 | 56.6 | 5 | 61.7 | 59.4 | 4 | 61.7 | 59.4 | 4 | ||||||||||||||||||||||||||||||||||
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Total | 115.8 | 111.1 | 4 | 115.8 | 111.1 | 4 | ||||||||||||||||||||||||||||||||||||||||
Worldwide | 108.8 | 115.8 | (6 | ) | 108.8 | 115.8 | (6 | ) | ||||||||||||||||||||||||||||||||||||||
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Basic cards-in-force: (millions) | ||||||||||||||||||||||||||||||||||||||||||||||
United States | 43.6 | 42.2 | 3 | 43.6 | 42.2 | 3 | 37.0 | 43.6 | (15 | ) | 37.0 | 43.6 | (15 | ) | ||||||||||||||||||||||||||||||||
Outside the United States | 49.0 | 46.3 | 6 | 49.0 | 46.3 | 6 | 51.1 | 49.0 | 4 | 51.1 | 49.0 | 4 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
Total | 92.6 | 88.5 | 5 | 92.6 | 88.5 | 5 | ||||||||||||||||||||||||||||||||||||||||
Worldwide | 88.1 | 92.6 | (5 | ) | 88.1 | 92.6 | (5 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
Average discount rate(a) | 2.46 | % | 2.48 | % | 2.48 | % | 2.49 | % | ||||||||||||||||||||||||||||||||||||||
Average basic Card Member spending(b) | $ | 4,165 | $ | 4,223 | (1) | $ | 12,437 | $ | 12,504 | (1) | ||||||||||||||||||||||||||||||||||||
Average fee per card(b) | $ | 39 | $ | 40 | (3) | $ | 39 | $ | 41 | (5) | ||||||||||||||||||||||||||||||||||||
Average fee per card, adjusted(b) | $ | 44 | $ | 45 | (2)% | $ | 44 | $ | 45 | (2)% | ||||||||||||||||||||||||||||||||||||
Average basic Card Member spending:(dollars)(a) | ||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 4,937 | $ | 4,503 | 10 | $ | 13,732 | $ | 13,432 | 2 | ||||||||||||||||||||||||||||||||||||
Outside the United States | 3,264 | 3,197 | 2 | 9,667 | 9,620 | — | ||||||||||||||||||||||||||||||||||||||||
Worldwide Average | 4,433 | 4,165 | 6 | 12,628 | 12,437 | 2 | ||||||||||||||||||||||||||||||||||||||||
Card Member loans: (billions) | ||||||||||||||||||||||||||||||||||||||||||||||
United States | 53.9 | 62.1 | (13 | ) | 53.9 | 62.1 | (13 | ) | ||||||||||||||||||||||||||||||||||||||
Outside the United States | 6.7 | 6.8 | (1 | ) | 6.7 | 6.8 | (1 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||
Worldwide | $ | 60.6 | $ | 68.9 | (12 | ) | $ | 60.6 | $ | 68.9 | (12 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Average discount rate | 2.47 | % | 2.46 | % | 2.45 | % | 2.48 | % | ||||||||||||||||||||||||||||||||||||||
Average fee per card(dollars)(a) | $ | 49 | $ | 39 | 26 | % | $ | 43 | $ | 39 | 10 | % | ||||||||||||||||||||||||||||||||||
|
|
(a) |
|
Average basic Card Member spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees |
39 |
Table 6: Selected Statistical InformationBilled Business Growth
| ||||||||
Three Months Ended September 30, 2015 | ||||||||
|
| Percentage Increase (Decrease) |
| Percentage Increase Assuming No Changes in Foreign Exchange Rates(a) | ||||
Worldwide(b) | ||||||||
Billed business | — | % | 5 % | |||||
Proprietary billed business | 1 | 4 | ||||||
GNS billed business(c) | (1) | 13 | ||||||
Airline-related volume (8% of worldwide billed business) | (6) | — | ||||||
United States(b) | ||||||||
Billed business | 4 | |||||||
Proprietary consumer card billed business(d) | 4 | |||||||
Proprietary small business billed business(d) | 7 | |||||||
Proprietary corporate services billed business(e) | — | |||||||
T&E-related volume (26% of U.S. billed business) | 3 | |||||||
Non-T&E-related volume (74% of U.S. billed business) | 4 | |||||||
Airline-related volume (7% of U.S. billed business) | (3) | |||||||
Outside the United States(b) | ||||||||
Billed business | (8) | 8 | ||||||
Japan, Asia Pacific & Australia (JAPA) billed business | (1) | 14 | ||||||
Latin America & Canada (LACC) billed business | (23) | (4) | ||||||
Europe, the Middle East & Africa (EMEA) billed business | (4) | 9 | ||||||
Proprietary consumer and small business billed business(f) | (13) | 2 | ||||||
JAPA billed business | (7) | 10 | ||||||
LACC billed business | (26) | (11) | ||||||
EMEA billed business | (2) | 11 | ||||||
Proprietary corporate services billed business(e) | (10) | % | 5 % | |||||
| ||||||||
(a) The foreign currency adjusted information 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 prior year period against which such results are being compared). (b) Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data. (c) Included in the GNMS segment. (d) Included in the USCS segment. (e) Included in the GCS segment. (f) Included in the ICS segment. |
Table 7: Selected Statistical Information
| ||||||||
Nine Months Ended September 30, 2015 | ||||||||
|
| Percentage Increase (Decrease) |
| Percentage Increase Assuming No Changes in Foreign Exchange Rates(a) | ||||
Worldwide(b) | ||||||||
Billed business | 2 | % | 6% | |||||
Proprietary billed business | 1 | 4 | ||||||
GNS billed business(c) | 3 | 15 | ||||||
Airline-related volume (9% of worldwide billed business) | (5 | ) | 1 | |||||
United States(b) | ||||||||
Billed business | 5 | |||||||
Proprietary consumer card billed business(d) | 5 | |||||||
Proprietary small business billed business(d) | 7 | |||||||
Proprietary corporate services billed business(e) | 2 | |||||||
T&E-related volume (26% of U.S. billed business) | 4 | |||||||
Non-T&E-related volume (74% of U.S. billed business) | 5 | |||||||
Airline-related volume (8% of U.S. billed business) | (1 | ) | ||||||
Outside the United States(b) | ||||||||
Billed business | (5 | ) | 8 | |||||
JAPA billed business | 3 | 15 | ||||||
LACC billed business | (18 | ) | (4) | |||||
EMEA billed business | (6 | ) | 8 | |||||
Proprietary consumer and small business billed business(f) | (12 | ) | 2 | |||||
JAPA billed business | (4 | ) | 10 | |||||
LACC billed business | (30 | ) | (19) | |||||
EMEA billed business | (5 | ) | 10 | |||||
Proprietary corporate services billed business(e) | (10 | )% | 4% | |||||
|
| ||||||||
Three Months Ended | ||||||||
September 30, 2016 | ||||||||
|
| |||||||
| Percentage Increase | | | Percentage Increase (Decrease) Assuming No Changes in FX Rates(a) | | |||
|
|
|
|
| ||||
Worldwide(b) | ||||||||
Total billed business | (3 | )% | (3 | )% | ||||
Proprietary billed business | (5 | ) | (5 | ) | ||||
GNS billed business(c) | 10 | 10 | ||||||
Airline-related volume (8% of worldwide billed business) | (6 | ) | (5 | ) | ||||
United States(b) | ||||||||
Billed business | (9 | ) | ||||||
Proprietary consumer card billed business(d) | (15 | ) | ||||||
Proprietary small business and corporate services billed business(e) | (1 | ) | ||||||
T&E-related volume (26% of U.S. billed business) | (7 | ) | ||||||
Non-T&E-related volume | (9 | ) | ||||||
Airline-related volume (7% of U.S. billed business) | (11 | ) | ||||||
Outside the United States(b) | ||||||||
Billed business | 10 | 11 | ||||||
Japan, Asia Pacific & Australia billed business | 22 | 16 | ||||||
Latin America & Canada billed business | — | 7 | ||||||
Europe, the Middle East & Africa billed business | 2 | 7 | ||||||
Proprietary consumer card billed business(c) | 6 | 8 | ||||||
Proprietary small business and corporate services billed business(e) | 6 | % | 6 | % | ||||
|
(a) |
|
(b) | Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data. |
(c) | Included in the ICNS segment. |
(d) | Included in the USCS segment. |
(e) | Included in the GCS segment. |
40 |
Table 7: Billed Business Growth
| ||||||||
Nine Months Ended | ||||||||
September 30, 2016 | ||||||||
|
| |||||||
| Percentage Increase | | | Percentage Increase (Decrease) Assuming No Changes in FX Rates(a) | | |||
|
|
|
|
| ||||
Worldwide(b) | ||||||||
Total billed business | 1 | % | 2 | % | ||||
Proprietary billed business | — | 1 | ||||||
GNS billed business(c) | 7 | 11 | ||||||
Airline-related volume (8% of worldwide billed business) | (5 | ) | (3 | ) | ||||
United States(b) | ||||||||
Billed business | (1 | ) | ||||||
Proprietary consumer card billed business(d) | (4 | ) | ||||||
Proprietary small business and corporate services billed business(e) | 3 | |||||||
T&E-related volume (26% of U.S. billed business) | (3 | ) | ||||||
Non-T&E-related volume | (1 | ) | ||||||
Airline-related volume (7% of U.S. billed business) | (8 | ) | ||||||
Outside the United States(b) | ||||||||
Billed business | 6 | 10 | ||||||
Japan, Asia Pacific & Australia billed business | 14 | 14 | ||||||
Latin America & Canada billed business | (8 | ) | 6 | |||||
Europe, the Middle East & Africa billed business | 3 | 7 | ||||||
Proprietary consumer card billed business(c) | 4 | 8 | ||||||
Proprietary small business and corporate services billed business(e) | 2 | % | 5 | % | ||||
|
(a) | Refer to Note (a) in Table 6. |
(b) | Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data. |
(c) | Included in the |
(d) | Included in the USCS segment. |
(e) | Included in the GCS segment. |
|
41 |
Table 8: Selected Credit-Related Statistical Information
| ||||||||||||||||||||||
As of or for the Three Months Ended September 30, | As of or for the | |||||||||||||||||||||
(Millions, except percentages and where indicated) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||
Worldwide Card Member receivables: | ||||||||||||||||||||||
Total receivables(billions) | $ | 44.3 | $ | 45.1 | (2) | % | $ | 44.3 | $ | 45.1 | (2)% | |||||||||||
Loss reserves: | ||||||||||||||||||||||
Beginning balance | $ | 420 | $ | 413 | 2 | $ | 465 | $ | 386 | 20 | ||||||||||||
Provisions (a) | 203 | 196 | 4 | 542 | 594 | (9) | ||||||||||||||||
Net write-offs (b) | (174) | (168) | 4 | (544) | (527) | 3 | ||||||||||||||||
Other | (8) | (9) | (11) | (22) | (21) | 5 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | $ | 441 | $ | 432 | 2 | $ | 441 | $ | 432 | 2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
% of receivables | 1.0 | % | 1.0 | % | 1.0 | % | 1.0 | % | ||||||||||||||
Net write-off rate — principal only — USCS/ICS (c) | 1.8 | 1.6 | 1.8 | 1.8 | ||||||||||||||||||
Net write-off rate — principal and fees — USCS/ICS (c) | 2.0 | 1.8 | 2.1 | 2.0 | ||||||||||||||||||
30+ days past due as a % of total — USCS/ICS | 1.6 | 1.6 | 1.6 | 1.6 | ||||||||||||||||||
Net loss ratio as a % of charge volume — GCS | 0.08 | 0.09 | 0.09 | 0.09 | ||||||||||||||||||
90+ days past billing as a % of total — GCS | 0.7 | % | 0.8 | % | 0.7 | % | 0.8 | % | ||||||||||||||
Worldwide Card Member loans: | ||||||||||||||||||||||
Total loans(billions) | $ | 68.9 | $ | 66.1 | 4 | $ | 68.9 | $ | 66.1 | 4 | ||||||||||||
Loss reserves: | ||||||||||||||||||||||
Beginning balance | $ | 1,132 | $ | 1,170 | (3) | $ | 1,201 | $ | 1,261 | (5) | ||||||||||||
Provisions (a) | 309 | 265 | 17 | 829 | 797 | 4 | ||||||||||||||||
Net write-offs — principal(b) | (231) | (245) | (6) | (733) | (786) | (7) | ||||||||||||||||
Net write-offs — interest and fees (b) | (37) | (40) | (8) | (122) | (124) | (2) | ||||||||||||||||
Other | (9) | (4) | # | (11) | (2) | # | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | $ | 1,164 | $ | 1,146 | 2 | $ | 1,164 | $ | 1,146 | 2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Ending reserves — principal | $ | 1,114 | $ | 1,093 | 2 | $ | 1,114 | $ | 1,093 | 2 | ||||||||||||
Ending reserves — interest and fees | $ | 50 | $ | 53 | (6) | $ | 50 | $ | 53 | (6) | ||||||||||||
% of loans | 1.7 | % | 1.7 | % | 1.7 | % | 1.7 | % | ||||||||||||||
% of past due | 164 | % | 165 | % | 164 | % | 165 | % | ||||||||||||||
Average loans(billions) | $ | 69.0 | $ | 66.4 | 4 | % | $ | 68.3 | $ | 65.4 | 4 % | |||||||||||
Net write-off rate — principal only (c) | 1.3 | % | 1.5 | % | 1.4 | % | 1.6 | % | ||||||||||||||
Net write-off rate — principal, interest and fees (c) | 1.6 | 1.7 | 1.7 | 1.9 | ||||||||||||||||||
30+ days past due as a % of total | 1.0 | 1.1 | 1.0 | 1.1 | ||||||||||||||||||
Net interest income divided by average loans (d) | 8.7 | 8.5 | 8.5 | 8.1 | ||||||||||||||||||
Net interest yield on Card Member loans (d) | 9.5 | % | 9.3 | % | 9.5 | % | 9.3 | % | ||||||||||||||
| ||||||||||||||||||||||
# Denotes a variance greater than 100 percent
(a) Provisions on principal (resulting from authorized transactions) and fee reserve components on Card Member receivables and provisions for principal (resulting from authorized transactions), interest and/or fees on Card Member loans. (b) Write-offs, less recoveries. (c) We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The nine months ended September 30, 2015 reflects the impact of a change in the timing of charge-offs for Card Member loans and receivables in certain modification programs from 180 days past due to 120 days past due, which was fully recognized in the three months ended September 30, 2015. (d) Refer to Table 9 for the calculation of net interest income divided by average loans, a GAAP measure, net interest yield on Card Member loans, a non-GAAP measure, and our rationale for presenting net interest yield on Card Member loans. |
As of or for the | Change | As of or for the | Change | |||||||||||||||||||||
Three Months Ended | 2016 | Nine Months Ended | 2016 | |||||||||||||||||||||
September 30, | vs. | September 30, | vs. | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
(Millions, except percentages and where indicated) | 2016 | 2015 | 2015 | 2016 | 2015 | 2015 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Worldwide Card Member receivables:(a) | ||||||||||||||||||||||||
Total receivables(billions) | $ | 45.3 | $ | 44.3 | 2 | % | $ | 45.3 | $ | 44.3 | 2 | % | ||||||||||||
Loss reserves: | ||||||||||||||||||||||||
Beginning balance | $ | 423 | $ | 420 | 1 | $ | 462 | $ | 465 | (1 | ) | |||||||||||||
Provisions (b) | 174 | 203 | (14 | ) | 496 | 542 | (8 | ) | ||||||||||||||||
Net write-offs (c) | (159 | ) | (174 | ) | (9 | ) | (518 | ) | (544 | ) | (5 | ) | ||||||||||||
Other | (1 | ) | (8 | ) | (88 | ) | (3 | ) | (22 | ) | (86 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Ending balance | $ | 437 | $ | 441 | (1 | ) | $ | 437 | $ | 441 | (1 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
% of receivables | 1.0 | % | 1.0 | % | 1.0 | % | 1.0 | % | ||||||||||||||||
Net write-off rate — principal only (d) | 1.4 | 1.8 | 1.6 | 1.8 | ||||||||||||||||||||
Net write-off rate — principal and fees(d) | 1.6 | 2.0 | 1.8 | 2.1 | ||||||||||||||||||||
30+ days past due as a % of total(d) | 1.4 | 1.6 | 1.4 | 1.6 | ||||||||||||||||||||
Net loss ratio as a % of charge volume — GCP | 0.11 | 0.08 | 0.09 | 0.09 | ||||||||||||||||||||
90+ days past billing as a % of total — GCP | 0.8 | % | 0.7 | % | 0.8 | % | 0.7 | % | ||||||||||||||||
Worldwide Card Member loans:(a) | ||||||||||||||||||||||||
Total loans(billions) | $ | 60.6 | $ | 68.9 | (12 | ) | $ | 60.6 | $ | 68.9 | (12 | ) | ||||||||||||
Loss reserves: | ||||||||||||||||||||||||
Beginning balance | $ | 1,091 | $ | 1,132 | (4 | ) | $ | 1,028 | $ | 1,201 | (14 | ) | ||||||||||||
Provisions (b) | 319 | 309 | 3 | 831 | 829 | — | ||||||||||||||||||
Net write-offs — principal only (c) | (250 | ) | (231 | ) | 8 | (687 | ) | (733 | ) | (6 | ) | |||||||||||||
Net write-offs — interest and fees (c) | (48 | ) | (37 | ) | 30 | (128 | ) | (122 | ) | 5 | ||||||||||||||
Other(e) | 2 | (9 | ) | # | 70 | (11 | ) | # | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Ending balance | $ | 1,114 | $ | 1,164 | (4 | ) | $ | 1,114 | $ | 1,164 | (4 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Ending reserves — principal | $ | 1,050 | $ | 1,114 | (6 | ) | $ | 1,050 | $ | 1,114 | (6 | ) | ||||||||||||
Ending reserves — interest and fees | $ | 64 | $ | 50 | 28 | $ | 64 | $ | 50 | 28 | ||||||||||||||
% of loans | 1.8 | % | 1.7 | % | 1.8 | % | 1.7 | % | ||||||||||||||||
% of past due | 160 | % | 164 | % | 160 | % | 164 | % | ||||||||||||||||
Average loans(billions)(a) | $ | 60.3 | $ | 69.0 | (13 | )% | $ | 58.9 | $ | 68.3 | (14 | )% | ||||||||||||
Net write-off rate — principal only (d) | 1.7 | % | 1.3 | % | 1.6 | % | 1.4 | % | ||||||||||||||||
Net write-off rate — principal, interest and fees (d) | 2.0 | 1.6 | 1.8 | 1.7 | ||||||||||||||||||||
30+ days past due as a % of total (d) | 1.1 | % | 1.0 | % | 1.1 | % | 1.0 | % | ||||||||||||||||
# | Denotes a variance greater than 100 percent. |
(a) | Beginning December 1, 2015 through to the sale completion dates, does not reflect the HFS portfolios. |
(b) | Provisions on principal and fee reserve components on Card Member receivables and provisions for principal, interest and/or fees on Card Member loans. Refer to Table 3 footnote (a). |
(c) | Write-offs, less recoveries. |
(d) | We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The net write-off rates and 30+ days past due as a percentage of total for Card Member receivables relate to USCS, ICNS and Global Small Business Services (GSBS) Card Member receivables. |
(e) | Includes reserves associated with Card Member loans reclassified from HFS to held for investment. Refer to Changes in Card Member loans reserve for losses under Note 4 to the Consolidated Financial Statements for additional information. |
42 |
Table 9: Net Interest Yield on Card Member Loans
|
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
(Millions, except percentages and where indicated) | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
|
|
|
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Net interest income | $ | 1,505 | $ | 1,395 | $ | 4,375 | $ 4,048 | $ | 1,334 | $ | 1,505 | $ | 4,363 | $ | 4,375 | |||||||||||||||||
Exclude: | ||||||||||||||||||||||||||||||||
Interest expense not attributable to the Company’s Card Member loan portfolio | 234 | 247 | 732 | 769 | 261 | 232 | 746 | 726 | ||||||||||||||||||||||||
Interest income not attributable to the Company’s Card Member loan portfolio | (96) | (90) | (288) | (267) | (104 | ) | (89 | ) | (309 | ) | (266 | ) | ||||||||||||||||||||
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Adjusted net interest income (a) | $ | 1,643 | $ | 1,552 | $ | 4,819 | $ 4,550 | $ | 1,491 | $ | 1,648 | $ | 4,800 | $ | 4,835 | |||||||||||||||||
Average loans (billions) | $ | 69.0 | $ | 66.4 | $ | 68.3 | $ 65.4 | |||||||||||||||||||||||||
Exclude certain non-traditional Card Member loans and other fees (billions) | (0.2) | (0.2) | (0.2) | (0.2) | ||||||||||||||||||||||||||||
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Adjusted average loans (billions)(a) | $ | 68.8 | $ | 66.2 | $ | 68.1 | $ 65.2 | |||||||||||||||||||||||||
Average loans including HFS loan portfolios (billions) | $ | 60.3 | $ | 69.0 | $ | 66.6 | $ | 68.3 | ||||||||||||||||||||||||
Net interest income divided by average loans | 8.7 | % | 8.5 | % | 8.5 | % | 8.1% | 8.8 | % | 8.7 | % | 8.7 | % | 8.5 | % | |||||||||||||||||
Net interest yield on Card Member loans (a) | 9.5 | % | 9.3 | % | 9.5 | % | 9.3% | 9.8 | % | 9.5 | % | 9.6 | % | 9.5 | % | |||||||||||||||||
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(a) Adjusted net interest income, adjusted average loans, and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for definitions of these terms. We believe adjusted net interest income and average loans are useful to investors because they are components of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio. |
(a) | Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for definitions of these terms. We believe adjusted net interest income is useful to investors because it is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio. |
43 |
Business Segment Results
U.S. CardConsumer Services
Table 10: USCS Selected Income Statement Data
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Non-interest revenues | $ | 3,302 | $ | 3,188 | $ | 114 | 4 | % | $ | 9,822 | $ | 9,375 | $ | 447 | 5 % | $ | 1,849 | $ | 2,117 | $ | (268 | ) | (13 | )% | $ | 5,947 | $ | 6,324 | (377 | ) | (6 | )% | ||||||||||||||||||||||||||||||
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Interest income | 1,593 | 1,465 | 128 | 9 | 4,639 | 4,296 | 343 | 8 | 1,178 | 1,324 | (146 | ) | (11 | ) | 3,847 | 3,849 | (2 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
Interest expense | 166 | 152 | 14 | 9 | 481 | 455 | 26 | 6 | 125 | 123 | 2 | 2 | 404 | 358 | 46 | 13 | ||||||||||||||||||||||||||||||||||||||||||||||
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Net interest income | 1,427 | 1,313 | 114 | 9 | 4,158 | 3,841 | 317 | 8 | 1,053 | 1,201 | (148 | ) | (12 | ) | 3,443 | 3,491 | (48 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues net of interest expense | 4,729 | 4,501 | 228 | 5 | 13,980 | 13,216 | 764 | 6 | 2,902 | 3,318 | (416 | ) | (13 | ) | 9,390 | 9,815 | (425 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
Provisions for losses | 390 | 316 | 74 | 23 | 1,013 | 997 | 16 | 2 | 275 | 294 | (19 | ) | (6 | ) | 702 | 730 | (28 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues net of interest expense after provisions for losses | 4,339 | 4,185 | 154 | 4 | 12,967 | 12,219 | 748 | 6 | 2,627 | 3,024 | (397 | ) | (13 | ) | 8,688 | 9,085 | (397 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketing, promotion, rewards, Card Member services and other | 2,029 | 1,764 | 265 | 15 | 5,758 | 5,159 | 599 | 12 | 1,274 | 1,396 | (122 | ) | (9 | ) | 3,991 | 3,972 | 19 | — | ||||||||||||||||||||||||||||||||||||||||||||
Salaries and employee benefits and other operating expenses | 1,048 | 1,010 | 38 | 4 | 3,101 | 3,043 | 58 | 2 | 738 | 768 | (30 | ) | (4 | ) | 1,297 | 2,273 | (976 | ) | (43 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 3,077 | 2,774 | 303 | 11 | 8,859 | 8,202 | 657 | 8 | 2,012 | 2,164 | (152 | ) | (7 | ) | 5,288 | 6,245 | (957 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Pretax segment income | 1,262 | 1,411 | (149) | (11) | 4,108 | 4,017 | 91 | 2 | 615 | 860 | (245 | ) | (28 | ) | 3,400 | 2,840 | 560 | 20 | ||||||||||||||||||||||||||||||||||||||||||||
Income tax provision | 468 | 522 | (54) | (10) | 1,494 | 1,482 | 12 | 1 | 214 | 318 | (104 | ) | (33 | ) | 1,238 | 1,026 | 212 | 21 | ||||||||||||||||||||||||||||||||||||||||||||
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Segment income | $ | 794 | $ | 889 | $ | (95) | (11) | % | $ | 2,614 | $ | 2,535 | $ | 79 | 3 % | $ | 401 | $ | 542 | $ | (141 | ) | (26 | )% | $ | 2,162 | $ | 1,814 | 348 | 19 | % | |||||||||||||||||||||||||||||||
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Effective tax rate | 37.1 | % | 37.0 | % | 36.4 | % | 36.9 | % | 34.8 | % | 37.0 | % | 36.4 | % | 36.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||
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USCS issues a wide range of card products,proprietary consumer cards and provides various services to consumers and small businesses in the U.S., providesUnited States, including consumer travel services to Card Members and other consumers and operates a coalition loyalty business.services.
Non-interest revenues increased $114decreased $268 million or 413 percent and $447 million or 5 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily driven by higher discount revenue, as a result of growth in billed business which increased 5 percent and 6 percent for the three and nine months ended September 30, 2015, respectively, compared to the same periods in the prior year. The growth in both periods was primarily driven by 5 percent higher cards-in-force and a 1 percent increase in average spending per proprietary basic card.
Interest income increased $128 million or 9 percent and $343 million or 8 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily driven by higher average Card Member loans.
Interest expense increased $14 million or 9 percent and $26$377 million or 6 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, primarily driven by a higher cost of funds as a result of higher volumes.
Overall, provisions for losses increased $74 million or 23 percent and $16 million or 2 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. Charge card provision for losses increased $15 million or 15 percent and decreased $41 million or 12 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The increase for the three month period wasdecreases in both periods were primarily driven by higher write-off rates versus the prior year and the decrease for the nine month period was primarily driven by higher reserve releases in the current year versus a reserve build in the prior year. Card Member loans provision for losses increased $58due to lower discount revenue, which decreased $266 million or 2717 percent and $57$413 million or 9 percent for the three and nine months ended September 30, 2015, as2016, respectively, compared to the same periods in the prior year. The increases were driven by credit performance, combined withyear, reflecting Costco-related revenues in the prior year and higher loan balances. Refer to Table 11cash rebate rewards in the current year, for Card Member receivables and loans write-off rates.
Marketing, promotion,which the rewards Card Member services and other expenses increased $265 million orcosts are classified as contra-discount revenue. Billed business decreased 15 percent and $599 million or 124 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year. The increases were primarily driven by a $109 million and $292 million increase in Card Member rewards expense for the three and nine months ended September 30, 2015, respectively, due to higher co-brand rewards expense of $80 million and $237 million, and increased Membership Rewards expense of $29 million and $55 million for the respective periods. The increases in co-brand rewards expense were driven by higher spending volumes and rate increases, due in part to the previously renewed co-brand partnership agreements. The increases in Membership Rewards expense were also due to higher spending volumes, partially offset by slower growth in the URR and a decline in the WAC per point. Card Member services and other expense increased $60 million or 48 percent and $163 million or 44 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily driven by higher costs related toCostco-related volumes included in the previously renewed co-brand partnership agreements. Marketingprior year. The decrease in discount revenue was partially offset by an increase in net card fees, resulting from growth in the Platinum, Gold and promotion increased $96Delta portfolios.
Net interest income decreased $148 million or 2412 percent and $144$48 million or 131 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, primarily driven by increased spending on incremental growth initiatives.Costco-related interest income included in the prior year and higher interest expense in the current year, partially offset in the nine-month period by modestly higher yields and an increase in average Card Member loans (including Card Member loans HFS).
Salaries and employee benefits and other operating expenses increased $38Overall, provisions for losses decreased $19 million or 46 percent and $58$28 million or 24 percent for the three and nine months ended September 30, 2015,2016, respectively, compared to the same periods in the prior year, as the current year periods do not reflect credit costs associated with the HFS portfolios, as previously mentioned, which was partially offset by strong momentum in our lending growth initiatives, resulting in higher loan balances and net write-offs.
Marketing, promotion, rewards, Card Member services and other expenses decreased $122 million or 9 percent and was relatively flat for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. Both periods reflect lower cobrand rewards expense due to Costco-related expenses in the prior year, which was offset in the nine-month period by an increase in marketing and promotion expense, driven by higher levels of spending on growth initiatives, and an increase in Card Member services expense, driven by increased usage of new benefits.
Salaries and employee benefits and other operating expenses decreased $30 million or 4 percent and $976 million or 43 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The increases weredecrease in the three-month period was primarily driven by higher spending on incremental growth initiatives and lower fraud lossesoperating expenses, partially offset by restructuring in the current year. The increasedecrease in the nine monthnine-month period was partially offset by a change inprimarily reflects the estimated valuegains on the sales of certain investments in our CRA portfolio in the prior year.HFS portfolios.
45 |
Table 11: USCS Selected Statistical Information
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As of or for the Three Months Ended September 30, | As of or for the Nine Months Ended September 30, | As of or for the Three Months Ended September 30, | Change 2016 vs. | As of or for the Nine Months Ended September 30, | Change 2016 vs. | |||||||||||||||||||||||||||||||||||||||||
(Millions, except percentages and where indicated) | 2015 | 2014 | Change | 2015 | 2014 | Change | 2016 | 2015 | 2015 | 2016 | 2015 | 2015 | ||||||||||||||||||||||||||||||||||
Card billed business (billions) | $ | 143.4 | $ | 136.2 | 5 | % | $ | 420.0 | $ | 397.0 | 6 % | $ | 78.6 | $ | 92.3 | (15 | )% | $ | 261.0 | $ | 271.6 | (4 | )% | |||||||||||||||||||||||
Total cards-in-force | 47.4 | 45.2 | 5 | 47.4 | 45.2 | 5 | 32.3 | 40.0 | (19 | ) | 32.3 | 40.0 | (19 | ) | ||||||||||||||||||||||||||||||||
Basic cards-in-force | 35.4 | 33.7 | 5 | 35.4 | 33.7 | 5 | 22.9 | 28.0 | (18 | ) | 22.9 | 28.0 | (18 | ) | ||||||||||||||||||||||||||||||||
Average basic Card Member spending (dollars)* | $ | 4,098 | $ | 4,069 | 1 | $ | 12,166 | $ | 12,008 | 1 | ||||||||||||||||||||||||||||||||||||
U.S. Consumer Travel: | ||||||||||||||||||||||||||||||||||||||||||||||
Travel sales | $ | 943 | $ | 956 | (1) | $ | 2,951 | $ | 2,957 | — | ||||||||||||||||||||||||||||||||||||
Travel commissions and fees/sales | 7.1 | % | 7.4 | % | 6.9 | % | 7.1 | % | ||||||||||||||||||||||||||||||||||||||
Average basic Card Member spending (dollars) | $ | 3,452 | $ | 3,337 | 3 | $ | 9,878 | $ | 9,969 | (1 | ) | |||||||||||||||||||||||||||||||||||
Total segment assets (billions)(a) | $ | 107.7 | $ | 103.3 | 4 | $ | 107.7 | $ | 103.3 | 4 | $ | 79.4 | $ | 84.0 | (5 | ) | $ | 79.4 | $ | 84.0 | (5 | ) | ||||||||||||||||||||||||
Segment capital | $ | 10,283 | $ | 9,909 | 4 | $ | 10,283 | $ | 9,909 | 4 | ||||||||||||||||||||||||||||||||||||
Segment capital (billions) | $ | 7.5 | $ | 7.3 | 3 | $ | 7.5 | $ | 7.3 | 3 | ||||||||||||||||||||||||||||||||||||
Return on average segment capital (b) | 31.4 | % | 35.5 | % | 31.4 | % | 35.5 | % | 37.4 | % | 30.1 | % | 37.4 | % | 30.1 | % | ||||||||||||||||||||||||||||||
Return on average tangible segment capital (b) | 32.6 | % | 36.6 | % | 32.6 | % | 36.6 | % | ||||||||||||||||||||||||||||||||||||||
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Card Member receivables: (c) | ||||||||||||||||||||||||||||||||||||||||||||||
Total receivables (billions) | $ | 22.0 | $ | 21.3 | 3 | $ | 22.0 | $ | 21.3 | 3 | $ | 10.1 | $ | 10.5 | (4 | ) | $ | 10.1 | $ | 10.5 | (4 | ) | ||||||||||||||||||||||||
Net write-off rate – principal only (c) | 1.6 | % | 1.5 | % | 1.8 | % | 1.7 | % | ||||||||||||||||||||||||||||||||||||||
Net write-off rate – principal and fees (c) | 1.9 | 1.7 | 2.0 | 1.9 | ||||||||||||||||||||||||||||||||||||||||||
Net write-off rate – principal only (d) | 1.1 | % | 1.5 | % | 1.4 | % | 1.6 | % | ||||||||||||||||||||||||||||||||||||||
Net write-off rate – principal and fees (d) | 1.3 | % | 1.7 | % | 1.6 | % | 1.8 | % | ||||||||||||||||||||||||||||||||||||||
30+ days past due as a % of total | 1.6 | % | 1.6 | % | 1.6 | % | 1.6 | % | 1.4 | % | 1.6 | % | 1.4 | % | 1.6 | % | ||||||||||||||||||||||||||||||
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Card Member loans: (c) | ||||||||||||||||||||||||||||||||||||||||||||||
Total loans (billions) | $ | 62.1 | $ | 58.0 | 7 | % | $ | 62.1 | $ | 58.0 | 7 % | $ | 44.9 | $ | 52.2 | (14 | )% | $ | 44.9 | $ | 52.2 | (14 | )% | |||||||||||||||||||||||
Net write-off rate – principal only (c) | 1.3 | % | 1.4 | % | 1.4 | % | 1.6 | % | ||||||||||||||||||||||||||||||||||||||
Net write-off rate – principal, interest and fees (c) | 1.5 | 1.6 | 1.6 | 1.8 | ||||||||||||||||||||||||||||||||||||||||||
Average loans (billions) | $ | 44.8 | $ | 52.1 | (14 | )% | $ | 43.7 | $ | 51.4 | (15 | )% | ||||||||||||||||||||||||||||||||||
Net write-off rate – principal only (d) | 1.6 | % | 1.3 | % | 1.5 | % | 1.4 | % | ||||||||||||||||||||||||||||||||||||||
Net write-off rate – principal, interest and fees (d) | 1.9 | % | 1.5 | % | 1.8 | % | 1.6 | % | ||||||||||||||||||||||||||||||||||||||
30+ days past due loans as a % of total | 1.0 | % | 1.0 | % | 1.0 | % | 1.0 | % | 1.1 | % | 1.0 | % | 1.1 | % | 1.0 | % | ||||||||||||||||||||||||||||||
Calculation of Net Interest Yield on | ||||||||||||||||||||||||||||||||||||||||||||||
Card Member loans: | ||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 1,427 | $ | 1,313 | $ | 4,158 | $ | 3,841 | $ | 1,053 | $ | 1,201 | $ | 3,443 | $ | 3,491 | ||||||||||||||||||||||||||||||
Exclude: | ||||||||||||||||||||||||||||||||||||||||||||||
Interest expense not attributable to the Company’s Card Member loan portfolio | 42 | 39 | 121 | 118 | 20 | 18 | 59 | 53 | ||||||||||||||||||||||||||||||||||||||
Interest income not attributable to the Company’s Card Member loan portfolio | (4) | (3) | (11) | (8) | (6 | ) | (5 | ) | (16 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||
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Adjusted net interest income (d) | $ | 1,465 | $ | 1,349 | $ | 4,268 | $ | 3,951 | ||||||||||||||||||||||||||||||||||||||
Adjusted net interest income (e) | $ | 1,067 | $ | 1,214 | $ | 3,487 | $ | 3,533 | ||||||||||||||||||||||||||||||||||||||
Average loans including HFS loan portfolios(billions) | $ | 44.8 | $ | 52.1 | $ | 50.1 | $ | 51.4 | ||||||||||||||||||||||||||||||||||||||
Net interest income divided by average loans | 9.4 | % | 9.2 | % | 9.2 | % | 9.1 | % | ||||||||||||||||||||||||||||||||||||||
Net interest yield on Card Member loans(e) | 9.5 | % | 9.2 | % | 9.3 | % | 9.2 | % | ||||||||||||||||||||||||||||||||||||||
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Average loans (billions) | $ | 62.1 | $ | 58.0 | $ | 61.2 | $ | 57.0 | ||||||||||||||||||||||||||||||||||||||
Exclude certain non-traditional Card Member loans, and other fees (billions) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
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Adjusted average loans (billions)(d) | $ | 62.1 | $ | 58.0 | $ | 61.2 | $ | 57.0 | ||||||||||||||||||||||||||||||||||||||
Net interest income divided by average loans | 9.2 | % | 9.1 | % | 9.1 | % | 9.0 | % | ||||||||||||||||||||||||||||||||||||||
Net interest yield on Card Member loans(d) | 9.4 | % | 9.2 | % | 9.3 | % | 9.3 | % | ||||||||||||||||||||||||||||||||||||||
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(b) | Return on average segment capital is calculated by dividing (i) one-year period segment income ($ |
(c) | Refer to Table 8 footnote (a). |
(d) | Refer to Table 8 footnote (d). |
Adjusted net interest income |
46 |
International CardConsumer and Network Services
Table 12: ICSICNS Selected Income Statement Data
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Non-interest revenues | $ | 1,071 | $ | 1,206 | $ | (135) | (11) | % | $ | 3,214 | $ | 3,571 | $ | (357) | (10)% | $ | 1,205 | $ | 1,141 | $ | 64 | 6 | % | $ | 3,587 | $ | 3,449 | $ | 138 | 4 | % | |||||||||||||||||||||||||||||||
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Interest income | 226 | 273 | (47) | (17) | 706 | 825 | (119) | (14) | 231 | 228 | 3 | 1 | 692 | 710 | (18 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense | 59 | 85 | (26) | (31) | 183 | 259 | (76) | (29) | 55 | 55 | — | — | 167 | 176 | (9 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Net interest income | 167 | 188 | (21) | (11) | 523 | 566 | (43) | (8) | 176 | 173 | 3 | 2 | 525 | 534 | (9 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Total revenues net of interest expense | 1,238 | 1,394 | (156) | (11) | 3,737 | 4,137 | (400) | (10) | 1,381 | 1,314 | 67 | 5 | 4,112 | 3,983 | 129 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||
Provisions for losses | 85 | 98 | (13) | (13) | 244 | 275 | (31) | (11) | 84 | 77 | 7 | 9 | 233 | 223 | 10 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||
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Total revenues net of interest expense after provisions for losses | 1,153 | 1,296 | (143) | (11) | 3,493 | 3,862 | (369) | (10) | 1,297 | 1,237 | 60 | 5 | 3,879 | 3,760 | 119 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||
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Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketing, promotion, rewards, Card Member services and other | 500 | 532 | (32) | (6) | 1,409 | 1,605 | (196) | (12) | 554 | 504 | 50 | 10 | 1,535 | 1,433 | 102 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||
Salaries and employee benefits and other operating expenses | 548 | 588 | (40) | (7) | 1,651 | 1,809 | (158) | (9) | 535 | 532 | 3 | 1 | 1,608 | 1,608 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 1,048 | 1,120 | (72) | (6) | 3,060 | 3,414 | (354) | (10) | 1,089 | 1,036 | 53 | 5 | 3,143 | 3,041 | 102 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||
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Pretax segment income | 105 | 176 | (71) | (40) | 433 | 448 | (15) | (3) | 208 | 201 | 7 | 3 | 736 | 719 | 17 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||
Income tax provision | 16 | 34 | (18) | (53) | 85 | 70 | 15 | 21 | 53 | 47 | 6 | 13 | 165 | 175 | (10 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Segment income | $ | 89 | $ | 142 | $ | (53) | (37) | % | $ | 348 | $ | 378 | $ | (30) | (8)% | $ | 155 | $ | 154 | $ | 1 | 1 | % | $ | 571 | $ | 544 | $ | 27 | 5 | % | |||||||||||||||||||||||||||||||
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Effective tax rate | 15.2 | % | 19.3 | % | 19.6 | % | 15.6 | % | 25.5 | % | 23.4 | % | 22.4 | % | 24.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||
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ICSICNS issues a wide range of proprietary consumer and small business cards outside the U.S.,United States and enters into partnership agreements with third-party card issuers and acquirers, licensing the American Express brand and extending the reach of the global network. It also provides consumer travel services to Card Members and other consumers and operates a coalition loyalty business in various countries.outside the United States.
Non-interest revenues decreased $135increased $64 million or 116 percent and $357$138 million or 104 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, and FX-adjusted non-interest revenues increased 4 percent for both periods, primarily driven by net foreign exchangehigher discount revenue, on cross-border Card Member spending,due to an increase in both proprietary and non-proprietary (i.e., GNS) billed business, and higher net card fees and revenuefees. The increase in the nine-month period also reflected a contractual payment from our Loyalty Partner business.3 Also contributing wasa GNS partner in the second quarter of 2016. Total billed business which decreased 13increased 8 percent and 126 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, and FX-adjusted billed business increased 2 percent for both periods, primarily due to higher Card Member spending, partially offset by lowerincreased proprietary and GNS cards-in-force in Canada, primarily driven by the termination of our relationship with Costco in that country.3and average spend per card. Refer to Tables 6 and 7 for additional information on billed business by region.
Interest income was relatively flat and decreased $47$18 million or 17 percent and $119 million or 143 percent for the three and nine months ended September 30, 2015,2016, respectively, ascompared to the same periods in the prior year, reflecting the impact of changes in FX rates year-over-year. FX-adjusted interest income increased 8 percent and 7 percent, in the same respective periods, primarily driven by higher average FX-adjusted loan balances.1
1 The foreign currency adjusted information 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 period apply to the corresponding period against which such results are being compared). FX-adjusted revenues and expenses constitute non-GAAP measures. We believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.
47 |
Interest expense was relatively flat and decreased $9 million or 5 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, reflecting the impact of changes in FX rates year-over-year. FX-adjusted interest expense increased 6 percent for both periods driven by higher funding costs.2
Provisions for losses increased $7 million or 9 percent and $10 million or 4 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, driven primarily by lower average loans as a result of the termination of our relationship with Costco in Canada, partially offset by a higher net interest yield.write-offs.
Interest expense decreased $26Marketing, promotion, rewards, Card Member services and other expenses increased $50 million or 3110 percent and $76$102 million or 297 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, primarily driven by a lower costhigher levels of funds, as a result of lower volumes.spending on growth initiatives.
3 Refer to footnote 1 on page 39Salaries and employee benefits and other operating expenses were relatively flat for details regarding foreign currency adjusted information.
Provisions for losses decreased $13 million or 13 percent and $31 million or 11 percent forboth the three and nine months ended September 30, 2015, respectively, as2016, and increased 3 percent for both periods on an FX-adjusted basis, compared to the same periods in the prior year, while FX-adjusted provisions for losses increased 5 percent for both periods.4 Refer to Table 13 for Card Member receivables and loans write-off rates for the three and nine months ended September 30, 2015 and 2014.
Marketing, promotion, rewards, Card Member services and other expenses decreased $32 million or 6 percent and $196 million or 12 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, and increased 9 percent and 1 percent for the respective periods on an FX-adjusted basis, primarily driven by increased spending on incremental growth initiatives, primarily in marketing.4
Salaries and employee benefits and other operating expenses decreased $40 million or 7 percent and $158 million or 9 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periodsrestructuring in the prior year, while FX-adjusted salaries and employee benefits and other operating expenses increased 1 percent and decreased current year.2 percent for the respective periods.4 The decrease for the nine month period was primarily due to a prior-year restructuring charge.
The effective tax rate in all periods reflects the recurring permanent tax benefit related to the segment’s ongoing funding activities outside the U.S. in relation to the levels of pretax income. The benefitUnited States, which is allocated to ICSICNS under the Company’s internal tax allocation process. The effective tax rate for 20152016 also includesreflects the allocated share of tax benefits related to the resolution of certain prior years’ items. In addition, the effective tax rate in each of the periods reflects the impact of recurring permanent tax benefits on varying levels of pretax income.
42 Refer to footnote 1 on page 3947 for details regarding foreign currency adjusted information.
48 |
Table 13: ICSICNS Selected Statistical Information
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As of or for the Three Months Ended September 30, | As of or for the Nine Months Ended September 30, | |||||||||||||||||||||
(Millions, except percentages and where indicated) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||
Card billed business (billions) | $ | 29.6 | $ | 33.9 | (13) | % | $ | 88.3 | $ | 99.9 | (12)% | |||||||||||
Total cards-in-force | 15.2 | 15.8 | (4) | 15.2 | 15.8 | (4) | ||||||||||||||||
Basic cards-in-force | 10.6 | 10.9 | (3) | 10.6 | 10.9 | (3) | ||||||||||||||||
Average basic Card Member spending (dollars)* | $ | 2,827 | $ | 3,100 | (9) | $ | 8,432 | $ | 9,185 | (8) | ||||||||||||
International Consumer Travel: | ||||||||||||||||||||||
Travel sales | $ | 325 | $ | 362 | (10) | $ | 992 | $ | 1,069 | (7) | ||||||||||||
Travel commissions and fees/sales | 5.8 | % | 6.9 | % | 6.7 | % | 6.6 | % | ||||||||||||||
Total segment assets (billions)(a) | $ | 34.9 | $ | 31.1 | 12 | $ | 34.9 | $ | 31.1 | 12 | ||||||||||||
Segment capital | $ | 3,338 | $ | 2,974 | 12 | $ | 3,338 | $ | 2,974 | 12 | ||||||||||||
Return on average segment capital (b) | 11.9 | % | 15.8 | % | 11.9 | % | 15.8 | % | ||||||||||||||
Return on average tangible segment capital(b) | 19.4 | % | 28.9 | % | 19.4 | % | 28.9 | % | ||||||||||||||
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Card Member receivables: | ||||||||||||||||||||||
Total receivables (billions) | $ | 6.5 | $ | 7.3 | (11) | $ | 6.5 | $ | 7.3 | (11) | ||||||||||||
Net write-off rate – principal only(c) | 2.2 | % | 1.9 | % | 2.1 | % | 2.0 | % | ||||||||||||||
Net write-off rate – principal and fees(c) | 2.4 | 2.1 | 2.2 | 2.1 | ||||||||||||||||||
30+ days past due loans as a % of total | 1.5 | % | 1.4 | % | 1.5 | % | 1.4 | % | ||||||||||||||
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Card Member loans: | ||||||||||||||||||||||
Total loans (billions) | $ | 6.7 | $ | 8.0 | (16) | % | $ | 6.7 | $ | 8.0 | (16)% | |||||||||||
Net write-off rate – principal only(c) | 1.8 | % | 1.9 | % | 2.0 | % | 2.0 | % | ||||||||||||||
Net write-off rate – principal, interest and fees(c) | 2.3 | 2.4 | 2.4 | 2.4 | ||||||||||||||||||
30+ days past due loans as a % of total | 1.6 | % | 1.6 | % | 1.6 | % | 1.6 | % | ||||||||||||||
Calculation of Net Interest Yield on | ||||||||||||||||||||||
Card Member loans: | ||||||||||||||||||||||
Net interest income | $ | 167 | $ | 188 | $ | 523 | $ | 566 | ||||||||||||||
Exclude: | ||||||||||||||||||||||
Interest expense not attributable to the Company’s Card Member loan portfolio | 18 | 24 | 51 | 63 | ||||||||||||||||||
Interest income not attributable to the Company’s Card Member loan portfolio | (7) | (10) | (24) | (30) | ||||||||||||||||||
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Adjusted net interest income (d) | $ | 178 | $ | 202 | $ | 550 | $ | 599 | ||||||||||||||
Average loans (billions) | $ | 6.9 | $ | 8.3 | $ | 7.0 | $ | 8.3 | ||||||||||||||
Exclude certain non-traditional Card Member loans, and other fees (billions) | (0.1) | (0.2) | (0.1) | (0.2) | ||||||||||||||||||
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Adjusted average loans (billions)(d) | $ | 6.8 | $ | 8.1 | $ | 6.9 | $ | 8.1 | ||||||||||||||
Net interest income divided by average loans | 9.7 | % | 9.1 | % | 10.0 | % | 9.1 | % | ||||||||||||||
Net interest yield on Card Member loans(d) | 10.5 | % | 9.9 | % | 10.7 | % | 9.9 | % | ||||||||||||||
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As of or for the Three Months Ended September 30, | Change 2016 vs. | As of or for the Nine Months Ended September 30, | Change 2016 vs. | |||||||||||||||||||||
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(Millions, except percentages and where indicated) | 2016 | 2015 | 2015 | 2016 | 2015 | 2015 | ||||||||||||||||||
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Card billed business (billions) | ||||||||||||||||||||||||
Proprietary | $ | 26.6 | $ | 25.1 | 6 | % | $ | 77.8 | $ | 75.0 | 4 | % | ||||||||||||
GNS | 44.8 | 40.8 | 10 | 129.1 | 121.0 | 7 | ||||||||||||||||||
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Total | $ | 71.4 | $ | 65.9 | 8 | $ | 206.9 | $ | 196.0 | 6 | ||||||||||||||
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Total cards-in-force | ||||||||||||||||||||||||
Proprietary | 14.8 | 14.5 | 2 | 14.8 | 14.5 | 2 | ||||||||||||||||||
GNS | 48.1 | 46.3 | 4 | 48.1 | 46.3 | 4 | ||||||||||||||||||
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Total | 62.9 | 60.8 | 3 | 62.9 | 60.8 | 3 | ||||||||||||||||||
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Proprietary basic cards-in-force | 10.3 | 9.9 | 4 | 10.3 | 9.9 | 4 | ||||||||||||||||||
Average proprietary basic Card Member spending(dollars) | $ | 2,596 | $ | 2,547 | 2 | $ | 7,665 | $ | 7,591 | 1 | ||||||||||||||
Total segment assets (billions)(a) | $ | 34.4 | $ | 34.5 | — | $ | 34.4 | $ | 34.5 | — | ||||||||||||||
Segment capital (billions) | $ | 2.7 | $ | 3.1 | (13 | ) | $ | 2.7 | $ | 3.1 | (13 | ) | ||||||||||||
Return on average segment capital(b) | 26.4 | % | 21.9 | % | 26.4 | % | 21.9 | % | ||||||||||||||||
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Card Member receivables:(c) | ||||||||||||||||||||||||
Total receivables (billions) | $ | 5.6 | $ | 5.2 | 8 | $ | 5.6 | $ | 5.2 | 8 | ||||||||||||||
Net write-off rate – principal only(d) | 2.0 | % | 2.3 | % | 2.1 | % | 2.1 | % | ||||||||||||||||
Net write-off rate – principal and fees(d) | 2.2 | % | 2.5 | % | 2.3 | % | 2.3 | % | ||||||||||||||||
30+ days past due as a % of total | 1.5 | % | 1.6 | % | 1.5 | % | 1.6 | % | ||||||||||||||||
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Card Member loans:(c) | ||||||||||||||||||||||||
Total loans (billions) | $ | 6.7 | $ | 6.7 | — | $ | 6.7 | $ | 6.7 | — | ||||||||||||||
Average loans (billions) | $ | 6.7 | $ | 6.9 | (3 | )% | $ | 6.8 | $ | 7.0 | (3 | )% | ||||||||||||
Net write-off rate – principal only(d) | 2.1 | % | 1.8 | % | 2.0 | % | 2.0 | % | ||||||||||||||||
Net write-off rate – principal, interest and fees(d) | 2.6 | % | 2.3 | % | 2.5 | % | 2.4 | % | ||||||||||||||||
30+ days past due loans as a % of total | 1.7 | % | 1.6 | % | 1.7 | % | 1.6 | % | ||||||||||||||||
Calculation of Net Interest Yield on Card Member loans: | ||||||||||||||||||||||||
Net interest income | $ | 176 | $ | 173 | $ | 525 | $ | 534 | ||||||||||||||||
Exclude: | ||||||||||||||||||||||||
Interest expense not attributable to the Company’s Card Member loan portfolio | 12 | 14 | 33 | 42 | ||||||||||||||||||||
Interest income not attributable to the Company’s Card Member loan portfolio | — | (6) | (7) | (15) | ||||||||||||||||||||
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Adjusted net interest income (e) | $ | 188 | $ | 181 | $ | 551 | $ | 561 | ||||||||||||||||
Average loans (billions) | $ | 6.7 | $ | 6.9 | $ | 6.8 | $ | 7.0 | ||||||||||||||||
Net interest income divided by average loans | 10.5 | % | 10.1 | % | 10.4 | % | 10.1 | % | ||||||||||||||||
Net interest yield on Card Member loans(e) | 11.2 | % | 10.5 | % | 10.9 | % | 10.7 | % |
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(a) |
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(b) | Return on average segment capital is calculated by dividing (i) one-year period segment income ($ |
(c) | Refer to Table 8 footnote (a). |
(d) | Refer to Table 8 footnote (d). |
Adjusted net interest income |
49 |
Global Commercial Services
Table 14: GCS Selected Income Statement Data
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Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Revenues | ||||||||||||||||||||||||||||||
Non-interest revenues | $ | 858 | $ | 957 | $ | (99) | (10) | % | $ | 2,653 | $ | 3,538 | $ | (885) | (25)% | |||||||||||||||
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Interest income | 3 | 4 | (1) | (25) | 10 | 11 | (1) | (9) | ||||||||||||||||||||||
Interest expense | 44 | 61 | (17) | (28) | 138 | 186 | (48) | (26) | ||||||||||||||||||||||
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Net interest expense | (41) | (57) | (16) | (28) | (128) | (175) | (47) | (27) | ||||||||||||||||||||||
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Total revenues net of interest expense | 817 | 900 | (83) | (9) | 2,525 | 3,363 | (838) | (25) | ||||||||||||||||||||||
Provisions for losses | 38 | 49 | (11) | (22) | 115 | 130 | (15) | (12) | ||||||||||||||||||||||
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Total revenues net of interest expense after provisions for losses | 779 | 851 | (72) | (8) | 2,410 | 3,233 | (823) | (25) | ||||||||||||||||||||||
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Expenses | ||||||||||||||||||||||||||||||
Marketing, promotion, rewards, Card Member services and other | 160 | 161 | (1) | (1) | 480 | 504 | (24) | (5) | ||||||||||||||||||||||
Salaries and employee benefits and other operating expenses | 381 | 381 | — | — | 1,094 | 1,270 | (176) | (14) | ||||||||||||||||||||||
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Total expenses | 541 | 542 | (1) | — | 1,574 | 1,774 | (200) | (11) | ||||||||||||||||||||||
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Pretax segment income | 238 | 309 | (71) | (23) | 836 | 1,459 | (623) | (43) | ||||||||||||||||||||||
Income tax provision | 87 | 105 | (18) | (17) | 302 | 510 | (208) | (41) | ||||||||||||||||||||||
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Segment income | $ | 151 | $ | 204 | $ | (53) | (26) | % | $ | 534 | $ | 949 | $ | (415) | (44)% | |||||||||||||||
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Effective tax rate | 36.6 | % | 34.0 | % | 36.1 | % | 35.0 | % | ||||||||||||||||||||||
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Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
(Millions, except percentages) | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||
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Revenues | ||||||||||||||||||||||||||||||||
Non-interest revenues | $ | 2,240 | $ | 2,217 | $ | 23 | 1 | % | $ | 6,710 | $ | 6,677 | $ | 33 | — | % | ||||||||||||||||
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Interest income | 282 | 297 | (15 | ) | (5 | ) | 913 | 864 | 49 | 6 | ||||||||||||||||||||||
Interest expense | 98 | 91 | 7 | 8 | 297 | 271 | 26 | 10 | ||||||||||||||||||||||||
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Net interest income | 184 | 206 | (22 | ) | (11 | ) | 616 | 593 | 23 | 4 | ||||||||||||||||||||||
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Total revenues net of interest expense | 2,424 | 2,423 | 1 | — | 7,326 | 7,270 | 56 | 1 | ||||||||||||||||||||||||
Provisions for losses | 134 | 148 | (14 | ) | (9 | ) | 433 | 435 | (2 | ) | — | |||||||||||||||||||||
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Total revenues net of interest expense after provisions for losses | 2,290 | 2,275 | 15 | 1 | 6,893 | 6,835 | 58 | 1 | ||||||||||||||||||||||||
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Expenses | ||||||||||||||||||||||||||||||||
Marketing, promotion, rewards, Card Member services and other | 808 | 826 | (18 | ) | (2 | ) | 2,415 | 2,358 | 57 | 2 | ||||||||||||||||||||||
Salaries and employee benefits and other operating expenses | 753 | 712 | 41 | 6 | 2,078 | 2,074 | 4 | — | ||||||||||||||||||||||||
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Total expenses | 1,561 | 1,538 | 23 | 1 | 4,493 | 4,432 | 61 | 1 | ||||||||||||||||||||||||
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Pretax segment income | 729 | 737 | (8 | ) | (1 | ) | 2,400 | 2,403 | (3 | ) | — | |||||||||||||||||||||
Income tax provision | 263 | 269 | (6 | ) | (2 | ) | 873 | 868 | 5 | 1 | ||||||||||||||||||||||
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Segment income | $ | 466 | $ | 468 | $ | (2 | ) | — | % | $ | 1,527 | $ | 1,535 | $ | (8 | ) | (1 | )% | ||||||||||||||
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Effective tax rate | 36.1 | % | 36.5 | % | 36.4 | % | 36.1 | % |
GCS offers globalissues a wide range of proprietary corporate and small business cards and provides payment and expense management services to largeglobally. In addition, GCS provides financing products for qualified merchants.
Non-interest revenues were relatively flat for both the three and mid-sized companies. Our business travel operations, which had been included in GCS, were deconsolidated effective June 30, 2014 in connection with the formation of the GBT JV, discussed previously. Therefore, there is a lack of comparability for the nine months ended September 30, 2015. Our proportional share of2016, compared to the GBT JV netsame periods in the prior year, with billed business increasing 1 percent and 3 percent over the same respective periods, offset by Costco-related revenues in the prior year.
Net interest income is reported within Other revenues.
Non-interest revenues decreased $99$22 million or 1011 percent and $885increased $23 million or 254 percent for the three and nine months ended September 30, 2015,2016, respectively, ascompared to the same periods in the prior year. Both periods reflect Costco-related revenues in the prior year, which were more than offset in the nine-month period by an increase in average Card Member loans (including Card Member loans HFS), partially offset by higher interest expense.
Provisions for losses decreased $14 million or 9 percent and remained relatively flat for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decrease forin the three monththree-month period was driven primarily by a reduction in billed businessdue to improving merchant financing loan credit performance.
Marketing, promotion, rewards, Card Member services and the gain related to the sale of investment securities in Concur Technologies in the prior year. The decrease for the nine month period was driven primarily by the business travel joint venture transaction (resulting in a lack of comparability between periods). Total billed businessother expenses decreased 3$18 million or 2 percent and increased $57 million or 2 percent for the three and nine months ended September 30, 2015, as2016, respectively, compared to the same periods in the prior year. Billed business withinThe decrease in the U.S.three-month period was flatprimarily driven by Costco-related expenses in the prior year, partially offset by higher investment spending in the current year. The increase in thenine-month period was primarily driven by higher Card Member rewards expense, due to higher spending volumes, and increased 2marketing and promotion expense.
50 |
Salaries and employee benefits and other operating expenses increased $41 million or 6 percent and remained relatively flat for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year. Billed business outside the U.S. decreased 10 percent for both the three and nine months ended September 30, 2015, and FX-adjusted billed business outside the U.S. increased 5 percent and 4 percent for the respective periods.5
Net interest expense decreased $16 million or 28 percent and $47 million or 27 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periodsThe increase in the prior year, primarily driven by a lower cost of funds.
5 Refer to footnote 1 on page 39 for details regarding foreign currency adjusted information.
Provisions for losses decreased $11 million or 22 percent and $15 million or 12 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year and FX-adjusted provisions for losses decreased 14 percent and 6 percent, for the respective periods.6 Refer to Table 15 for the charge card net loss ratio as a percentage of charge volume.
Marketing, promotion, rewards, Card Member services and other expenses decreased $1 million or 1 percent and $24 million or 5 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily driven by the prior year reinvestment of a significant portion of the gain from the business travel joint venture transaction in growth initiatives.
Salaries and employee benefits and other operating expenses was flat for the three months and decreased $176 million or 14 percent for the nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted salaries and employee benefits and other operating expenses increased 4 percent and decreased 8 percent, for the respective periods.6 The increase for the three monththree-month period was primarily due to increased spending on incremental growth initiativesa restructuring charge in the current year, which forquarter, and higher operating expenses, including technology development and professional fees. In the nine monthnine-month period, was more thanthese increases were offset by the impact fromgains on the business travel joint venture transaction insales of the second quarter of 2014 (resulting in a lack of comparability between periods).HFS portfolios.
51 |
Table 15: GCS Selected Statistical Information
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As of or for the Three Months Ended September 30, | As of or for the Nine Months Ended September 30, | |||||||||||||||||||||
(Millions, except percentages and where indicated) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||
Card billed business (billions) | $ | 45.0 | $ | 46.5 | (3) | % | $ | 136.6 | $ | 139.6 | (2)% | |||||||||||
Total cards-in-force | 6.9 | 6.9 | — | 6.9 | 6.9 | — | ||||||||||||||||
Basic cards-in-force | 6.9 | 6.9 | — | 6.9 | 6.9 | — | ||||||||||||||||
Average basic Card Member spending (dollars)* | $ | 6,529 | $ | 6,691 | (2) | $ | 19,838 | $ | 19,905 | — | ||||||||||||
Total segment assets (billions)(a) | $ | 19.6 | $ | 20.6 | (5) | $ | 19.6 | $ | 20.6 | (5) | ||||||||||||
Segment capital | $ | 3,595 | $ | 3,826 | (6) | $ | 3,595 | $ | 3,826 | (6) | ||||||||||||
Return on average segment capital (b) | 29.2 | % | 30.3 | % | 29.2 | % | 30.3 | % | ||||||||||||||
Return on average tangible segment capital(b) | 51.4 | % | 56.0 | % | 51.4 | % | 56.0 | % | ||||||||||||||
Card Member receivables: | ||||||||||||||||||||||
Total receivables (billions) | $ | 15.7 | $ | 16.4 | (4) | % | $ | 15.7 | $ | 16.4 | (4)% | |||||||||||
90+ days past billing as a % of total | 0.7 | % | 0.8 | % | 0.7 | % | 0.8 | % | ||||||||||||||
Net loss ratio (as a % of charge volume) | 0.08 | % | 0.09 | % | 0.09 | % | 0.09 | % | ||||||||||||||
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(Millions, except percentages and where indicated) | 2016 | 2015 | 2015 | 2016 | 2015 | 2015 | ||||||||||||||||||
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Card billed business (billions) | $ | 100.1 | $ | 99.5 | 1 | % | $ | 302.8 | $ | 295.4 | 3 | % | ||||||||||||
Total cards-in-force | 13.6 | 15.0 | (9 | ) | 13.6 | 15.0 | (9 | ) | ||||||||||||||||
Basic cards-in-force | 13.6 | 15.0 | (9 | ) | 13.6 | 15.0 | (9 | ) | ||||||||||||||||
Average basic Card Member spending (dollars) | $ | 7,386 | $ | 6,711 | 10 | $ | 20,857 | $ | 19,999 | 4 | ||||||||||||||
Total segment assets (billions)(a) | $ | 46.8 | $ | 45.9 | 2 | $ | 46.8 | $ | 45.9 | 2 | ||||||||||||||
Segment capital (billions) | $ | 7.3 | $ | 6.8 | 7 | $ | 7.3 | $ | 6.8 | 7 | ||||||||||||||
Return on average segment capital (b) | 28.0 | % | 34.1 | % | 28.0 | % | 34.1 | % | ||||||||||||||||
Card Member receivables (billions) | $ | 29.6 | $ | 28.6 | 3 | $ | 29.6 | $ | 28.6 | 3 | ||||||||||||||
Card Member loans (billions) | $ | 9.1 | $ | 10.0 | (9 | ) | $ | 9.1 | $ | 10.0 | (9 | ) | ||||||||||||
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Total receivables - GCP (billions) | $ | 15.8 | $ | 15.7 | — | $ | 15.8 | $ | 15.7 | — | ||||||||||||||
90+ days past billing as a % of total - GCP(d) | 0.8 | % | 0.7 | % | 0.8 | % | 0.7 | % | ||||||||||||||||
Net loss ratio (as a % of charge volume) - GCP | 0.11 | % | 0.08 | % | 0.09 | % | 0.09 | % | ||||||||||||||||
Total receivables - GSBS (billions) | $ | 13.8 | $ | 12.9 | 7 | $ | 13.8 | $ | 12.9 | 7 | ||||||||||||||
Net write-off rate (principal only) - GSBS(e) | 1.3 | % | 1.8 | % | 1.6 | % | 1.9 | % | ||||||||||||||||
Net write-off rate (principal and fees) - GSBS(e) | 1.5 | % | 2.0 | % | 1.8 | % | 2.2 | % | ||||||||||||||||
30+ days past due as a % of total - GSBS | 1.5 | % | 1.6 | % | 1.5 | % | 1.6 | % | ||||||||||||||||
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Total loans - GSBS (billions) | $ | 9.0 | $ | 10.0 | (10 | ) | $ | 9.0 | $ | 10.0 | (10 | ) | ||||||||||||
Average loans - GSBS (billions) | $ | 8.8 | $ | 9.9 | (11 | )% | $ | 8.4 | $ | 9.8 | (14 | )% | ||||||||||||
Net write-off rate (principal only) - GSBS(e) | 1.5 | % | 1.3 | % | 1.4 | % | 1.3 | % | ||||||||||||||||
Net write-off rate (principal, interest and fees) - GSBS(e) | 1.8 | % | 1.5 | % | 1.7 | % | 1.5 | % | ||||||||||||||||
30+ days past due as a % of total - GSBS | 1.1 | % | 1.0 | % | 1.1 | % | 1.0 | % | ||||||||||||||||
Calculation of Net Interest Yield on Card Member loans: | ||||||||||||||||||||||||
Net interest income | $ | 184 | $ | 206 | $ | 616 | $ | 593 | ||||||||||||||||
Exclude: | ||||||||||||||||||||||||
Interest expense not attributable to the | ||||||||||||||||||||||||
Company’s Card Member loan portfolio | 79 | 71 | 231 | 213 | ||||||||||||||||||||
Interest income not attributable to the | ||||||||||||||||||||||||
Company’s Card Member loan portfolio | (28 | ) | (24 | ) | (85 | ) | (65 | ) | ||||||||||||||||
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Adjusted net interest income(f) | $ | 235 | $ | 253 | $ | 762 | $ | 741 | ||||||||||||||||
Average loans including HFS loan portfolios(billions) | $ | 8.8 | $ | 10.0 | $ | 9.8 | $ | 9.8 | ||||||||||||||||
Net interest income divided by average loans | 8.3 | % | 8.3 | % | 8.4 | % | 8.1 | % | ||||||||||||||||
Net interest yield on Card Member loans(f) | 10.6 | % | 10.0 | % | 10.4 | % | 10.1 | % | ||||||||||||||||
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(b) | Return on average segment capital is calculated by dividing (i) one-year period segment income ($ |
(c) | Refer to Table 8 footnote (a). |
(d) | For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. |
(e) | Refer to Table 8 footnote (d). |
(f) | Adjusted net interest income and |
52 |
6 Refer to footnote 1 on page 39 for details regarding foreign currency adjusted information.
Global Network & Merchant Services
Table 16: GNMSGMS Selected Income Statement Data
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | 2016 | 2015 | 2016 vs. 2015 | 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Non-interest revenues | $ | 1,302 | $ | 1,368 | $ | (66) | (5) | % | $ | 3,898 | $ | 4,027 | $ | (129) | (3)% | $ | 1,044 | $ | 1,123 | $ | (79 | ) | (7 | )% | $ | 3,172 | $ | 3,323 | $ | (151 | ) | (5 | )% | |||||||||||||||||||||||||||||
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Interest income | 26 | 14 | 12 | 86 | 69 | 35 | 34 | 97 | — | — | — | — | 1 | 1 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (42) | (68) | 26 | (38) | (143) | (208) | 65 | (31) | (60 | ) | (46 | ) | (14 | ) | 30 | (180 | ) | (154 | ) | (26 | ) | 17 | ||||||||||||||||||||||||||||||||||||||||
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Net interest income | 68 | 82 | (14) | (17) | 212 | 243 | (31) | (13) | 60 | 46 | 14 | 30 | 181 | 155 | 26 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||
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Total revenues net of interest expense | 1,370 | 1,450 | (80) | (6) | 4,110 | 4,270 | (160) | (4) | 1,104 | 1,169 | (65 | ) | (6 | ) | 3,353 | 3,478 | (125 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
Provisions for losses | 14 | 24 | (10) | (42) | 38 | 58 | (20) | (34) | 8 | 8 | — | — | 21 | 22 | (1 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Total revenues net of interest expense after provisions for losses | 1,356 | 1,426 | (70) | (5) | 4,072 | 4,212 | (140) | (3) | 1,096 | 1,161 | (65 | ) | (6 | ) | 3,332 | 3,456 | (124 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Marketing, promotion, rewards, Card Member services and other | 172 | 201 | (29) | (14) | 483 | 634 | (151) | (24) | 55 | 78 | (23 | ) | (29 | ) | 171 | 210 | (39 | ) | (19 | ) | ||||||||||||||||||||||||||||||||||||||||||
Salaries and employee benefits and other operating expenses | 461 | 555 | (94) | (17) | 1,473 | 1,628 | (155) | (10) | 470 | 449 | 21 | 5 | 1,422 | 1,440 | (18 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 633 | 756 | (123) | (16) | 1,956 | 2,262 | (306) | (14) | 525 | 527 | (2 | ) | — | 1,593 | 1,650 | (57 | ) | (3 | ) | |||||||||||||||||||||||||||||||||||||||||||
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Pretax segment income | 723 | 670 | 53 | 8 | 2,116 | 1,950 | 166 | 9 | 571 | 634 | (63 | ) | (10 | ) | 1,739 | 1,806 | (67 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
Income tax provision | 261 | 243 | 18 | 7 | 762 | 707 | 55 | 8 | 212 | 237 | (25 | ) | (11 | ) | 650 | 671 | (21 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Segment income | $ | 462 | $ | 427 | $ | 35 | 8 | % | $ | 1,354 | $ | 1,243 | $ | 111 | 9 % | $ | 359 | $ | 397 | $ | (38 | ) | (10 | )% | $ | 1,089 | $ | 1,135 | $ | (46 | ) | (4 | )% | |||||||||||||||||||||||||||||
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Effective tax rate | 36.1 | % | 36.3 | % | 36.0 | % | 36.3 | % | 37.1 | % | 37.4 | % | 37.4 | % | 37.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||
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GNMSGMS operates a global payments network that processes and settles proprietary and non-proprietary card transactions. GNMSGMS acquires merchants;merchants and provides point-of-sale products, multi-channel marketing programs and capabilities, services and data, leveraging the Company’s global closed-loop network; and provides financing products for qualified merchants. It enters into partnership agreements with third-party card issuers and acquirers to licensenetwork. GMS also operates loyalty coalition businesses in certain countries around the American Express brand and extend the reach of the global network.world.
Non-interest revenues decreased $66$79 million or 57 percent and $129$151 million or 35 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, while FX-adjusted non-interestas a result of Costco-related revenues in the prior year, as well as higher contra-revenues in the current year.
Net interest income increased 1$14 million or 30 percent and 2 percent for the respective periods, primarily driven by higher royalties from our GNS bank partners.7 Billed business was flat and increased 2$26 million or 17 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, while FX-adjusted billed business increased 5 percent and 6 percent for the respective periods.7
Net interest income decreased $14 million or 17 percent and $31 million or 13 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted net interest income decreased 12 percent and 6 percent for the respective periods.7 Thereflecting a higher interest expense credit relatesrelating to internal transfer pricing and funding rates, which resulted in a net benefit for GNMSGMS due to its merchant payables.
7 Refer to footnote 1 on page 39 for details regarding foreign currency adjusted information.
Marketing, promotion, rewards, Card Member services and other expenses decreased $29$23 million or 1429 percent and $151$39 million or 2419 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, primarily driven by higher investment spendingmarketing and promotion expenses related to our loyalty coalition business in the prior year, including the reinvestment of a significant portion of the gain from the business travel joint venture transaction in growth initiatives.year.
Salaries and employee benefits and other operating expenses decreased $94increased $21 million or 175 percent and $155decreased $18 million or 101 percent for the three and nine months ended September 30, 2015,2016, respectively, as compared to the same periods in the prior year, while FX-adjusted salaries and employee benefits and other operating expenses decreased 14 percent and 7 percent foryear. The increase in the respective periods.8 For the three monththree-month period the decrease was primarily driven by a litigation reserve release in prior year. In the nine-month period, this increase was more than offset by growth of $64 million associated with the rejected 2013OptBlue program, which does not entail merchant litigation settlement, and the decrease for the nine month period was primarily due to a prior year restructuring charge.acquirer payments.
53 |
Table 17: GNMSGMS Selected Statistical Information
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(Millions, except percentages and where indicated) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||
Global Worldwide Card billed business (billions) | $ | 258.9 | $ | 258.1 | — | % | $ | 766.5 | $ | 754.3 | 2 % | |||||||||||
Total segment assets (billions) (a) | $ | 23.7 | $ | 18.2 | 30 | $ | 23.7 | $ | 18.2 | 30 | ||||||||||||
Segment capital | $ | 2,529 | $ | 1,981 | 28 | $ | 2,529 | $ | 1,981 | 28 | ||||||||||||
Return on average segment capital (b) | 81.4 | % | 82.6 | % | 81.4 | % | 82.6 | % | ||||||||||||||
Return on average tangible segment capital (b) | 89.5 | % | 91.3 | % | 89.5 | % | 91.3 | % | ||||||||||||||
Global Network Services: | ||||||||||||||||||||||
Card billed business (billions) | $ | 41.1 | $ | 41.6 | (1) | $ | 122.1 | $ | 118.2 | 3 | ||||||||||||
Total cards-in-force | 46.3 | 43.2 | 7 | % | 46.3 | 43.2 | 7 % | |||||||||||||||
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(Millions, except percentages and where indicated) | 2016 | 2015 | 2015 | 2016 | 2015 | 2015 | ||||||||||||||||||
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Loyalty Coalition revenue | $ | 106 | $ | 100 | 6 | % | $ | 304 | $ | 279 | 9 | % | ||||||||||||
Average discount rate | 2.47 | % | 2.46 | % | 2.45 | % | 2.48 | % | ||||||||||||||||
Total segment assets (billions)(a) | $ | 23.2 | $ | 23.3 | — | % | $ | 23.2 | $ | 23.3 | — | % | ||||||||||||
Segment capital(billions) | $ | 2.3 | $ | 2.6 | (12 | )% | $ | 2.3 | $ | 2.6 | (12 | )% | ||||||||||||
Return on average segment capital(b) | 59.9 | % | 66.9 | % | 59.9 | % | 66.9 | % | ||||||||||||||||
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(b) | Return on average segment capital is calculated by dividing (i) one-year period segment income ($ |
Corporate & Other
Corporate functions and certain other businesses, including EGour Prepaid Services business and other operations, are included in Corporate & Other.
Corporate & Other net expense increased to $230 million and decreased to $586$239 million for the three and nine months ended September 30, 2015, respectively, as2016, compared to $185$295 million and $667 million for the three and nine months ended September 30, 2014, respectively. The increase for the three months ended September 30, 2015, and increased to $766 million for the nine months ended September 30, 2016, compared to $764 million for the nine months ended September 30, 2015. The decrease for the three-month period was primarily driven by a $91 millionthe impairment charge related to previously capitalized software development costs primarily within EG,in the prior year, partially offset by restructuring in the current year, and a gainyear. In the nine-month period, this decrease, combined with higher income from our Prepaid Services business, was more than offset by the sale of investment securities in ICBCbenefit in the prior year. The decrease in the nine months ended September 30,first quarter of 2015 reflected a favorable impact from both the reassessment of the functional currency of certain UK legal entities in the first quarter of the current year.and otherFX-related activity.
8 Refer to footnote 1 on page 39 for details regarding foreign currency adjusted information.
Results for both periods disclosed included net interest expense related to maintaining the liquidity pool discussed in “Consolidated Capital Resources and Liquidity – Liquidity Management”, as well as interest expense related to other corporate indebtedness.
54 |
Consolidated Capital Resources and Liquidity
Our balance sheet management objectives are to maintain:
A solid and flexible equity capital profile;
A broad, deep and diverse set of funding sources to finance our assets and meet operating requirements; and
Liquidity programs that enable us to continuously meet expected future financing obligations and business requirements for at least a 12-monthtwelve-month period, even in the event we are unable to continue to raise new funds under our traditional funding programs during a substantial weakening in economic conditions.
Capital Strategy
Our objective is to retain sufficient levels of capital generated through earnings and other sources to maintain a solid equity capital base and to provide flexibility to support future business growth. We believe capital allocated to growing businesses with a return on risk-adjusted equity in excess of our costs will generate shareholder value.
The level and composition of our consolidated capital position are determined through our internal capital adequacy assessment process, which takes into account our business activities, as well as marketplace conditions and requirements or expectations of credit rating agencies, regulators and shareholders, among others. Our consolidated capital position is also influenced by subsidiary capital requirements. As a bank holding company, we are also subject to regulatory requirements administered by the U.S. federal banking agencies. The Federal Reserve has established specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items.
We report our capital ratios using the Basel III capital definitions, inclusive of transition provisions, and the Basel III Standardized Approach for calculating risk-weighted assets (see section on Transitional Basel III). The Basel III standards will be fully phased-in by January 1, 2019 (see section on Fully Phased-in Basel III).
We also report capital adequacy standards on a parallel basis to regulators under Basel requirements for Advanced Approaches institutions. The parallel period will continue until we receive regulatory approval to exit parallel reporting and subsequently begin publicly disclosing regulatory risk-based capital ratios using both the Standardized and Advanced Approaches.
Transitional Basel III
The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank subsidiaries, American Express Centurion Bank (AECB) and American Express Bank, FSB (FSB), as well as additional ratios widely utilized in the marketplace, as of September 30, 2015. Definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance, are found in the ‘Consolidated Capital Resources and Liquidity Section’ of American Express’ 2014 Annual Report.2016.
Table 18: Regulatory Risk-Based Capital and Leverage Ratios
Basel III Standards 2016(a) | Ratios as of September 30, 2016 | |||||||||
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Risk-Based Capital | ||||||||||
Common Equity Tier 1 | % | |||||||||
American Express | 13.6 | % | ||||||||
| 17.0 | |||||||||
| 17.5 | |||||||||
Tier 1 | 6.6 | |||||||||
American Express | 14.9 | |||||||||
| 17.0 | |||||||||
| 17.5 | |||||||||
Total | ||||||||||
American Express | 16.6 | |||||||||
| 18.3 | |||||||||
| 18.7 | |||||||||
Tier 1 Leverage | 4.0 | |||||||||
American Express | 11.9 | |||||||||
| 15.9 | |||||||||
| 13.6 | |||||||||
Supplementary Leverage Ratio(b) | 3.0 | % | ||||||||
American Express | 10.3 | |||||||||
| 12.5 | |||||||||
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% |
(a) | Transitional Basel III minimum capital requirement and additional capital conservation buffer as defined by the Federal Reserve for calendar year |
(b) | The minimum supplementary leverage ratio (SLR) requirement of 3 percent is effective January 1, 2018. |
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Table 19: Regulatory Risk-Based Capital Components and Risk Weighted Assets
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($ in Billions) | | September 30, 2016 | | |
Risk-Based Capital | ||||
Common Equity Tier 1 | $ | 16.8 | ||
Tier 1 Capital | 18.4 | |||
Tier 2 Capital(a) | 2.1 | |||
Total Capital | 20.5 | |||
Risk Weighted Assets | 123.6 | |||
Average Total Assets to calculate the Tier 1 Leverage Ratio | 154.2 | |||
Total Leverage Exposure to calculate SLR | $ | 178.7 |
(a) | Tier 2 capital is the sum of the allowance for receivable and loan losses (limited to 1.25 percent of risk-weighted assets) |
We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements and finance such capital in a cost efficient manner; failure to maintain minimum capital levels could affect our status as a financial holding company and cause the respective regulatory agencies with oversight of American Express, AECB and FSB to take actions that could limit our business operations.
Our primary source of equity capital has been the generation of net income. Historically, capital generated through net income and other sources, such as the exercise of stock options by employees, has exceeded the annual growth in our capital requirements. To the extent capital has exceeded business, regulatory and rating agency requirements, we have historically returned excess capital to shareholders through our regular common share dividend and share repurchase program.
We maintain certain flexibility to shift capital across our businesses as appropriate. For example, we may infuse additional capital into subsidiaries to maintain capital at targeted levels in consideration of debt ratings and regulatory requirements. These infused amounts can affect the capital profile and liquidity levels at the American Express parent company level. We do not currently intend or foresee a need to shift capital from non-U.S. subsidiaries with permanently reinvested earnings to a U.S. parent company.
The following are definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance:
Risk-Weighted Assets — Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. Off-balance sheet exposures comprise a minimal part of the total risk-weighted assets.
Common Equity Tier 1 Risk-Based Capital Ratio— Calculated as Common Equity Tier 1 capital (“CET1”), divided by risk-weighted assets. CET1 is the sum of common shareholders’ equity, adjusted for ineligible goodwill and intangible assets, certain deferred tax assets, as well as certain other comprehensive income items as follows: net unrealized gains/losses on securities and derivatives, and net unrealized pension and other postretirement benefit/losses, all net of tax and subject to transition provisions.
Tier 1 Risk-Based Capital Ratio — Calculated as Tier 1 capital divided by risk-weighted assets. Tier 1 capital is the sum of CET1, our perpetual preferred stock and third-party non-controlling interests in consolidated subsidiaries adjusted for capital to be held by insurance subsidiaries and deferred tax assets from net operating losses not deducted from CET1.
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Total Risk-Based Capital Ratio — Calculated as the sum of Tier 1 capital and Tier 2 capital, divided by risk-weighted assets. Tier 2 capital is the sum of the allowance for receivable and loan losses (limited to 1.25 percent of risk-weighted assets), a portion of the unrealized gains on equity securities, and $600 million of subordinated notes adjusted for capital held by insurance subsidiaries.
Tier 1 Leverage Ratio — The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by our average total consolidated assets for the most recent quarter. Average total consolidated assets as of September 30, 2016 were $154.2 billion.
Supplementary Leverage Ratio — The supplementary leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure under Basel III. Leverage exposure, which reflects average total consolidated assets with adjustments for Tier 1 capital deductions, average off-balance sheet derivatives exposures, securities purchased under agreements to resell and credit equivalents of undrawn commitments that are both conditionally and unconditionally cancellable. Total leverage exposure for supplementary leverage ratio purposes as of September 30, 2016 was $178.7 billion.
Fully Phased-in Basel III
Basel III, when fully phased-in, will require bank holding companies and their bank subsidiaries to maintain more capital than prior requirements, with a greater emphasis on common equity. The following table presents our estimates for our regulatory risk-based capital ratios and leverage ratios had Basel III been fully phased-in during the nine months endedas of September 30, 2015.2016. These ratios are calculated using the Standardized Approach for determining risk-weighted assets. As noted previously, we are currently taking steps toward Basel III Advanced Approaches implementation in the U.S.United States. We believe the presentation of these ratios is helpful to investors by showing the impact of future regulatory capital standards on our capital and leverage ratios.
Table 20: Estimated Fully Phased-in Basel III Capital and Leverage Ratios
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($ in Billions) | | September 30, 2016 | | |
Estimated Common Equity Tier 1 Ratio under Fully Phased-In Basel III(a) | 13.1 | % | ||
Estimated Tier 1 Capital Ratio under Fully Phased-In Basel III(a) | 14.3 | |||
Estimated Tier 1 Leverage Ratio under Fully Phased-In Basel III(b) | 11.6 | |||
Estimated Supplementary Leverage Ratio under Fully Phased-In Basel III | 10.0 | % | ||
Estimated Risk-Weighted Assets under Fully Phased-In Basel III(c) | $ | 124.7 | ||
Estimated Average Total Assets to calculate the Tier 1 Leverage Ratio(b) | 154.0 | |||
Estimated Total Leverage Exposure to calculate SLR under Fully Phased-In Basel III(d) | $ | 178.4 |
(a) | The Fully Phased-in Basel III Common Equity Tier 1 and Tier 1 risk-based capital ratios, non-GAAP measures, are calculated as Common Equity Tier 1 or Tier 1 capital under Fully Phased-in Basel III rules, as applicable, divided by risk-weighted assets under Fully Phased-in Basel III rules. Refer to Table 21 for a reconciliation of Common Equity Tier 1 and Tier 1 capital under Fully Phased-in Basel III rules to Common Equity Tier 1 and Tier 1 capital under Transitional Basel III rules. |
(b) | The Fully Phased-in Basel III Tier 1 and supplementary leverage ratios, non-GAAP measures, are calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total assets and Fully Phased-in total leverage exposure for supplementary leverage ratio purposes under Fully Phased-in Basel III, respectively. |
(c) | Estimated Fully Phased-in Basel III risk-weighted assets, a non-GAAP measure, reflect our Basel |
(d) | Estimated Fully Phased-in Basel III Leverage Exposure, a non-GAAP measure, reflects average total consolidated assets with adjustments for Tier 1 capital deductions on a fully phased-in basis, off-balance sheet derivatives, undrawn conditionally and unconditionally cancellable commitments and other off-balance sheet liabilities. |
The Basel capital standards establish minimum requirements for the Tier 1 risk-based capital ratios that are 1.5%1.5 percent higher than the minimum requirements for Common Equity Tier 1CET1 risk-based capital ratios. This difference between Tier 1 capital, which includes common equity and qualifying preferred securities, and Common Equity Tier 1CET1 is also present in the minimum capital requirements within Comprehensive Capital Analysis and Review (CCAR).
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We issued $750 million$1.6 billion of preferred shares in the fourth quarter of 2014 and $850 million in the first quarter of 2015. The preferred shares issuancesto help to finance a portion of the Tier 1 capital requirements in excess of common equity requirements.
Our $750 million of subordinated debentures, which prior to 2014, were fully included in Tier 2 capital (but not in Tier 1 capital), do not meet the requirements of Tier 2 capital under Basel III. The phase-out of the subordinated debentures from Tier 2 capital began in the first quarter of 2014, which affects our total risk-based capital ratio. At our option, the subordinated debentures are redeemableIII and thus were redeemed for cash on or after September 1, 2016 at 100 percent of the principal amount plus any accrued but unpaid interest. We currently intend to exercise this redemption option, subject to business and market conditions.outstanding. As previously mentioned, we issued $600 million of subordinated debt in the fourth quarter of 2014,notes, which qualifiesqualify as Tier 2 capital under Basel rules. Our total risk-based capital ratio is expected to remain well in excess of the required minimum.
The following table presents a comparison of our Common Equity Tier 1 and Tier 1 risk-based capital under Transitional Basel III rules to our estimated Common Equity Tier 1 and Tier 1 risk-based capital under Fully Phased-in Basel III rules as of September 30, 2015.2016.
Table 21: Transitional Basel III versus Fully Phased-in Basel III
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(Billions) | CET 1 | Tier 1 | CET 1 | Tier 1 | ||||||||||
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Risk-Based Capital under Transitional Basel III | $ | 17.1 | $ 18.7 | $ | 16.8 | $ | 18.4 | |||||||
Adjustments related to: | ||||||||||||||
AOCI | (0.2) | (0.2) | (0.2 | ) | (0.2 | ) | ||||||||
Transition provisions for intangible assets | (0.5) | (0.5) | (0.3 | ) | (0.3 | ) | ||||||||
Deferred tax assets | (0.1) | (0.1) | ||||||||||||
Other | — | — | — | — | ||||||||||
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Estimated Common Equity Tier 1 (CET1) and Tier 1 Risk-Based Capital under Fully Phased-in Basel III | $ | 16.3 | $ 17.9 | $ | 16.3 | $ | 17.9 | |||||||
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Fully Phased-in Basel III Risk-Weighted Assets — Reflects our Basel III risk-weighted assets, with all transition provisions fully phased in. This includes incremental risk weighting applied to deferred tax assets and significant investments in unconsolidated financial institutions, as well as exposures to past due accounts, equities and sovereigns.
Fully Phased-in Basel III Tier 1 Leverage Ratio — Calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total consolidated assets.
Fully Phased-in Basel III Supplementary Leverage Ratio— Calculated by dividing Fully Phased-in Basel III Tier 1 capital by our Fully Phased-in total leverage exposure for supplementary leverage ratio purposes under Fully Phased-in Basel III.
Share Repurchases and Dividends
We have a share repurchase program to return excess capital to common shareholders.shareholders through dividends and share repurchases. The share repurchases reduce common shares outstanding and more than offset in whole or part, the issuance of new shares as part of employee compensation plans.
During the three and nine months ended September 30, 2015,2016, we returned $1.7$0.9 billion and $4.1$4.2 billion, respectively, to our shareholders in the form of common stock dividends ($0.3 billion and $0.8 billion, respectively) and share repurchases ($1.40.6 billion and $3.3$3.4 billion, respectively). We repurchased 17.88.8 million common shares at an average price of $76.47$64.39 in the third quarter of 2015.2016. These dividend and share repurchase amounts collectively represent approximately 12675 percent and 9592 percent of total capital generated during the three and nine monthnine-month periods, respectively, which was above our on average and over time target to distribute approximately 50 percent of the capital to shareholders as dividends or through the repurchases of common stock. These distribution percentages result from the strength of our capital ratios and the amount of capital we generate from net income and through employee stock plans in relation to the amount of capital required to support our organic business growth and acquisitions.respectively.
In addition, during the three months ended September 30, 2015, there were2016, we had $750 million of non-cumulative perpetual preferred shares (the “Series B Preferred Shares”) and $850 million of non-cumulative perpetual preferred shares (the “Series C Preferred Shares”) outstanding. Dividends declared and paid on Series C Preferred Shares dividend declared during the third quarter was $22.3of 2016 were $21 million. For additional information on the Company’s preferred shares refer to Note 17 “Common and Preferred Shares” of the 2014 Annual Report and Note 15 “Earnings per Common Share (EPS); Preferred Shares” of this Form 10-Q.
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Funding Strategy
Our principal funding objective is to maintain broad and well-diversified funding sources to allow us to meet our maturing obligations, cost-effectively finance current and future asset growth in our global businesses as well as to maintain a strong liquidity profile. The diversity
Summary of funding sources by typeConsolidated Debt
We had the following consolidated debt and customer deposits outstanding as of instrument, by maturitySeptember 30, 2016, and by investor base, among other factors, provides additional insulation from the impact of disruptions in any one type of instrument, maturity or investor. The mix of our funding in any period will seek to achieve cost efficiency consistent with both maintaining diversified sources and achieving our liquidity objectives. Our funding strategy and activities are integrated into our asset-liability management activities. We have in place a funding policy covering American Express Company and all of our subsidiaries.
Table 22: Consolidated Debt
Our proprietary card businesses are the primary asset-generating businesses, with significant assets in both domestic and international Card Member receivable and lending activities. Our financing needs are in large part a consequence of our proprietary card-issuing businesses and the maintenance of a liquidity position to support all of our business activities, such as merchant payments. We generally pay merchants for card transactions prior to reimbursement by Card Members and therefore fund the merchant payments during the period Card Member loans and receivables are outstanding. We also have additional financing needs associated with general corporate purposes, including acquisition activities.
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(Billions) | | September 30, 2016 | | | December 31, 2015 | | ||
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Short-term borrowings | $ | 2.9 | $ | 4.8 | ||||
Long-term debt | 44.9 | 48.1 | ||||||
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Total debt | 47.8 | 52.9 | ||||||
Customer deposits | 53.5 | 55.0 | ||||||
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Total debt and customer deposits | $ | 101.3 | $ | 107.9 | ||||
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Management does not currently expect to make any significant changes to our funding programs in order to satisfy Basel III’s liquidity coverage ratioLiquidity Coverage Ratio (LCR) standard based upon our current understanding of the requirements, which may be subject to change as we receive additional clarification and implementation guidance from regulators relating to the requirements and as the interpretation of requirements evolves over time.
During the three months ended September 30, 2015, we issued (i) $1.0 billion of asset-backed securities from American Express Credit Account Master Trust (the Lending Trust) with a maturity of two years consisting of $1.0 billion of Class A Certificates at a rate of 1-month LIBOR plus 29 basis points, (ii) $1.4 billion of senior unsecured notes from American Express Credit Corporation with a maturity of three years consisting of $900 million of fixed-rate senior notes with a coupon of 1.8 percent and $500 million of floating-rate senior notes at a rate of 3-month LIBOR plus 61 basis points, and (iii) $2.0 billion of senior unsecured notes from American Express Credit Corporation with a maturity of five years consisting of $1.5 billion of fixed-rate senior notes with a coupon of 2.6 percent and $500 million of floating-rate senior notes at a rate of 3-month LIBOR plus 105 basis points.
Our equity capital and funding strategies are designed, among other things, to maintain appropriate and stable unsecured debt ratings from the major credit rating agencies: Moody’s Investor Services (Moody’s), Standard & Poor’s (S&P), Fitch Ratings (Fitch) and Dominion Bond Rating Services (DBRS). Such ratings help support our access to cost-effective unsecured funding as part of our overall funding strategy. Our asset-backed securitization (ABS) activities are rated separately.
Table 22:23: Unsecured Debt Ratings
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Credit Agency | American Express Entity | Short-Term Ratings
| Long-Term Ratings
| Outlook | ||||
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DBRS | All rated entities | R-1 (middle) | A (high) | Stable | ||||
Fitch | All rated entities | F1 | ||||||
Moody’s | TRS and rated operating subsidiaries(a) | A2 | Stable | |||||
Moody’s | American Express Company | A3 | Stable | |||||
S&P | TRS and rated operating subsidiaries (a)(b) | A-2 | A- | Stable | ||||
S&P | American Express Company | A-2 | BBB+ | Stable | ||||
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(a) | American Express Travel Related Services Company, Inc. |
(b) | S&P does not provide a rating for TRS short-term debt. |
Downgrades in the ratings of our unsecured debt or asset securitization program securities could result in higher funding costs, as well as higher fees related to borrowings under our unused lines of credit. Declines in credit ratings could also reduce our borrowing capacity in the unsecured debt and asset securitization capital markets. We believe our funding mix including the proportion of U.S. retail deposits insured by the Federal Deposit Insurance Corporation (FDIC), should reduce the impact that credit rating downgrades would have on our funding capacity and costs.
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Deposit Programs
We offer deposits within our American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (FSB) subsidiaries (together, the Banks). These funds are currently insured up to $250,000 per account holder through the FDIC. Our ability to obtain deposit funding and offer competitive interest rates is dependent on the Banks’ capital levels. We, through the FSB, have a direct retail deposit program, Personal Savings from American Express, to supplement our distribution of deposit products sourced through third-party distribution channels. The direct retail program makes FDIC-insured certificates of deposit (CDs) and high-yield savings account products available directly to consumers.
We held the following deposits as of September 30, 20152016 and December 31, 2014:2015:
Table 23:24: Customer Deposits
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| September 30, | December 31, | |||||||||||||||
(Billions) | September 30, 2015 | December 31, 2014 | 2016 | 2015 | ||||||||||||||
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U.S. retail deposits: | ||||||||||||||||||
Savings accounts — Direct | $ | 28.2 | $ 26.2 | $ | 30.7 | $ | 29.0 | |||||||||||
Certificates of deposit:(a) | ||||||||||||||||||
Direct | 0.3 | 0.3 | 0.3 | 0.3 | ||||||||||||||
Third-party | 11.1 | 7.8 | ||||||||||||||||
Sweep accounts — Third-party | 8.9 | 9.0 | ||||||||||||||||
Third-party (brokered) | 12.9 | 13.9 | ||||||||||||||||
Sweep accounts — Third-party (brokered) | 8.9 | 10.9 | ||||||||||||||||
Other retail deposits: | ||||||||||||||||||
Non-U.S. deposits and U.S. non-interest bearing | 0.2 | 0.2 | 0.1 | 0.2 | ||||||||||||||
Card Member credit balances - U.S. and non-U.S. | 0.6 | 0.7 | 0.6 | 0.7 | ||||||||||||||
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Total customer deposits | $ | 49.3 | $ 44.2 | $ | 53.5 | $ | 55.0 | |||||||||||
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(a) The weighted average remaining maturity and weighted average rate at issuance on the total portfolio of U.S. retail CDs, issued through direct and third-party programs, were 30.1 months and 1.66 percent, respectively, as of September 30, 2015. |
(a) | The weighted average remaining maturity and weighted average rate at issuance on the total portfolio of U.S. retail CDs, issued through direct and third-party programs, were 23.8 months and 1.93 percent, respectively, as of September 30, 2016. |
Asset Securitization Programs
We periodically securitize Card Member receivablesloans and loansreceivables arising from our card business, as the securitization market provides us with cost-effective funding. Securitization of Card Member receivablesloans and loansreceivables is accomplished through the transfer of those assets to a trust, which in turn issues securities collateralized by the transferred assets to third partythird-party investors. The proceeds from issuance are distributed to us, through our wholly owned subsidiaries, as consideration for the transferred assets.
The receivablesloans and loansreceivables being securitized are reported as Card Member receivablesloans and loansreceivables on our Consolidated Balance Sheets, and the related securities issued to third-party investors are reported as long-term debt.
Under the respective terms of the securitization trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each trust could result in payment of trust expenses, establishment of reserve funds, or in a worst-case scenario, early amortization of investordebt securities. During the ninethree months ended September 30, 2015,2016, no such triggering events occurred.
Liquidity Management
We incur liquidity risk that arises in the course of offering our products and services. Our liquidity objective is to maintain access to a diverse set of on- and off-balance sheet liquidity sources. We seek to maintain liquidity sources, in amounts sufficient to meet business requirements and expected future financial obligations for a period of at least twelve monthseven in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions. We haveconditions, in placeamounts sufficient to meet our expected future financial obligations and our businesses’ requirements for liquidity for a period of at least twelve months. Our liquidity risk policy that sets out our objectives and approach to managing liquidity risk on an enterprise-wide basis.
We incur and accept liquidity risk arising in the normal course of offering our products and services. The liquidity risks that we are exposed to cancould arise from a wide variety of sources, and thus ourscenarios. Our liquidity management strategy thus includes a varietynumber of parameters, assessments and guidelines,elements, including, but not limited to:
Maintaining diversified funding sources (refer to the “Funding Strategy” section for more details); Maintaining unencumbered liquid assets and off-balance sheet liquidity sources; Projecting cash inflows and outflows under a variety of economic and market scenarios; Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements; Incorporating liquidity risk management as appropriate into our capital adequacy framework. |
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We seek to maintain access to a diverse setThe amount and type of liquidity sources, including cash and other liquid assets on-balance sheet as well as off-balance sheet financing such as committed bank credit facilities and ABS conduit facilities, in order to comply with requirementsresources we maintain can vary over time, based upon the results of stress scenarios required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and other regulatory measures of liquidity, such as the LCR. We, through our U.S. bank subsidiaries, also hold collateral eligible for use at the Federal Reserve’s discount window.
We seek to satisfy the requirements of a variety of stress scenarios, including those required by law and regulationLCR, as well as our own stress scenario, in order to determine the amount and mix of the liquidity sources we maintain at any given time. Theseadditional stress scenarios possess distinct characteristics and vary by cash flow assumptions, time horizon and qualifyingrequired under our liquidity sources, among other factors. Our own stress scenarios include market-wide and firm-specific liquidity events.risk policy. The LCR is another stress scenario that prescribes distinct cash flow assumptions over a 30-day period, and establishes criteria for qualifying High-Quality Liquid Assets. During the nine months ended September 30, 2015, the Company was in compliance with the liquidity requirements to which it is subject, including the LCR.
In addition to satisfying internal and regulatory liquidity buffer requirements, we consider various factors in determiningLCR, for the amount of liquidity we maintain, such as economic and financial market conditions, seasonality in business operations, growth in our businesses, potential acquisitions or dispositions, the cost and availability of alternative liquidity sources, and regulatory and credit rating agency considerations.three months ended September 30, 2016.
The yieldinvestment income we receive on ourliquidity resources, such as cash, and readily marketable securities is generally, less than the interest expense on the sources of funding for these balances. Thus, we incur substantialThe net interest costs onto maintain these amounts.resources have been substantial. The level of future net interest costs will be dependentdepends on the sizeamount of our cashliquidity resources we maintain and readily marketable securities holdings, as well as the difference between our cost of funding these amounts and their investment yields.
Securitized Borrowing Capacity
As of September 30, 2015,2016, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2018, that gives us the right to sell up to $3.0 billion face amount of eligible AAA notes from the American Express Issuance Trust II (the Charge Trust).Trust. We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 15, 2017,17, 2018, that gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the Lending Trust. On September 12, 2016, we extended the Lending Trust’s $2.0 billion facility by one year to mature on September 17, 2018. Both facilities are used in the ordinary course of business to fund seasonal working capital needs, as well as to further enhance our contingent funding resources. As of September 30, 2015, a de minimis amount2016, $2.2 billion was drawn on the Charge Trust facility, which was subsequently repaid on October 15, 2015.facility. No amounts were drawn on the Lending Trust facility.
Federal Reserve Discount Window
As insured depository institutions, the Banks may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying collateral that they may pledge. The Federal Reserve has indicated that both credit and charge card receivables are a form of qualifying collateral for secured borrowings made through the discount window. Whether specific assets will be considered qualifying collateral and the amount that may be borrowed against the collateral, remain at the discretion of the Federal Reserve.
We had approximately $58.1$54.9 billion as of September 30, 20152016 in U.S. credit card loans and charge card receivables that could be sold over time through our existing securitization trusts or pledged in return for secured borrowings to provide further liquidity, subject in each case to applicable market conditions and eligibility criteria.
Committed Bank Credit Facilities
In addition to the secured borrowing facilities described earlier in this section, we maintained a committed syndicated bank credit facility as of September 30, 20152016 of $3.0 billion, which expires on April 23, 2017. OnDecember 9, 2018. As of September 25, 2015,30, 2016, no amounts were drawn on this facility.
Certain Other Off-Balance Sheet Arrangements
As of September 30, 2016, we repaid all outstanding loans on our Australian dollarhad approximately $239 billion of unused credit facilityavailable to Card Members as part of established lending product agreements. Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set limit, and terminated the facilitytherefore are not reflected in accordance with our rightunused credit available to terminate prior to the termination date.Card Members.
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Cash Flows
The following table summarizes our cash flow activity for the nine months ended September 30:
Table 24:25: Cash Flows
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For the nine months ended September 30,(Billions) | 2015 | 2014 | ||||||||||||
(Billions) | 2016 | 2015 | ||||||||||||
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Total cash provided by (used in): | ||||||||||||||
Operating activities | $ | 8.1 | $ 8.6 | $ | 4.9 | $ | 7.8 | |||||||
Investing activities | (2.7) | (3.0) | 10.1 | (2.7 | ) | |||||||||
Financing activities | (7.5) | (3.7) | (11.2 | ) | (7.3 | ) | ||||||||
Effect of foreign currency exchange rates on cash and cash equivalents | (0.2) | (0.1) | ||||||||||||
Effect of foreign currency exchange rates on cash and cash equivalents and other | — | (0.2 | ) | |||||||||||
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Net (decrease) increase in cash and cash equivalents | $ | (2.4) | $ 1.8 | |||||||||||
Net increase in cash and cash equivalents | $ | 3.8 | $ | (2.4 | ) | |||||||||
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Cash Flows from Operating Activities
Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income and (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.
For the nine months ended September 30, 20152016 and 2014,2015, net cash provided by operating activities was $8.1$4.9 billion and $8.6$7.8 billion, respectively, driven by in both periods, net income of $4.3$4.6 billion and $4.4$4.3 billion, respectively, adjusted for non cashnon-cash items including certain changes in provisions for losses, depreciation and amortization, deferred taxes, and stock-based compensation. The decrease in the current period as compared tonet income includes the nine months ended September 30, 2014,$1.2 billion gain on the sales of the HFS portfolios, which is presented in Net decrease (increase) in Card Member receivables and loans, including held for sale, within cash flows from investing activities. The decrease was also driven primarily resultedby impacts from movements in Other assets and Accounts payable and Other liabilities as a result of normal business operating activities, and primarily driven by changes in merchant payable volumes.activities.
Cash Flows from Investing Activities
Our cash flows from investing activities primarily include changes in Card Member receivables and loans, including Card Member loans and receivables HFS, along with gains on sales related thereto, as well as changes in our available for sale investment securities portfolio.
For the nine months ended September 30, 20152016, and 2014,2015, net cash used inprovided by (used in) investing activities was $2.7$10.1 billion and $3.0$(2.7) billion, respectively. The decreaseincrease in the current period, as compared to the nine months ended September 30, 2014,2015, was primarily driven by a comparative decrease in Card Member receivables and loans, offset by higher restricted cash related to upcoming maturitiesthe sales of long term debt in the American Express Credit Account Master Trust.HFS portfolios.
Cash Flows from Financing Activities
Our cash flows from financing activities primarily include issuing and repaying debt, changes in customer deposits, issuing and repurchasing our common shares, and paying dividends.
For the nine months ended September 30, 20152016, and 2014,2015, net cash used in financing activities was $7.5$11.2 billion and $3.7$7.3 billion, respectively. The variance was primarily driven by a higher net increase in the current period, as compared to the nine months ended September 30, 2015, primarily resulted from a net decrease in short-term borrowings and customer deposits, partially offset by higherlower net repayments of long-term debt repayments in the current year, versusas compared to the same period in the prior year.
Certain Other Off-Balance Sheet Arrangements
As of September 30, 2015, we had approximately $289 billion of unused credit available to Card Members as part of established lending product agreements. Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set limit, and therefore are not reflected in unused credit available to Card Members.
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OTHER MATTERS
Certain Legislative, Regulatory and Other Developments
As a participant in the financial services industry, and as a bank holding company, we are subject to comprehensive examination and supervision by the Federal Reserve and to a range of laws and regulations that impact our business and operations. In light of legislative initiatives over the last several yearscurrent environment of additional regulation, enhanced supervision efforts and continuingincreased regulatory reform implementation,investigations and enforcement, compliance requirements and expenditures have risen for financial services firms, including us, and we expect compliance requirements and expenditures will continue to rise in the future.
In addition, legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust actions, legislation and rules that would or do impose changes onto change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, the establishment ofin some cases, to establish broad and ongoing regulatory oversight regimes for payment systems. Regulators and legislators have focused on the fees merchants pay to accept cards, including the way bankcard network members collectively set the “interchange” (that is, the fee paid by the bankcard merchant acquirer to the card issuer in payment networks like Visa and MasterCard) and the fees merchants are charged for card acceptance,, as well as the rules, contract terms and practices governing merchant card acceptance. Although, unlike the Visa and MasterCard networks, the American Express network does not have interchange fees or collectively set fees or rules, antitrust actions and government regulation relating to merchant pricing or terms of merchant rules and contracts could affect all networks directly or indirectly.indirectly , as well as adversely impact consumers and merchants. Among other things, lower interchange and/or merchant discount revenue may lead card issuers to look for other sources of revenue from consumers such as higher annual card fees or interest charges, as well as to reduce costs by scaling back or eliminating rewards, services or benefits to cardholders and merchants. Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to be locally licensed and/or to localize aspects of their operations.operations, such as processing infrastructure, which could increase our costs and diminish the value of our closed loop. The development and enforcement of payment system regulatory regimes generally continue to grow and may adversely affect our ability to compete effectively and maintain or increase our revenues and extend our global network.
In certain countries, such as Australia and certain Member States in the EU, merchants are permitted by law to surcharge card purchases. While surcharging continues to be actively considered in certain jurisdictions, the benefits to customers have not been apparent in countries that have allowed it, and in some cases regulators are addressing concerns about excessive surcharging by merchants. Surcharging, particularly where it disproportionately impacts American Express Card Members, which is known as differential surcharging, as well as other steering practices that are permitted by regulation in some countries could have a material adverse effect on us if it becomes widespread. The Reserve Bank of Australia allows us and other networks to limit a merchant’s right to surcharge to “the reasonable cost of card acceptance.” As discussed below, the Reserve Bank of Australia recently amended its rules to limit surcharging in Australia to the merchant’s actual cost of card acceptance. In the EU, in those Member States that permit surcharging, the Consumer Rights Directive prohibits merchants from surcharging card purchases more than the cost of acceptance.
On June 23, 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit,” which has caused and may continue to cause significant volatility in capital and currency markets worldwide. The full impact of Brexit, however, remains uncertain. A process of negotiation, which is likely to take two years or longer, will determine the future terms of the U.K.’s relationship with the European Union. It is unclear at this stage what financial, trade and legal implications the withdrawal of the U.K. from the European Union would have and how such withdrawal would affect us.
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European Union Payments Legislation
In July 2013,2015, the European Commission proposedUnion adopted legislation in two parts, covering a wide range of topics across the payments industry. The first part was a proposedan EU-wide regulation on interchange fees (the Interchange Fee Regulation); the second consisted of revisions to the Payment Services Directive (the PSD2).
The Interchange Fee Regulation was formally adopted in April 2015. The substantive terms as adopted include the following:
Price caps – Interchange fees on consumer card transactions in the EU are capped as of December 2015, generally at 20 basis points for debit Card acceptance terms –“Anti-steering” and honor-all-cards rules across all card networks, including non-discrimination and honor-all-cards provisions in our card acceptance agreements, are prohibited with some exceptions. Removal of these provisions creates significant risk of customer confusion and Card Member dissatisfaction, which would result in harm to the American Express brand. The prohibition on “anti-steering rules” took effect immediately upon effectiveness of the regulation; the prohibition on honor-all-cards rules took effect in June 2016. Network licensing – In December 2015, the geographic scope of the network licenses that we agree to with our GNS partners in the EU was amended to cover the entire EU in order to meet the requirements of the regulation. This allows GNS partners to actively pursue their American Express business throughout the EU, including countries where we or other GNS partners are present, and may undermine the value of licenses granted to some GNS partners to date, which have been subject to varying levels of exclusivity to incentivize development of the American Express business in relation to a particular country. Separation of network processing – From June 2016, card networks are required to separate their network processing functions (in which transactions between different issuers and acquirers are processed for authorization, clearing and settlement). This provision does not generally apply to “three party” payment networks, such as American Express, but may be deemed applicable, for example, where a different GNS issuer and acquirer is involved in a transaction, which represent a very small percentage of transactions on our network. Co-badging of cards – From June 2016, a single card may bear the brand of multiple networks and be used to process transactions on any of those networks. Merchants may install automatic mechanisms in point-of-sale equipment to prioritize selection of a particular network, subject to override by the cardholder. These provisions may harm the American Express brand insofar as GNS issuing partners will be able to offer multiple networks on a single card and merchants may program their point-of-sale equipment to prioritize selection of another network on such cards. |
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On October 8, 2015, the European Parliament formally adopted the PSD2. Following the European Parliament’s vote, the PSD2 will be formally adopted by the EU Council of Ministers. The PSD2 will then bewas adopted on November 25, 2015, and was published in the Official Journal of the EU, at which point eachEuropean Union on December 23, 2015. Each Member State will have two yearshas until January 2018 to transpose the PSD2 into national law.
Among other terms, the published text of PSD2 includes provisions that wouldwill (i) further regulate surcharging so that transactions falling in scope of the interchange caps could not be surcharged, but transactions falling outside the scope of the caps could be surcharged up to cost, subject potentially to the abilitydecision of an individual Member State to prohibit surcharging altogether; and (ii) require all networks, including three-party“three party” payment networks that operate with licensing arrangements, such as our GNS business, to establish objective, proportionate and non-discriminatory criteria under which a financial institution may access the network, for example, as a licensed issuer or acquirer. The potential surcharging regulation may increase instances of differential surcharging of our cards, prompt customer and merchant confusion as to which transactions may be surcharged and lead to Card Member dissatisfaction. The access requirements wouldwill undermine the flexibility and discretion we have had to date in deciding with whom to partner in our GNS business.business and, together with requirements in the Interchange Fee Regulation, may undermine the value of our GNS business in Europe.
Australia Payments Regulation
Following a formal review of the regulatory framework for card payments in Australia, the Reserve Bank of Australia adopted new regulations on May 26, 2016, including the following:
The inclusion of our GNS business under interchange regulation may undermine our ability to attract and retain GNS partners. While the discount rates we agree to with merchants do not include an interchange component and are therefore not capped, the interchange caps, once effective, will likely exert downward pressure on merchant fees across the industry, including our discount rates.
Dodd-Frank Wall Street Reform and Consumer Protection Act
Dodd-Frank contains a wide array of provisions intended to govern the practices and oversight of financial institutions and other participants in the financial markets. Among other matters, the law created an independent Consumer Financial Protection Bureau (the CFPB), which has broad rulemaking authority over providers of credit, savings, payment and other consumer financial products and services with respect to certain federal consumer financial laws. Moreover, the CFPB has examination and enforcement authority with respect to certain federal consumer financial laws for providers of consumer financial products and services, including American Express Company and certain of our subsidiaries. The CFPB is directed to prohibit “unfair, deceptive or abusive” acts or practices, and to ensure that all consumers have access to fair, transparent and competitive markets for consumer financial products and services.
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The review of products and practices to assess compliance and prevent unfair, deceptive or abusive conduct will be a continuing focus of the CFPB and banking regulators more broadly, as well as our own internal reviews. For example, federal banking regulators have recently announced they are conducting horizontal reviews of banking sales practices and we are cooperating with regulators in those reviews. Internal and regulatory reviews have resulted in, and are likely to continue to result in, changes to our practices, products and procedures. Such reviews are also likely to continue to result in increased costs related to regulatory oversight, supervision and examination, and additional restitution to our Card Members and may result in additional regulatory actions, including civil money penalties.
In December 2013, we announced that certain of our subsidiaries reached settlements with several banking regulators, includingOn May 5, 2016, the CFPB to resolve regulatory reviews of marketing and billing practices related to several credit card add-on products. Forissued a description of these settlements, see Part I, Item 3. “Legal Proceedings” in our Annual Report onForm 10-K for the year ended December 31, 2013.
In October 2012, we announcedproposed rule that, American Express Company and certain of our subsidiaries reached settlements with several bank regulators, including the CFPB, relating to certain aspects of our U.S. consumer card practices. For a description of these settlements, see Part I, Item 3. “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2012.
On October 7, 2015, the CFPB announced a proposal thatif enacted, would, among other changes, require that our consumer arbitration clause not apply to cases filed in court as class actions, unless and until class certification is denied or the class claims are dismissed. The CFPB has set a 90-day period for comment, with the rule becoming effective 211 days after enactment and applying to all agreements entered into after that date.
On July 28, 2016, the CFPB outlined proposals under consideration that would set forth additional requirements forthird-party debt collection agencies, which we use in the ordinary course. This proposal is the beginningpart of a rulemaking process that may not result in a final rule, if any, becoming effective before 2018.
Dodd-Frank prohibits payment card networks from restricting merchants from offering discounts As of March 1, 2017, regulations implementing Dodd-Frank’s margin requirements would result in us collecting and remitting cash and/or incentives to customers to pay with particular forms of payment, such as cash, check, credit or debit card, or restricting merchants from setting certain minimum, and for certain merchants maximum, transaction amounts for credit cards, as long as any such discounts or incentives or any minimum or maximum transaction amounts do not discriminate on the basis of the issuer or network and comply with applicable federal or state disclosure requirements.
Under Dodd-Frank, the Federal Reserve is also authorized to regulate interchange fees paid to financial institutions on debit card and certain general-use prepaid card transactions to ensure that they are “reasonable and proportional”securities collateral relative to the costvalue of processing individual transactions, and to prohibit payment card networks and issuers from requiring transactions to be processed on a single payment network or fewer than two unaffiliated networks. The Federal Reserve’s rule provides that the regulations on interchange and routing do not apply to a three-party network like American Express when it acts as both the issuer and the network for prepaid cards, and we are therefore not a “payment card network” as that term is defined and used for the specific purposes of the rule.
Dodd-Frank also authorizes the Federal Reserve to establish enhanced prudential regulatory requirements, including capital, leverage and liquidity standards, risk management requirements, concentration limits on credit exposures, mandatory resolution plans (so-called “living wills”) and stress tests for, among others, large bank holding companies, such as American Express Company, that have greater than $50 billion in assets. We are also required to develop and maintain a “capital plan,” and to submit the capital plan to the Federal Reserve for our quantitative and qualitative review under the Federal Reserve’s CCAR process. In addition, certain uncleared derivative transactions are now required to be centrally cleared, which have increased our collateral posting requirements. In September 2014, the U.S. Commodity Futures Trading Commission and the U.S. federal banking agencies issued proposals that would impose mandatory margining requirements for certain non-cleared swaps,(variation margin), which may furthercreate or increase collateral posting requirements for us.
Antitrust Litigation
The U.S. Department of Justice (DOJ) and certain states’ attorneys general brought an action against us in 2010 alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from engaging in various actions to discriminate against our card products violate the U.S. antitrust laws. The trial court hashad ruled that the challenged provisions violate U.S. antitrust laws and issued an injunction, effective July 20, 2015, prohibiting us from enforcing certain elementsinjunction. We appealed this judgment and on September 26, 2016, the Court of such provisions inAppeals for the United States. We are vigorously pursuing an appeal ofSecond Circuit reversed the trial court decision and directed the trial court to enter a judgment and we arefor American Express. We continue to vigorously defendingdefend similar antitrust claims initiated by merchants in other court and arbitration proceedings. See Part II, Item 1. “Legal Proceedings” belowfor a description of the DOJ case and Part I, Item 3. “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2015 (the 2015 Form 10-K) for descriptions of the DOJ action and related cases. It is possible that significantly increased merchant steering or other actions impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a material adverse effect on our business. See Part II,I, Item 1A, “Risk Factors” in our Quarterly Report onthe 2015 Form 10-Q for the quarter ended June 30, 201510-K for information on the potential impacts of an adverse decision in the trial court’s decision, the subsequent injunction and the related merchant litigationlitigations on our business.
Other Legislative and Regulatory Initiatives
In certain countries, such as Australia, and in certain Member States in the EU, merchants are permitted by law to surcharge card purchases. While surcharging continues to be actively considered in certain jurisdictions, the benefits to customers have not been apparent in countries that have allowed it, and in some cases regulators are addressing concerns about excessive surcharging by merchants. Surcharging, particularly where it disproportionately impacts American Express Card Members, which is known as differential surcharging, could have a material adverse effect on us if it becomes widespread. The Reserve Bank of Australia allows us and other networks to limit a merchant’s right to surcharge to “the reasonable cost of card acceptance.” In the EU, the Consumer Rights Directive prohibits merchants from surcharging card purchases more than the merchants’ cost of acceptance in those Member States that permit surcharging.
In December 2014, the Australian Financial System Inquiry published a report to the Australian Federal Government that included a number of recommendations for changing the way payment cards are regulated in Australia. If implemented by the government or the Reserve Bank of Australia, these recommendations would have a significant impact across the industry, including American Express. The Financial System Inquiry’s recommendations included the following:
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On March 4, 2015, the Reserve Bank of Australia commenced a formal review of the regulatory framework for card payments in Australia, considering the above recommendations from the Financial Systems Inquiry along with a broader range of measures related to card payments regulation. The Australian Federal Government and Reserve Bank of Australia will now determine whether and how any of these recommendations, or alternative options, should be implemented. We do not expect changes, if any, to take effect before mid-2016.
On October 15, 2015, the Reserve Bank of Australia announced that it “designated” our GNS business. Designation is a formal step prior to regulation, which could subject our GNS business in Australia to the same interchange caps that apply to Visa and MasterCard in Australia. Any such regulation could have an adverse effect on our business and results of operations in Australia.
On October 6, 2015, the Court of Justice of the European Union ruled that the European Commission’s Safe Harbor Framework is invalid as a basis for transfers of personal data from the European Economic Area countries to the U.S. We generally rely on our Binding Corporate Rules and not on the Safe Harbor Framework as the primary method for lawfully transferring data from our European entities to our entities in the U.S. and elsewhere globally.
Refer to “Consolidated Capital Resources and Liquidity” for a discussion of capital adequacy requirements established by federal banking regulators.
Recently Issued Accounting Standards
Refer to the Recently Issued Accounting Standards section of Note 1 to the Consolidated Financial Statements.
Glossary of Selected Terminology
Adjusted average loans — Represents average Card Member loans excluding the impact of certain non-traditional Card Member loans and other fees.
Adjusted net interest income — RepresentsA non-GAAP measure that represents net interest income attributable to our Card Member loans portfolioand loans HFS (which includes, on a GAAP basis, interest that is deemed uncollectible), excluding the impact of interest expense and interest income not attributable to our Card Member loans portfolio.loans. The Company believes adjusted net interest income is useful to investors because it is a component of net interest yield on Card Member loans.
Asset securitizations — Asset securitization involves the transfer and sale of receivablesloans or loansreceivables to a special-purpose entity created for the securitization activity, typically a trust. The trust, in turn, issues securities, commonly referred to as asset-backed securities that are secured by the transferred receivablesloans or loans.receivables. The trust uses the proceeds from the sale of such securities to pay the purchase price for the underlying receivablesloans or loans.receivables. The receivablesloans and loansreceivables of our Lending Trust and Charge Trust and Lending Trust(together, the Trusts) being securitized are reported as assets, and the securities issued by the Trusts are reported as liabilities on our Consolidated Balance Sheets.
Average discount rate — This calculation is generally designed to reflect pricing at merchants accepting general purposegeneral-purpose American Express cards. It represents the percentage of billed business (generated from both proprietary and GNS Card Member spend)spending) retained by us from merchants we acquire, or for merchants acquired by a third party on our behalf, net of amounts retained by such third party.
Basic cards-in-force — Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner, and does(i.e., not includeincluding additional supplemental cards issued on that account.accounts). Proprietary basic small business and corporate cards-in-force includeincludes both basic and supplemental cards issued to employee Card Members.issued. Non-proprietary basic cards-in-force includes cards that are issued and outstanding under network partnership agreements, except for supplemental cards and retail co-brandcobrand Card Member accounts which have had no out-of-store spendspending activity during the prior 12-monthtwelve-month period.
Billed business— Includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements (non-proprietary billed business), corporate paymentspayment services and certain insurance fees charged on proprietary cards. In-store spendspending activity within retail co-brandcobrand portfolios in GNS, from which we earn no revenue, is not included in non-proprietary billed business. Card billed business is included in the U.S.United States or outside the U.S.United States based on where the issuer is located.
Capital ratios — Represents the minimum standards established by the regulatory agencies as a measure to determine whether the regulated entity has sufficient capital to absorb on- and off-balance sheet losses beyond current loss accrual estimates. Refer to the Capital Strategy section under “Consolidated Capital Resources and Liquidity” for further related definitions under Transitional Basel III and Fully Phased-in Basel III.
Card Member— The individual holder of an issued American Express-branded charge, credit and certain prepaid cards.
Card Member loans — Represents the outstanding amount due from Card Members for charges made on their American Express credit cards, as well as any interest charges and card-related fees. Card Member loans also include revolving balances on certain American Express charge card products.
Card Member loans and receivables HFS— Beginning as of December 1, 2015 and continuing until a sale is completed, represents Card Member loans and receivables related to our cobrand partnerships with Costco in the United States and JetBlue. The JetBlue and Costco portfolio sales were completed on March 18 and June 17, 2016, respectively.
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Card Member receivables — Represents the outstanding amount due from Card Members for charges made on their American Express charge cards, as well as any card-related fees.
Charge cards — Represents cards that generally carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge Card Members generally must pay the full amount billed each month. No finance charges are assessed on charge cards. Each charge card transaction is authorized based on its likely economics reflecting a customer’sCard Member’s most recent credit information and spend patterns. Some charge card accounts have an additional lending-on-charge feature that allows revolving certain balances.
Credit cards — Represents cards that have a range of revolving payment terms, grace periods, and rate and fee structures.
Discount revenue — Represents revenue earned from fees generally charged to merchants who have entered into a card acceptance agreement. The discount fee generally is deducted from our payment for Card Member purchases. Discount revenue is reduced by otherincentive payments made to merchants, payments to third-party card issuing partners, cash-back reward costs and statement credits, corporate incentive payments and other contra-revenuesimilar items.
Interest expense— Interest expense includesIncludes interest incurred primarily to fund Card Member loans charge card productand receivables, general corporate purposes and liquidity needs, and is recognized as incurred. Interest expense is divided principally into two categories: (i) deposits, which primarily relates to interest expense on deposits taken from customers and institutions, and (ii) debt, which primarily relates to interest expense on our long-term financing and short-term borrowings, which primarily relates to interest expense on(e.g., commercial paper, federal funds purchased, bank overdrafts and other short-term borrowings.borrowings), as well as the realized impact of derivatives hedging interest rate risk on our long-term debt.
Interest income— Interest income includesIncludes (i) interest on loans, (ii) interest and dividends on investment securities and (iii) interest income on deposits with banks and other.
Interest on loans— is assessedAssessed using the average daily balance method for loans.Card Member loans and loans HFS. Unless the loan is classified as non-accrual, interest is recognized based upon the principal amount outstanding in accordance with the terms of the applicable account agreement until the outstanding balance is paid or written off.
Interest and dividends on investment securities— primarilyPrimarily relates to our performing fixed-income securities. Interest income is accruedrecognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so that the related investment security recognizes a constant rate of return is recognized on the outstanding balance of the related investment security throughout its term. These amountsAmounts are recognized until these securities are in default or when it is likely that future interest payments will not be made as scheduled.
Interest income on deposits with banks and other — is recognizedRecognized as earned, and primarily relates to the placement of cash in excess of near-term funding requirements in interest-bearing time deposits, overnight sweep accounts, and other interest-bearing demand and call accounts.
Liquidity Coverage Ratio— Represents the proposed minimum standards being established by the regulatory agencies as a measure to determine whether the regulated entity has sufficient liquidity to meet liquidity needs in periods of financial and economic stress.
Merchant acquisition — Represents our process of entering into agreements with merchants to accept American Express-branded cards.
Net card fees — Represents the card membership fees earned during the period. These fees are recognized as revenue over the covered card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation of card membership.and deferred acquisition costs.
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Net interest yield on Card Member loans — Net interest yield on Card Member loansA non-GAAP measure that is computed by dividing adjusted net interest income by adjusted average loans, computed on an annualized basis. The calculation of net interest yield on Card Member loans includes interest that is deemed uncollectible. For all presentations of net interest yield on Card Member loans, reservesReserves and net write-offs related to uncollectible interest are recorded through provisions for losses, — Card Member loans; therefore, such reserves and net write-offs are thus not included in the net interest yield calculation. The Company believes net interest yield on Card Member loans is useful to investors because it provides a measure of profitability of the Company’s Card Member loan portfolio.
Net loss ratio — Represents the ratio of GCSGCP charge card write-offs, consisting of principal (resulting from authorized transactions) and fee components, less recoveries, on Card Member receivables expressed as a percentage of gross amounts billed to corporate Card Members.
Net write-off rate— principal only — Represents the amount of proprietary consumer or small business Card Member loans or USCS and ICS Card Member receivables written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage of the average loan balance or USCS and ICS average receivables balance during the period.
Net write-off rate— principal, interest and fees— Includes, in the calculation of the net write-off rate, amounts for interest and fees in addition to principal for Card Member loans and fees in addition to principal for USCS and ICS Card Member receivables.
Operating expenses — Represents salaries and employee benefits, professional services, occupancy and equipment, communications and other expenses.
Return on average equity — Calculated by dividing one-year period net income by one-year average total shareholders’ equity.
Return on average segment capital— Calculated by dividing one-year period segment income by one-year average segment capital.
Return on average tangible segment capital— Computed in the same manner as return on average segment capital except the computation of average tangible segment capital excludes from average segment capital average goodwill and other intangibles.
Segment capital — Represents the capital allocated to a segment based upon specific business operational needs, risk measures, and regulatory capital requirements.
Total cards-in-force — Represents the number of cards that are issued and outstanding. Non-proprietary cards-in-force includes all cards that are issued and outstanding under network partnership agreements, except for retail co-brandcobrand Card Member accounts which have no out-of-store spendspending activity during the prior 12-monthtwelve-month period.
Travel sales — Represents the total dollar amount of travel transaction volume for airline, hotel, car rental, and other travel arrangements made for consumers and small businesses. We earn revenue on these transactions by charging a transaction or management fee.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk to earnings or valueasset and liability values resulting from movements in market prices. Our market risk exposure is primarily generated byexposures include (i) interest rate risk due to changes in the relationship between interest rates on our cardassets (such as loans, receivables and insurance businesses,investment securities) and on our liabilities (such as well as our investment portfolios,debt and deposits); and (ii) foreign exchange risk related to earnings, transactions and investments in our operations outsidecurrencies other than the United States.U.S. dollar. There were no material changes in these market risks since December 31, 2014.
2015.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Cautionary Note Regarding Forward-looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. The forward-looking statements, which address our expected business and financial performance, and which include management’s outlook for 2015-2017, among other matters, contain words such as “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements, include, but are not limited to, the following:
our ability to grow in the future, which will depend in part on the following: revenues growing consistently with current expectations, which could be impacted by, among other things, weakening economic conditions in the United States or internationally, a decline in consumer confidence impacting the willingness and ability of Card Members to sustain spending, a further decline in airfare and gas prices, a further strengthening of the U.S. dollar, a greater erosion of the average discount rate than expected, a greater impact on discount revenue from cash back, GNS volumes and cobrand partner and client incentive payments, more cautious spending by large and global corporate Card Members and lower spending on new cards acquired than estimated; our success in addressing competitive pressures and implementing strategies and business initiatives, including growing profitable spending from new and existing Card Members, increasing penetration among middle market and small business clients, expanding our international footprint and increasing merchant acceptance; the level of spend in bonus categories on rewards-based and/or cash-back cards and redemptions of Card Member rewards and offers; the impact of any future restructuring charges or other contingencies, including, but not limited to, litigation-related settlements, judgments or expenses, impairments, the imposition of fines or civil money penalties, an increase in Card Member reimbursements and changes in reserves; credit performance remaining consistent with current expectations;
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continued growth of Card Member loans; the ability to continue to realize benefits from restructuring actions and operating leverage at levels consistent with current expectations; the amount we spend on growth initiatives and our ability to |
our ability to reduce our overall cost base, which will depend in part on the timing and financial impact of reengineering plans, which could be impacted by factors such as our inability to mitigate the operational and other risks posed by potential staff reductions, our inability to develop and implement technology resources to realize cost savings and underestimating hiring and other employee needs; our ability to reduce annual operating expenses, which could be impacted by, among other things, the factors identified below; and our ability to optimize and lower marketing and promotion expenses, which could be impacted by higher advertising and Card Member acquisition costs, competitive pressures that may require additional expenditures or limit our ability to reduce costs, an inability to shift acquisition to digital channels, the availability of opportunities to invest at a higher level due to favorable business results and changes in macroeconomic conditions; the ability to reduce annual operating expenses, which could be impacted by increases in significant categories of operating expenses, such as consulting or professional fees, including as a result of increased litigation, compliance or regulatory-related costs, technology costs or fraud costs; our ability to develop, implement and achieve substantial benefits from reengineering plans; higher than expected employee levels; the impact of changes in foreign currency exchange rates on costs; the payment of civil money penalties, disgorgement, restitution, non-income tax assessments and litigation-related settlements; impairments of goodwill or other assets; management’s decision to increase or decrease spending in such areas as technology, business and product development and sales forces depending on overall business performance; greater than expected inflation or merit increases; our ability to balance expense control and investments in the business; the impact of accounting changes and reclassifications; and the level of M&A activity and related expenses; |
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A further description of these uncertainties and other risks can be found in our Annual Report onthe 2015 Form 10-K for the year ended December 31, 2014 (2014 Form 10-K), our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2015 and our other reports filed with the Securities and Exchange Commission.
In the ordinary course of business, we and our subsidiaries are subject to various claims, investigations, examinations, pending and potential legal actions, and other matters relating to compliance with laws and regulations (collectively, legal proceedings)“legal proceedings”). We believe we have meritorious defenses to each of these legal proceedings and intend to defend them vigorously. Some of these proceedings are at preliminary stages and seek an indeterminate amount of damages.
We believe we are not a party to, nor are any of our properties the subject of, any legal proceeding that would have a material adverse effect on our consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims described later in this section,our 2015 Form 10-K, could have a material impact on our results of operations. In addition, it is possible that significantly increased merchant steering or other actions impairing the Card Member experience as a result of the DOJ case described later in this section could have a material adverse effect on our business. Certain legal proceedings involving us or our subsidiaries are further described in this section and others, for which there have been no subsequent material developments since the filing of the 2014our 2015 Form 10-K, are described in such report.
For those legal proceedings described in this section and in the 20142015 Form 10-K where a loss is reasonably possible in future periods, whether in excess of a related reserve for legal contingencies or where there is no such liability,reserve, and for which we are able to estimate a range of possible loss, the current estimated range is zero to $370$190 million in excess of any reserves related to those matters. This range represents management’sour estimate based on currently available information and does not represent our maximum loss exposure; actual results may vary significantly. As such proceedings evolve, including the merchant claims, we may need to increase our range of possible loss or reserves for legal contingencies. For additional information, refer tosee Note 8 to theour Consolidated Financial Statements.
During the last several years, as regulatory interest in credit card network pricing to merchants or terms of merchant rules and contracts has increased, we have responded to many inquiries from banking and competition authorities around the world. In addition, the DOJ and various merchants have initiated legal proceedings to challenge aspects of our card acceptance agreements with merchants on antitrust grounds.
Antitrust Matters
In 2010, the DOJ, along with Attorneys General from Arizona, Connecticut, Hawaii (Hawaii has since withdrawn its claim), Idaho, Illinois, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah and Vermont filed a complaint in the U.S. District Court for the Eastern District of New York against us, MasterCard International Incorporated and Visa, Inc., alleging a violation of Section 1 of the Sherman Antitrust Act (the DOJ case)“DOJ case”). The complaint included allegations that provisions in our merchant agreements prohibiting merchants from steering a customer to use another network’s card or another type of general-purpose card (“anti-steering” and “non-discrimination” contractual provisions) violate the antitrust laws. The complaint sought a judgment permanently enjoining us from enforcing our anti-steering and non-discrimination contractual provisions. The complaint did not seek monetary damages.
Following a non-jury trial in the DOJ case, the trial court found that the challenged provisions were anticompetitive and on April 30, 2015, the court issued an ordera final judgment entering a permanent injunction.
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Following our appeal of this judgment, on September 26, 2016, the Court of Appeals for the Second Circuit reversed the trial court decision and directed the trial court to enter a judgment for American Express.
On November 6, 2015, a putative representative action, captioned People of the State of California, ex. rel. Dennis Herrera v. American Express Co. et al., was filed in California state court on behalf of the People of California by the San Francisco City Attorney for the benefit of California merchants that accept American Express cards. The complaint alleges that certain terms in our merchant agreements violate California law and seeks relief in the form of: (1) a declaratory judgment; (2) an injunction which became effective July 20, 2015, prohibitspreventing us from enforcing certain elementsthose terms; (3) statutory civil penalties in an amount to be determined by the court; (4) restitution for alleged overcharges; and (5) attorney’s fees and cost of suit. On October 7, 2016, the anti-steering provisions in the U.S. We are vigorously pursuing an appeal of the decision and judgment.
In addition to the DOJ case, individual merchant cases and a putative class action are pending in the Eastern District of New York against us alleging that our anti-steering provisions in merchant card acceptance agreements violate U.S. antitrust laws. The individual merchant cases seek damages in unspecified amounts. Trial has been scheduled in the individual merchant cases for May 2, 2016. Our motion for summary judgment is pending, and the plaintiffs haveSan Francisco City Attorney filed a motion for summary judgment.stipulation dismissing this action without prejudice.
Individual merchants have initiated arbitration proceedings raising similar claims concerning the anti-steering provisions in our card acceptance agreements and seeking damages. We are vigorously defending against those claims.
In July 2004, we were named as a defendant in another putativea class action filed in the Eastern District of New York, captionedThe Marcus CorporationKaufman v. American Express Company, et al.Travel Related Services, in which the plaintiffs allege an unlawful antitrust tying arrangement between certain of our charge cardswas filed on February 14, 2007, and credit cards in violation of various state and federal laws. The plaintiffs in these actions seek injunctive relief and an unspecified amount of damages. In December 2013, we announced a proposed settlement of theMarcus case and the putative class action challenging our anti-steering provisions. The settlement, which provides for certain injunctive relief for the proposed classes, received preliminary approvalis pending in the United States District Court for the EasternNorthern District of New York.Illinois. Plaintiffs’ principal allegation is that our gift cards violated consumer protection statutes because consumers allegedly had difficulty spending small residual amounts on the gift cards prior to the imposition of monthly service fees. The Court preliminarily certified a settlement class consisting of (with some exceptions) “all purchasers, recipients and holders of all gift cards issued by American Express from January 1, 2002 through the date of preliminary approval of the settlement.” On August 4, 2015,March 2, 2016, the court deniedgranted final approval of the settlement; further proceedings are anticipated.
On March 20, 2015, a shareholder derivative action captionedLankford v. Chenault, et al., and American Express Co. was filed in New York State Supreme Court, New York County. The defendants include current and former Company executives, current and former membersclass-wide settlement. Notices of the Company’s Board of Directors and the Company itself, as a nominal defendant. No demand preceded the filing of the complaint. The complaint alleges that the defendants permitted and/or caused the Company to violate the antitrust laws through inclusion of its non-discrimination provisions in merchant contracts, which led to the recent negative result in the DOJ case discussed above. Based on those allegations, the complaint further alleges: breach of fiduciary duties by disseminating false and misleading information in our SEC filings and other public statements; failure to maintain internal controls, and failure to properly oversee and manage the Company; unjust enrichment; abuse of control; and gross mismanagement. The amount of purported damages is unspecified in the complaint. Our motion to dismiss is pending.
Corporate Mattersappeal have been filed.
On July 30, 2015, plaintiff Plumbers and Steamfitters Local 137 Pension Fund, on behalf of themselves and other purchasers of American Express stock, filed a suit, againstcaptionedPlumbers and Steamfitters Local 137 Pension Fund v. American Express Company,Co., Kenneth I. Chenault and Jeffrey C. Campbell, for violation of federal securities law, alleging that the Company deliberately issued false and misleading statements to, and omitted important information from, the public and investors relating to the financial importance of the Costco co-brandcobrand relationship to the Company, including, but not limited to, the decision to accelerate negotiations to renew the co-brandcobrand agreement. We intendThe plaintiff seeks damages and injunctive relief. The Company moved to vigorously defend against those claims.dismiss the amended complaint on March 21, 2016.
On October 16, 2015, a putative class action, captionedHoussain v. American Express Company, et al., was filed in the United States District Court for the Southern District of New York against the Company and certain officers of the Company under the Employee Retirement Income Security Act of 1974 (“ERISA”)(ERISA) relating to disclosures of the Costco co-brandcobrand relationship. TheOn May 10, 2016, the plaintiff filed an amended complaint allegesnaming certain officers of the Company as defendants and alleging that the defendants violated certain ERISA fiduciary obligations by:by, among other things, allowing the investment of American Express Retirement Savings Plan (“Plan”)(Plan) assets in American Express common stock when American Express common stock was not a prudent investment;investment and misrepresenting and failing to disclose material facts to Plan participants in connection with the administration of the Plan;Plan. The amended complaint seeks, among other remedies, an unspecified amount of damages. The defendants moved to dismiss the amended complaint on May 31, 2016.
On March 8, 2016, plaintiffs B&R Supermarket, Inc. d/b/a Milam’s Market and breachingGrove Liquors LLC, on behalf of themselves and others, filed a suit, captionedB&R Supermarket, Inc. d/b/a Milam’s Market, et al. v. Visa Inc., et al., for violations of the Sherman Antitrust Act, the Clayton Antitrust Act, California’s Cartwright Act and unjust enrichment in the United States District Court for the Northern District of California, against American Express Company, other credit and charge card networks, other issuing banks and EMVCo, LLC. Plaintiffs allege that the defendants, through EMVCo, conspired to shift liability for fraudulent, faulty and otherwise rejected consumer credit card transactions from themselves to merchants after the implementation of EMV chip payment terminals. Plaintiffs seek damages and injunctive relief. On June 24, 2016, the court granted our motion to transfer to the Southern District of New York the claims brought against us by merchants who accept American Express cards. The court also granted plaintiffs’ leave to file an amended complaint and, on September 30, 2016, denied our motion to dismiss as to claims brought by merchants who do not accept American Express cards.
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In October 2009, a putative class action, captionedLopez, et al. v. American Express Bank, FSB and American Express Centurion Bank, was filed in the United States District Court for the Central District of California. The amended complaint sought to certify a class of California American Express Card Members whose interest rates were changed from fixed to variable in or around August 2009 or otherwise increased. On August 20, 2014, plaintiffs filed an amended nationwide complaint and an unopposed motion for preliminary approval of a settlement of the claims alleged in that complaint. The settlement provides for certain fiduciary obligations. We intendrelief to vigorously defend against those claims.class members, attorneys’ fees and costs of up to $6 million. On October 17, 2016, the court granted final approval of the settlement.
ITEM 1A. | RISK FACTORS |
For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of our 2014the 2015 Form 10-K and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (the Second QuarterForm 10-Q).10-K. There are no material changes from the risk factors set forth in the 20142015 Form 10-K, as supplemented and updated in the Second Quarter Form 10-Q.10-K. However, the risks and uncertainties that we face are not limited to those set forth in the 20142015 Form 10-K and Second Quarter Form 10-Q.10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) ISSUER PURCHASES OF SECURITIES
(c) | ISSUER PURCHASES OF SECURITIES |
The table below sets forth the information with respect to purchases of the Company’s common stock made by or on behalf of the Company during the three months ended September 30, 2015.2016.
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| Total Number of Shares Purchased |
| | Average Price Paid Per Share | | | Total Number of Shares | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||||||||
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(c) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||||||||||||||||
July 1-31, 2015 | ||||||||||||||||||||||||||||||||||||||||
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July 1-31, 2016 | ||||||||||||||||||||||||||||||||||||||||
Repurchase program(a) | 2,379,400 | 75.67 | 2,379,400 | 137,274,826 | 2,511,954 | $62.98 | 2,511,954 | 56,217,857 | ||||||||||||||||||||||||||||||||
Employee transactions(b) | 6,643 | 80.32 | N/A | N/A | 34 | $59.48 | N/A | N/A | ||||||||||||||||||||||||||||||||
August 1-31, 2015 | ||||||||||||||||||||||||||||||||||||||||
August 1-31, 2016 | ||||||||||||||||||||||||||||||||||||||||
Repurchase program(a) | 8,482,743 | 77.73 | 8,482,743 | 128,792,083 | 3,799,200 | $65.13 | 3,799,200 | 52,418,657 | ||||||||||||||||||||||||||||||||
Employee transactions(b) | 26,487 | 76.04 | N/A | N/A | 63,497 | $64.46 | N/A | N/A | ||||||||||||||||||||||||||||||||
September 1-30, 2015 | ||||||||||||||||||||||||||||||||||||||||
September 1-30, 2016 | ||||||||||||||||||||||||||||||||||||||||
Repurchase program(a) | 6,892,129 | 75.20 | 6,892,129 | 121,899,954 | 2,538,136 | $64.69 | 2,538,136 | 149,648,176 | ||||||||||||||||||||||||||||||||
Employee transactions(b) | 231 | 77.03 | N/A | N/A | (221 | ) | $53.39 | N/A | N/A | |||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||||||
Repurchase program(a) | 17,754,272 | 76.47 | 17,754,272 | 121,899,954 | 8,849,290 | $64.39 | 8,849,290 | 149,648,176 | ||||||||||||||||||||||||||||||||
Employee transactions(b) | 33,361 | 76.90 | N/A | N/A | 63,310 | $64.50 | N/A | N/A | ||||||||||||||||||||||||||||||||
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(a) |
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(b) | Includes: (i) shares surrendered by holders of employee stock options who exercised options (granted under the Company’s incentive compensation plans) in satisfaction of the exercise price and/or tax withholding obligation of such holders and (ii) restricted shares withheld (under the terms of grants under the Company’s incentive compensation plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Company’s incentive compensation plans provide that the value of the shares delivered or attested to, or withheld, be based on the price of the Company’s common stock on the date the relevant transaction occurs. |
(c) | Share purchases under publicly announced programs are made pursuant to open market purchases or privately negotiated transactions (including employee benefit plans) as market conditions warrant and at prices the Company deems appropriate. |
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ITEM 5. | OTHER INFORMATION |
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted outside the United States by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.
During the third quarter of 2015,2016, American Express Travel & Lifestyle Services obtained two visas from Iranian embassies in connection with certain travel arrangements on behalf of clients. In addition, American Express Global Business Travel booked one hotel reservation at Homa Hotel Tehran(GBT) and one hotel reservation at Esteghlal East Wing Hotel. In addition, certain third-party service providersentities that may be considered affiliates of GBT have informed us that during the third quarter of 2016 they obtained approximately four80 visas from Iranian embassies and consulates around the world during the third quarter of 2015 in connection with certain travel arrangements on behalf of American Express Global Business Travel clients. American Express Global Business TravelWe had negligible gross revenues and net profits attributable to these transactions. American Express Global Business Travel believes these transactions were permissible pursuant to certain exemptions from U.S. sanctions for travel-related transactions under the International Emergency Economic Powers Act, as amended. American Express Global Business Travel has informed us that it intendsand intend to continue to engage in these activities on a limited basis so long as such activities are permitted under U.S. law.
In addition, a travel company that may be considered an affiliate of ours, American Express Nippon Travel Agency, Inc. (“Nippon Travel Agency”), has informed us that during the third quarter of 2015 it obtained 39 visas from the Iranian embassy in Japan in connection with certain travel arrangements on behalf of clients. Nippon Travel Agency had negligible gross revenues and net profits attributable to these transactions. Nippon Travel Agency has informed us that it intends to continue to engage in this activity so long as such activity is permitted under U.S. law.
ITEM 6. | EXHIBITS |
The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index” which is incorporated herein by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN EXPRESS COMPANY | ||||||||
(Registrant) | ||||||||
Date: October | By | /s/ Jeffrey C. Campbell | ||||||
Jeffrey C. Campbell | ||||||||
Executive Vice President and | ||||||||
Chief Financial Officer | ||||||||
Date: October | By | /s/ Linda Zukauckas | ||||||
Linda Zukauckas | ||||||||
Executive Vice President and | ||||||||
Corporate | Controller | |||||||
(Principal Accounting Officer) |
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The following exhibits are filed as part of this Quarterly Report:
Exhibit | Description | |
3.1 | American Express Company By-Laws, as amended through September 26, 2016 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated September 26, 2016). | |
12 | Computation in Support of Ratio of Earnings to | |
31.1 | Certification of Kenneth I. Chenault pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Jeffrey C. Campbell pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | |
32.1 | Certification of Kenneth I. Chenault pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Jeffrey C. Campbell pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
E-1
E-1 |