The following table shows the tax impact for the three months ended March 31 for the changes in each component of AOCI presented above:
The following is a detail of Other revenues for the three months ended March 31:
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
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. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global Merchant Services (GMS). Corporate functions and certain other businesses and operations are included in Corporate & Other. We provide 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. Our range of products and services includes:
• Charge card, credit card and other payment and financing products
• Network services
• Merchant acquisition and processing, servicing and settlement, marketing and point-of-sale marketing and information products and services for merchants
• Other fee services, including fraud prevention services and the design and operation of customer loyalty programs
• Expense management products and services
• Travel-related services
• Stored-value/prepaid products
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 online applications, direct mail, in-house teams, third-party vendors and direct response advertising. Business travel-related services are offered through our non-consolidated joint venture, American Express Global Business Travel (the GBT JV).
We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and ACH), as well as evolving and growing alternative payment and financing providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customer relationships to create payment or financing solutions.
The following types of revenue are generated from our various products and services:
•
|
Discount revenue, our largest revenue source, represents fees generally charged to merchants for accepting our cards as payment for goods or services sold;
|
•
|
Interest on loans, principally represents interest income earned on outstanding balances;
|
•
|
Net card fees, represent revenue earned from annual card membership fees, which varies based on the type of card and the number of cards for each account;
|
•
|
Other fees and commissions, represent foreign currency conversion fees charged to Card Members, Card Member delinquency fees, loyalty coalition-related fees, travel commissions and fees, service fees and fees related to our Membership Rewards program; and
|
•
|
Other revenue, primarily represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees), cross-border Card Member spending, insurance premiums earned from Card Members, ancillary merchant-related fees, revenues related to the GBT JV transition services agreement, prepaid card and Travelers Cheque-related revenue and earnings from equity method investments (including the GBT JV).
|
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 constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
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 standards.
During the quarter we continued to make steady progress on the range of growth and cost initiatives that we have been focused on over the last couple of years, and we believe our first quarter performance reflects the benefits of those efforts. While reported billed business and revenue declined year-over-year as a result of the end of the Costco Wholesale Corporation (Costco) relationship in the United States in June 2016, both billed business and revenue performance accelerated in the first quarter. In addition, our strong balance sheet position allowed us to return a significant amount of capital to shareholders through share repurchases and dividends.
Our worldwide billings adjusted for foreign currency exchange rates were flat year-over-year, but grew after excluding Costco-related billings from the prior year. We continued to see strong performance from middle market and small business customers, while spending by large corporations was up slightly compared to last year. Internationally, our consumer and small business billings growth rates remained strong.
Revenues net of interest expense declined year-over-year on a reported basis, primarily reflecting Costco-related revenues in the prior year. After excluding Costco-related revenues and the effect of foreign currency exchange rates, adjusted revenues net of interest expense grew, driven by increases in adjusted billed business, adjusted net interest income, as well as higher net card fees across our premium card portfolios. Our net interest yield increased year-over-year, due in part to a mix shift towards non-cobrand lending products, where Card Members tend to revolve more of their loan balances.
Card Member loan and receivable growth was strong year-over-year, as we continue to grow loans from existing customers, as well as through the acquisition of new card members. Provisions for losses increased, as expected, as a result of higher Card Member loans and receivables, as well as a slight increase in delinquencies and higher net write-off rates primarily due to the seasoning of loans related to newer Card Members and a shift towards non-cobrand lending products, which have a slightly higher write-off rate. We expect these trends will result in provisions growing faster than loans during the balance of the year.
Spending on Card Member engagement (the aggregate of rewards, Card Member services and marketing and promotion expenses) was relatively consistent with the prior year and reflected the recent enhancements to rewards on our U.S. Platinum products, continued strong growth in our Delta cobrand portfolio, higher levels of engagement in many of our premium services and lower marketing and promotion expenses as we seek to utilize different categories of spend to retain and grow our Card Member spending and earn their loyalty. Operating expenses decreased versus the prior year, driven by our cost reduction initiatives.
Competition remains intense across our businesses. While our businesses are global and diversified, to remain competitive we need to continue to demonstrate the differentiated value we deliver to merchants, customers and business partners in all aspects of our relationships. More intense competition has and will continue to impact our cost of renewing and ability to win or extend cobrand and other relationships. Throughout our business, we are focused on those products, services and relationships that offer the best value to our customers while also providing appropriate returns to our business and shareholders.
See “Certain legislative, regulatory and other developments” in “Other Matters” for information on legislative and regulatory changes that could have a material adverse effect on our results of operations and financial condition.
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.
Effective December 1, 2015, we transferred the Card Member loans and receivables related to our cobrand partnerships with Costco and JetBlue Airways Corporation (JetBlue) (collectively, the 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 JetBlue and Costco cobrand card portfolios, respectively. For the 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 interest yield) reflect amounts related to the HFS portfolios through the sale completion dates. Additionally, for periods after the sale completion dates, activities associated with these cobrand partnerships and the HFS portfolios are no longer included in our Consolidated Results of Operations. Specifically, these impacts include: Discount revenue from Costco in the United States 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, resulting in a lack of comparability between 2017 and 2016.
The discussions in both the Consolidated Results of Operations and Business Segment Results provide commentary on the variances for the three months ended March 31, 2017 compared to same period in the prior year, as presented in the accompanying tables.
Table 1: Summary of Financial Performance
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages and per share amounts)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Total revenues net of interest expense
|
|
$
|
7,889
|
|
|
$
|
8,088
|
|
|
$
|
(199
|
)
|
|
|
(2
|
)%
|
Provisions for losses
|
|
|
573
|
|
|
|
434
|
|
|
|
139
|
|
|
|
32
|
|
Expenses
|
|
|
5,499
|
|
|
|
5,470
|
|
|
|
29
|
|
|
|
1
|
|
Net income
|
|
|
1,237
|
|
|
|
1,426
|
|
|
|
(189
|
)
|
|
|
(13
|
)
|
Earnings per common share — diluted
(a)
|
|
$
|
1.34
|
|
|
$
|
1.45
|
|
|
$
|
(0.11
|
)
|
|
|
(8
|
)%
|
Return on average equity
(b)
|
|
|
25.1
|
%
|
|
|
23.6
|
%
|
|
|
|
|
|
|
|
|
(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 the three months ended March 31, 2017 and 2016, respectively, and (ii) dividends on preferred shares of $21 million for both the three months ended March 31, 2017 and 2016.
|
(b)
|
Return on average equity (ROE) is computed by dividing (i) one-year period net income ($5.2 billion and $5.1 billion for March 31, 2017 and 2016, respectively) by (ii) one-year average total shareholders’ equity ($20.8 billion and $21.5 billion for March 31, 2017 and 2016, respectively).
|
Table 2: Total Revenue Net of Interest Expense Summary
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Discount revenue
|
|
$
|
4,519
|
|
|
$
|
4,643
|
|
|
$
|
(124
|
)
|
|
|
(3
|
)%
|
Net card fees
|
|
|
748
|
|
|
|
699
|
|
|
|
49
|
|
|
|
7
|
|
Other fees and commissions
|
|
|
713
|
|
|
|
680
|
|
|
|
33
|
|
|
|
5
|
|
Other
|
|
|
409
|
|
|
|
486
|
|
|
|
(77
|
)
|
|
|
(16
|
)
|
Total non-interest revenues
|
|
|
6,389
|
|
|
|
6,508
|
|
|
|
(119
|
)
|
|
|
(2
|
)
|
Total interest income
|
|
|
1,943
|
|
|
|
2,005
|
|
|
|
(62
|
)
|
|
|
(3
|
)
|
Total interest expense
|
|
|
443
|
|
|
|
425
|
|
|
|
18
|
|
|
|
4
|
|
Net interest income
|
|
|
1,500
|
|
|
|
1,580
|
|
|
|
(80
|
)
|
|
|
(5
|
)
|
Total revenues net of interest expense
|
|
$
|
7,889
|
|
|
$
|
8,088
|
|
|
$
|
(199
|
)
|
|
|
(2
|
)%
|
Total Revenues Net of Interest Expense
Discount revenue decreased, primarily driven by Costco-related revenue included in the prior year, as well as increases in contra-discount revenues in the current year, including higher corporate client and cobrand partner incentives, as volumes in those categories increased.
Worldwide billed business decreased marginally and was flat on an FX-adjusted basis.
1
U.S. billed business decreased by 6 percent, primarily driven by Costco-related volumes in the prior year, and non-U.S. billed business increased by 12 percent. See Tables 5 and 6 for more details on billed business performance.
The increase in the average discount rate primarily reflects the absence of Costco merchant volumes in the current year, which were at a lower discount rate than the average, partially offset by rate pressure from merchant negotiations, including those resulting from the recent regulatory changes affecting competitor pricing in the European Union, and continued growth of the OptBlue program. We expect the average discount rate will likely decline over time due to a greater shift of existing merchants into OptBlue, merchant negotiations and competition, volume related pricing discounts and certain pricing initiatives mainly driven by pricing regulation (including regulation of competitors’ interchange rates).
Net card fees increased, primarily driven by growth in the Platinum, Gold and Delta portfolios as well as growth in certain international markets, including Japan and Australia.
Other fees and commissions increased, primarily driven by an increase in delinquency fees as a result of a change in the date on which late fees are assessed on our U.S. consumer charge cards, partially offset by Costco-related fees in the prior year.
Other revenues decreased, driven in part by prior-year revenues related to our Loyalty Edge business, which was sold in the fourth quarter of 2016.
Interest income decreased, primarily driven by Costco cobrand-related interest income included in the prior year, partially offset by modestly higher yields in the current year and an increase in average Card Member loans across other lending products.
Interest expense increased, primarily driven by higher average long-term debt and marginally higher interest rates.
Table 3: Provisions for Losses Summary
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
2017 vs. 2016
|
|
Charge card
|
|
$
|
213
|
|
|
$
|
169
|
|
|
$
|
44
|
|
|
|
26
|
%
|
Card Member loans
|
|
|
337
|
|
|
|
227
|
|
|
|
110
|
|
|
|
48
|
|
Other
|
|
|
23
|
|
|
|
38
|
|
|
|
(15
|
)
|
|
|
(39
|
)
|
Total provisions for losses
(a)
|
|
$
|
573
|
|
|
$
|
434
|
|
|
$
|
139
|
|
|
|
32
|
%
|
(a)
|
Beginning December 1, 2015 through to the sale completion dates, does not reflect the HFS portfolios.
|
Provisions for Losses
Charge card provision for losses increased, primarily driven by growth in charge volume in the GCS segment and increasing delinquencies resulting in higher net write-offs.
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.
Card Member loans provision for losses increased, primarily driven by strong momentum in our lending growth initiatives, as well as a slight increase in delinquencies and higher net write-off rates primarily due to the seasoning of loans related to newer Card Members and a shift towards non-cobrand lending products, which have slightly higher write-off rates.
Other provision for losses decreased, primarily driven by improving commercial financing portfolio credit performance.
Table 4: Expenses Summary
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Marketing and promotion
|
|
$
|
700
|
|
|
$
|
727
|
|
|
$
|
(27
|
)
|
|
|
(4
|
)%
|
Card Member rewards
|
|
|
1,807
|
|
|
|
1,703
|
|
|
|
104
|
|
|
|
6
|
|
Card Member services and other
|
|
|
321
|
|
|
|
282
|
|
|
|
39
|
|
|
|
14
|
|
Total marketing, promotion, rewards, Card Member services and other
|
|
|
2,828
|
|
|
|
2,712
|
|
|
|
116
|
|
|
|
4
|
|
Salaries and employee benefits
|
|
|
1,264
|
|
|
|
1,338
|
|
|
|
(74
|
)
|
|
|
(6
|
)
|
Other, net
(a)
|
|
|
1,407
|
|
|
|
1,420
|
|
|
|
(13
|
)
|
|
|
(1
|
)
|
Total expenses
|
|
$
|
5,499
|
|
|
$
|
5,470
|
|
|
$
|
29
|
|
|
|
1
|
%
|
(a)
|
Beginning December 1, 2015 through to the portfolio sale completion dates, includes the valuation allowance adjustment associated with the HFS portfolios.
|
Expenses
Marketing and promotion expenses decreased, driven by higher levels of spending on growth initiatives in the prior year.
Card Member rewards expenses increased, primarily driven by an increase in Membership Rewards expense of $228 million, partially offset by a reduction in cobrand rewards expense of $124 million. The increase in Membership Rewards expense was primarily driven by recent enhancements to U.S. Consumer and Small Business Platinum rewards, higher spending volumes and an increase in the weighted average cost (WAC) per point. The decrease in cobrand rewards expense reflected Costco-related expenses in the prior year, partially offset by increased spending volumes across other cobrand card products in the current period.
The Membership Rewards Ultimate Redemption Rate (URR) for current program participants was 95 percent (rounded down) at both March 31, 2017 and 2016.
Card Member services and other expenses increased, driven by higher usage of travel-related benefits.
Salaries and employee benefits expenses decreased, reflecting benefits from our cost reduction initiatives and restructuring charges in the prior year.
Other expenses decreased, reflecting lower technology-related costs in the current year and, in the prior year, Loyalty Edge related costs and the HFS valuation allowance adjustment, partially offset by the gain on the sale of the JetBlue HFS portfolio, also in the prior year.
Income Taxes
The effective tax rate decreased, primarily reflecting the geographic mix of business and the level of pretax income in relation to recurring permanent tax benefits. In addition, the effective tax rate in the current year reflected the resolution of certain prior years’ tax items.
Table 5: Selected Card-Related Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2017
|
|
|
|
March 31,
|
|
|
vs.
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Card billed business:
(billions)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
165.4
|
|
|
$
|
176.3
|
|
|
|
(6
|
)%
|
Outside the United States
|
|
|
86.9
|
|
|
|
77.5
|
|
|
|
12
|
|
Worldwide
|
|
$
|
252.3
|
|
|
$
|
253.8
|
|
|
|
(1
|
)
|
Total cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
48.2
|
|
|
|
57.9
|
|
|
|
(17
|
)
|
Outside the United States
|
|
|
63.0
|
|
|
|
60.7
|
|
|
|
4
|
|
Worldwide
|
|
|
111.2
|
|
|
|
118.6
|
|
|
|
(6
|
)
|
Basic cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
38.1
|
|
|
|
45.1
|
|
|
|
(16
|
)
|
Outside the United States
|
|
|
52.2
|
|
|
|
50.0
|
|
|
|
4
|
|
Worldwide
|
|
|
90.3
|
|
|
|
95.1
|
|
|
|
(5
|
)
|
Average basic Card Member spending:
(dollars)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,859
|
|
|
$
|
4,249
|
|
|
|
14
|
|
Outside the United States
|
|
|
3,283
|
|
|
|
3,082
|
|
|
|
7
|
|
Worldwide Average
|
|
$
|
4,387
|
|
|
$
|
3,952
|
|
|
|
11
|
|
Card Member loans:
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
56.6
|
|
|
$
|
50.7
|
|
|
|
12
|
|
Outside the United States
|
|
|
7.0
|
|
|
|
6.7
|
|
|
|
4
|
|
Worldwide
|
|
$
|
63.6
|
|
|
$
|
57.4
|
|
|
|
11
|
|
Average discount rate
|
|
|
2.45
|
%
|
|
|
2.44
|
%
|
|
|
|
|
Average fee per card
(dollars)
(a)
|
|
$
|
48
|
|
|
$
|
40
|
|
|
|
20
|
%
|
(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 divided by average worldwide proprietary cards-in-force.
|
Table 6: Billed Business Growth
|
|
Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
|
|
|
Percentage Increase
|
|
|
|
Percentage
|
|
(Decrease) Assuming
|
|
|
|
Increase
|
|
No Changes in
|
|
|
|
(Decrease)
|
|
FX Rates
(a)
|
|
Worldwide
(b)
|
|
|
|
|
|
Total billed business
|
|
(1)
|
%
|
―
|
%
|
Proprietary billed business
|
|
(2)
|
|
(2)
|
|
GNS billed business
(c)
|
|
7
|
|
6
|
|
Airline-related volume (9% of worldwide billed business)
|
|
1
|
|
2
|
|
United States
(b)
|
|
|
|
|
|
Billed business
|
|
(6)
|
|
|
|
Proprietary consumer card billed business
(d)
|
|
(13)
|
|
|
|
Proprietary small business and corporate services billed business
(e)
|
|
2
|
|
|
|
T&E-related volume (27% of U.S. billed business)
|
|
(5)
|
|
|
|
Non-T&E-related volume (73% of U.S. billed business)
|
|
(7)
|
|
|
|
Airline-related volume (8% of U.S. billed business)
|
|
(4)
|
|
|
|
Outside the United States
(b)
|
|
|
|
|
|
Billed business
|
|
12
|
|
13
|
|
Japan, Asia Pacific & Australia (JAPA) billed business
|
|
16
|
|
14
|
|
Latin America & Canada (LACC) billed business
|
|
10
|
|
9
|
|
Europe, the Middle East & Africa (EMEA) billed business
|
|
7
|
|
12
|
|
Proprietary consumer card billed business
(c)
|
|
8
|
|
11
|
|
Proprietary small business and corporate services billed business
(e)
|
|
13
|
%
|
14
|
%
|
(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 period 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 ICNS segment.
|
(d)
|
Included in the USCS segment.
|
(e)
|
Included in the GCS segment.
|
Table 7: Selected Credit Related Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2017
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Worldwide Card Member loans:
(a)
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
63.6
|
|
|
$
|
57.4
|
|
|
|
11
|
%
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,223
|
|
|
$
|
1,028
|
|
|
|
19
|
|
Provisions
(b)
|
|
|
337
|
|
|
|
227
|
|
|
|
48
|
|
Net write-offs — principal only
(c)
|
|
|
(272
|
)
|
|
|
(214
|
)
|
|
|
27
|
|
Net write-offs — interest and fees
(c)
|
|
|
(51
|
)
|
|
|
(40
|
)
|
|
|
28
|
|
Other
|
|
|
11
|
|
|
|
11
|
|
|
|
―
|
|
Ending balance
|
|
$
|
1,248
|
|
|
$
|
1,012
|
|
|
|
23
|
|
Ending reserves — principal
|
|
$
|
1,179
|
|
|
$
|
959
|
|
|
|
23
|
|
Ending reserves — interest and fees
|
|
$
|
69
|
|
|
$
|
53
|
|
|
|
30
|
|
% of loans
|
|
|
2.0
|
%
|
|
|
1.8
|
%
|
|
|
|
|
% of past due
|
|
|
158
|
%
|
|
|
161
|
%
|
|
|
|
|
Average loans
(billions)
(a)
|
|
$
|
63.9
|
|
|
$
|
57.4
|
|
|
|
11
|
|
Net write-off rate — principal only
(d)
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
|
|
Net write-off rate — principal, interest and fees
(d)
|
|
|
2.0
|
%
|
|
|
1.8
|
%
|
|
|
|
|
30+ days past due as a % of total
(d)
|
|
|
1.2
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Card Member receivables:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
47.6
|
|
|
$
|
44.5
|
|
|
|
7
|
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
467
|
|
|
$
|
462
|
|
|
|
1
|
|
Provisions
(b)
|
|
|
213
|
|
|
|
169
|
|
|
|
26
|
|
Net write-offs
(c)
|
|
|
(194
|
)
|
|
|
(186
|
)
|
|
|
4
|
|
Other
|
|
|
5
|
|
|
|
1
|
|
|
|
#
|
|
Ending balance
|
|
$
|
491
|
|
|
$
|
446
|
|
|
|
10
|
%
|
% of receivables
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
|
|
Net write-off rate — principal only
(d)
|
|
|
1.7
|
%
|
|
|
1.9
|
%
|
|
|
|
|
Net write-off rate — principal and fees
(d)
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
|
|
|
|
30+ days past due as a % of total
(d)
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
|
|
Net loss ratio as a % of charge volume — GCP
|
|
|
0.11
|
%
|
|
|
0.08
|
%
|
|
|
|
|
90+ days past billing as a % of total — GCP
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
# 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)
|
Reflects provisions for principal, interest and/or fees on Card Member loans and receivables. 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.
|
Table 8: Net Interest Yield on Card Member Loans
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Millions, except percentages and where indicated)
|
|
2017
|
|
|
2016
|
|
Net interest income
|
|
$
|
1,500
|
|
|
$
|
1,580
|
|
Exclude:
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
|
|
|
252
|
|
|
|
238
|
|
Interest income not attributable to our Card Member loan portfolio
|
|
|
(130
|
)
|
|
|
(103
|
)
|
Adjusted net interest income
(a)
|
|
$
|
1,622
|
|
|
$
|
1,715
|
|
Average loans including HFS loan portfolios
(billions)
(b)
|
|
$
|
63.9
|
|
|
$
|
70.8
|
|
Net interest income divided by average loans
|
|
|
9.4
|
%
|
|
|
8.9
|
%
|
Net interest yield on Card Member loans
(a)
|
|
|
10.3
|
%
|
|
|
9.7
|
%
|
(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.
|
(b)
|
Beginning December 1, 2015 through to the sale completion dates, for the purposes of the calculation of net interest yield on Card Member loans, average loans included the HFS loan portfolios.
|
Business Segment Results
Table 9: USCS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,857
|
|
|
$
|
2,029
|
|
|
$
|
(172
|
)
|
|
|
(8
|
)%
|
Interest income
|
|
|
1,308
|
|
|
|
1,391
|
|
|
|
(83
|
)
|
|
|
(6
|
)
|
Interest expense
|
|
|
146
|
|
|
|
140
|
|
|
|
6
|
|
|
|
4
|
|
Net interest income
|
|
|
1,162
|
|
|
|
1,251
|
|
|
|
(89
|
)
|
|
|
(7
|
)
|
Total revenues net of interest expense
|
|
|
3,019
|
|
|
|
3,280
|
|
|
|
(261
|
)
|
|
|
(8
|
)
|
Provisions for losses
|
|
|
294
|
|
|
|
190
|
|
|
|
104
|
|
|
|
55
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,725
|
|
|
|
3,090
|
|
|
|
(365
|
)
|
|
|
(12
|
)
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
1,297
|
|
|
|
1,348
|
|
|
|
(51
|
)
|
|
|
(4
|
)
|
Salaries and employee benefits and other operating expenses
|
|
|
728
|
|
|
|
655
|
|
|
|
73
|
|
|
|
11
|
|
Total expenses
|
|
|
2,025
|
|
|
|
2,003
|
|
|
|
22
|
|
|
|
1
|
|
Pretax segment income
|
|
|
700
|
|
|
|
1,087
|
|
|
|
(387
|
)
|
|
|
(36
|
)
|
Income tax provision
|
|
|
231
|
|
|
|
393
|
|
|
|
(162
|
)
|
|
|
(41
|
)
|
Segment income
|
|
$
|
469
|
|
|
$
|
694
|
|
|
$
|
(225
|
)
|
|
|
(32
|
)%
|
Effective tax rate
|
|
|
33.0
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including consumer travel services.
Non-interest revenues decreased, primarily due to lower discount revenue, which decreased $201 million, reflecting Costco-related revenues in the prior year. Billed business decreased 13 percent, driven by Costco-related volumes included in the prior year. The decrease in discount revenue was partially offset by an increase in net card fees, resulting from growth in the Platinum, Gold and Delta portfolios, as well as higher delinquency fees.
Net interest income decreased, primarily driven by Costco cobrand-related interest income included in the prior year and higher interest expense, primarily driven by higher cost of funds in the current year, partially offset by an increase in average Card Member loans across other lending products and higher yields.
Provisions for losses increased, primarily driven by Card Member loans provision, which increased $80 million, due to strong momentum in our lending growth initiatives, as well as a slight increase in delinquencies and higher net write-off rates primarily due to the seasoning of loans related to newer Card Members and a shift towards non-cobrand lending products, which have slightly higher write-off rates.
Marketing, promotion, rewards, Card Member services and other expenses decreased, reflecting lower marketing and promotion and Card Member rewards expenses, partially offset by an increase in Card Member services and other expenses. Marketing and promotion expenses decreased $21 million, due to higher levels of spending on growth initiatives in the prior year. Card Member rewards expense decreased $49 million, reflecting Costco-related expenses in the prior year, partially offset by recent enhancements to Platinum rewards and spending volumes. Card Member services and other expenses increased $19 million, driven by higher usage of travel-related benefits.
Salaries and employee benefits and other operating expenses increased, primarily driven by the prior year gain on the sale of the JetBlue HFS portfolio, partially offset by lower servicing-related costs in the current year and the prior year HFS valuation allowance adjustment.
The effective tax rate was lower, primarily reflecting the level of pretax income in relation to recurring permanent tax benefits and the resolution of certain prior years’ tax items.
Table 10: USCS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2017
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Card billed business
(billions)
|
|
$
|
77.5
|
|
|
$
|
89.0
|
|
|
|
(13
|
)%
|
Total cards-in-force
|
|
|
33.2
|
|
|
|
40.9
|
|
|
|
(19
|
)
|
Basic cards-in-force
|
|
|
23.7
|
|
|
|
28.8
|
|
|
|
(18
|
)
|
Average basic Card Member spending
(dollars)
|
|
$
|
3,297
|
|
|
$
|
3,092
|
|
|
|
7
|
|
Total segment assets
(billions)
|
|
$
|
81.2
|
|
|
$
|
86.3
|
|
|
|
(6
|
)
|
Segment capital
(billions)
|
|
$
|
7.1
|
|
|
$
|
7.4
|
|
|
|
(4
|
)
|
Return on average segment capital
(a)
|
|
|
31.9
|
%
|
|
|
31.8
|
%
|
|
|
|
|
Card Member loans:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
46.7
|
|
|
$
|
42.4
|
|
|
|
10
|
|
Average loans
(billions)
|
|
$
|
47.2
|
|
|
$
|
42.5
|
|
|
|
11
|
|
Net write-off rate – principal only
(c)
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
|
|
Net write-off rate – principal, interest and fees
(c)
|
|
|
2.0
|
%
|
|
|
1.7
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.2
|
%
|
|
|
1.0
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,162
|
|
|
$
|
1,251
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
|
|
|
23
|
|
|
|
19
|
|
|
|
|
|
Interest income not attributable to our Card Member loan portfolio
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
|
|
Adjusted net interest income
(d)
|
|
$
|
1,167
|
|
|
$
|
1,265
|
|
|
|
|
|
Average loans including HFS loan portfolios
(billions)
(e)
|
|
$
|
47.2
|
|
|
$
|
53.8
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
9.8
|
%
|
|
|
9.3
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(d)
|
|
|
10.0
|
%
|
|
|
9.5
|
%
|
|
|
|
|
Card Member receivables:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
10.9
|
|
|
$
|
10.3
|
|
|
|
6
|
%
|
Net write-off rate – principal only
(c)
|
|
|
1.5
|
%
|
|
|
1.8
|
%
|
|
|
|
|
Net write-off rate – principal and fees
(c)
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
|
|
30+ days past due as a % of total
|
|
|
1.3
|
%
|
|
|
1.4
|
%
|
|
|
|
|
(a)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($2.3 billion and $2.4 billion for the twelve months ended March 31, 2017 and 2016, respectively) by (ii) one-year average segment capital ($7.2 billion and $7.5 billion for the twelve months ended March 31, 2017 and 2016, respectively).
|
(b)
|
Refer to Table 7 footnote (a).
|
(c)
|
Refer to Table 7 footnote (d).
|
(d)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for the 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.
|
(e)
|
Refer to Table 8 footnote (b).
|
International Consumer and Network Services
Table 11: ICNS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,195
|
|
|
$
|
1,140
|
|
|
$
|
55
|
|
|
|
5
|
%
|
Interest income
|
|
|
235
|
|
|
|
227
|
|
|
|
8
|
|
|
|
4
|
|
Interest expense
|
|
|
53
|
|
|
|
54
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Net interest income
|
|
|
182
|
|
|
|
173
|
|
|
|
9
|
|
|
|
5
|
|
Total revenues net of interest expense
|
|
|
1,377
|
|
|
|
1,313
|
|
|
|
64
|
|
|
|
5
|
|
Provisions for losses
|
|
|
66
|
|
|
|
71
|
|
|
|
(5
|
)
|
|
|
(7
|
)
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,311
|
|
|
|
1,242
|
|
|
|
69
|
|
|
|
6
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
505
|
|
|
|
481
|
|
|
|
24
|
|
|
|
5
|
|
Salaries and employee benefits and other operating expenses
|
|
|
514
|
|
|
|
506
|
|
|
|
8
|
|
|
|
2
|
|
Total expenses
|
|
|
1,019
|
|
|
|
987
|
|
|
|
32
|
|
|
|
3
|
|
Pretax segment income
|
|
|
292
|
|
|
|
255
|
|
|
|
37
|
|
|
|
15
|
|
Income tax provision
|
|
|
74
|
|
|
|
67
|
|
|
|
7
|
|
|
|
10
|
|
Segment income
|
|
$
|
218
|
|
|
$
|
188
|
|
|
$
|
30
|
|
|
|
16
|
%
|
Effective tax rate
|
|
|
25.3
|
%
|
|
|
26.3
|
%
|
|
|
|
|
|
|
|
|
ICNS issues a wide range of proprietary consumer cards outside the 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 travel services to consumers outside the United States.
Non-interest revenues increased, primarily driven by higher discount revenue, due to an increase in both proprietary and non-proprietary (i.e., GNS) billed business, as well as higher net card fees. Total billed business increased due to increases in both cards-in-force and average spend per card. Refer to Tables 6 and 12 for additional information on billed business.
Net interest income increased, primarily driven by higher average loan balances.
Marketing, promotion, rewards, Card Member services and other expenses increased, primarily driven by higher Card Member rewards expense due to higher spending volumes.
Salaries and employee benefits and other operating expenses increased, primarily driven by higher servicing-related costs, partially offset by lower salaries and employee benefits costs.
The effective tax rate in both periods reflects the impact of recurring permanent tax benefits both in relation to the segment’s ongoing funding activities outside the United States, which is allocated to ICNS under our internal tax allocation process, and on varying levels of pretax income.
Table 12: ICNS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2017
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Card billed business
(billions)
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
$
|
26.6
|
|
|
$
|
24.7
|
|
|
|
8
|
%
|
GNS
|
|
|
43.4
|
|
|
|
40.5
|
|
|
|
7
|
|
Total
|
|
$
|
70.0
|
|
|
$
|
65.2
|
|
|
|
7
|
|
Total cards-in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
|
15.3
|
|
|
|
14.8
|
|
|
|
3
|
|
GNS
|
|
|
49.0
|
|
|
|
47.7
|
|
|
|
3
|
|
Total
|
|
|
64.3
|
|
|
|
62.5
|
|
|
|
3
|
|
Proprietary basic cards-in-force
|
|
|
10.5
|
|
|
|
10.1
|
|
|
|
4
|
|
Average proprietary basic Card Member spending
(dollars)
|
|
$
|
2,542
|
|
|
$
|
2,455
|
|
|
|
4
|
|
Total segment assets
(billions)
|
|
$
|
36.1
|
|
|
$
|
34.3
|
|
|
|
5
|
|
Segment capital
(billions)
|
|
$
|
2.7
|
|
|
$
|
2.5
|
|
|
|
8
|
|
Return on average segment capital
(a)
|
|
|
26.4
|
%
|
|
|
23.6
|
%
|
|
|
|
|
Card Member loans:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
6.8
|
|
|
$
|
6.6
|
|
|
|
3
|
|
Average loans
(billions)
|
|
$
|
6.9
|
|
|
$
|
6.8
|
|
|
|
1
|
|
Net write-off rate – principal only
(c)
|
|
|
2.0
|
%
|
|
|
1.9
|
%
|
|
|
|
|
Net write-off rate – principal, interest and fees
(c)
|
|
|
2.5
|
%
|
|
|
2.4
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
182
|
|
|
$
|
173
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
Interest income not attributable to our Card Member loan portfolio
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
Adjusted net interest income
(d)
|
|
$
|
189
|
|
|
$
|
181
|
|
|
|
|
|
Average loans
(billions)
|
|
$
|
6.9
|
|
|
$
|
6.8
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
10.6
|
%
|
|
|
10.3
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(d)
|
|
|
11.1
|
%
|
|
|
10.8
|
%
|
|
|
|
|
Card Member receivables:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
5.5
|
|
|
$
|
5.6
|
|
|
|
(2
|
)%
|
Net write-off rate – principal only
(c)
|
|
|
2.1
|
%
|
|
|
2.2
|
%
|
|
|
|
|
Net write-off rate – principal and fees
(c)
|
|
|
2.3
|
%
|
|
|
2.4
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
|
|
(a)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($685 million and $676 million for the twelve months ended March 31, 2017 and 2016, respectively) by (ii) one-year average segment capital ($2.6 billion and $2.9 billion for the twelve months ended March 31, 2017 and 2016, respectively).
|
(b)
|
Refer to Table 7 footnote (a).
|
(c)
|
Refer to Table 7 footnote (d).
|
(d)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for the 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.
|
Global Commercial Services
Table 13: GCS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,271
|
|
|
$
|
2,190
|
|
|
$
|
81
|
|
|
|
4
|
%
|
Interest income
|
|
|
319
|
|
|
|
321
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Interest expense
|
|
|
109
|
|
|
|
95
|
|
|
|
14
|
|
|
|
15
|
|
Net interest income
|
|
|
210
|
|
|
|
226
|
|
|
|
(16
|
)
|
|
|
(7
|
)
|
Total revenues net of interest expense
|
|
|
2,481
|
|
|
|
2,416
|
|
|
|
65
|
|
|
|
3
|
|
Provisions for losses
|
|
|
208
|
|
|
|
160
|
|
|
|
48
|
|
|
|
30
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,273
|
|
|
|
2,256
|
|
|
|
17
|
|
|
|
1
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
938
|
|
|
|
766
|
|
|
|
172
|
|
|
|
22
|
|
Salaries and employee benefits and other operating expenses
|
|
|
705
|
|
|
|
729
|
|
|
|
(24
|
)
|
|
|
(3
|
)
|
Total expenses
|
|
|
1,643
|
|
|
|
1,495
|
|
|
|
148
|
|
|
|
10
|
|
Pretax segment income
|
|
|
630
|
|
|
|
761
|
|
|
|
(131
|
)
|
|
|
(17
|
)
|
Income tax provision
|
|
|
212
|
|
|
|
276
|
|
|
|
(64
|
)
|
|
|
(23
|
)
|
Segment income
|
|
$
|
418
|
|
|
$
|
485
|
|
|
$
|
(67
|
)
|
|
|
(14
|
)%
|
Effective tax rate
|
|
|
33.7
|
%
|
|
|
36.3
|
%
|
|
|
|
|
|
|
|
|
GCS issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products.
Non-interest revenues increased, primarily driven by higher discount revenue due to an increase in billed business, partially offset by Costco-related revenues in the prior year. The increase in Non-interest revenues was also driven by higher net card fees, due to growth in the U.S. small business Platinum and Gold portfolios.
Net interest income decreased, primarily driven by higher interest expense, reflecting an increase in the cost of funds, and Costco cobrand interest income in the prior year, partially offset by an increase in average Card Member loans across other lending products.
Provisions for losses increased due to strong growth in both Card Member receivables and loans, leading to higher net write-offs and a slight increase in delinquencies, partially offset by lower write-offs and delinquencies in the commercial financing portfolio.
Marketing, promotion, rewards, Card Member services and other expenses increased, driven by modestly higher marketing and promotion expenses, as a result of spending on growth initiatives in our Global Corporate Payments business, and higher Card Member rewards expenses, which increased $127 million, primarily driven by recent enhancements to Platinum rewards, higher spending volumes and an increase in the WAC per point, partially offset by Costco-related expenses in the prior year.
Salaries and employee benefits and other operating expenses decreased, primarily due to lower technology-related expenses and the HFS valuation allowance in the prior year, partially offset by the prior year gain on the sale of the JetBlue HFS portfolio.
The effective tax rate was lower, primarily reflecting the geographic mix of business and the resolution of certain prior years’ tax items.
Table 14: GCS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2017
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Card billed business
(billions)
|
|
$
|
102.8
|
|
|
$
|
98.5
|
|
|
|
4
|
%
|
Total cards-in-force
|
|
|
13.7
|
|
|
|
15.2
|
|
|
|
(10
|
)
|
Basic cards-in-force
|
|
|
13.7
|
|
|
|
15.2
|
|
|
|
(10
|
)
|
Average basic Card Member spending
(dollars)
|
|
$
|
7,533
|
|
|
$
|
6,509
|
|
|
|
16
|
|
Total segment assets
(billions)
|
|
$
|
48.3
|
|
|
$
|
46.7
|
|
|
|
3
|
|
Segment capital
(billions)
|
|
$
|
7.2
|
|
|
$
|
7.2
|
|
|
|
―
|
|
Return on average segment capital
(a)
|
|
|
25.4
|
%
|
|
|
28.0
|
%
|
|
|
|
|
Card Member loans
(billions)
|
|
$
|
10.0
|
|
|
$
|
8.3
|
|
|
|
20
|
|
Card Member receivables
(billions)
|
|
$
|
31.2
|
|
|
$
|
28.6
|
|
|
|
9
|
|
Card Member loans:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans - GSBS
(billions)
|
|
$
|
10.0
|
|
|
$
|
8.3
|
|
|
|
20
|
|
Average loans - GSBS
(billions)
|
|
$
|
9.6
|
|
|
$
|
8.1
|
|
|
|
19
|
|
Net write-off rate (principal only) - GSBS
(c)
|
|
|
1.6
|
%
|
|
|
1.4
|
%
|
|
|
|
|
Net write-off rate (principal, interest and fees) - GSBS
(c)
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.2
|
%
|
|
|
1.0
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
210
|
|
|
$
|
226
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
|
|
|
83
|
|
|
|
72
|
|
|
|
|
|
Interest income not attributable to our Card Member loan portfolio
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
|
|
|
Adjusted net interest income
(d)
|
|
$
|
266
|
|
|
$
|
270
|
|
|
|
|
|
Average loans including HFS loan portfolios
(billions)
(e)
|
|
$
|
9.7
|
|
|
$
|
10.3
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
8.7
|
%
|
|
|
8.8
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(d)
|
|
|
11.1
|
%
|
|
|
10.5
|
%
|
|
|
|
|
Card Member receivables:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables - GCP
(billions)
|
|
$
|
16.6
|
|
|
$
|
15.4
|
|
|
|
8
|
|
90+ days past billing as a % of total - GCP
(f)
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Net loss ratio (as a % of charge volume) - GCP
|
|
|
0.11
|
%
|
|
|
0.08
|
%
|
|
|
|
|
Total receivables - GSBS
(billions)
|
|
$
|
14.6
|
|
|
$
|
13.2
|
|
|
|
11
|
%
|
Net write-off rate (principal only) - GSBS
(c)
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
|
|
Net write-off rate (principal and fees) - GSBS
(c)
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
(a)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.8 billion and $2.0 billion for the twelve months ended March 31, 2017 and 2016, respectively) by (ii) one-year average segment capital ($7.3 billion and $7.1 billion for the twelve months ended March 31, 2017 and 2016, respectively).
|
|
(b)
|
Refer to Table 7 footnote (a).
|
|
(c)
|
Refer to Table 7 footnote (d).
|
|
(d)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for the 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.
|
|
(e)
|
Refer to Table 8 footnote (b).
|
|
(f)
|
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 we initiate 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.
|
Global Merchant Services
Table 15: GMS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,017
|
|
|
$
|
1,041
|
|
|
$
|
(24
|
)
|
|
|
(2
|
)%
|
Interest expense
|
|
|
(58
|
)
|
|
|
(59
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
Net interest income
|
|
|
58
|
|
|
|
59
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Total revenues net of interest expense
|
|
|
1,075
|
|
|
|
1,100
|
|
|
|
(25
|
)
|
|
|
(2
|
)
|
Provisions for losses
|
|
|
3
|
|
|
|
8
|
|
|
|
(5
|
)
|
|
|
(63
|
)
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,072
|
|
|
|
1,092
|
|
|
|
(20
|
)
|
|
|
(2
|
)
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
32
|
|
|
|
58
|
|
|
|
(26
|
)
|
|
|
(45
|
)
|
Salaries and employee benefits and other operating expenses
|
|
|
473
|
|
|
|
463
|
|
|
|
10
|
|
|
|
2
|
|
Total expenses
|
|
|
505
|
|
|
|
521
|
|
|
|
(16
|
)
|
|
|
(3
|
)
|
Pretax segment income
|
|
|
567
|
|
|
|
571
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Income tax provision
|
|
|
204
|
|
|
|
214
|
|
|
|
(10
|
)
|
|
|
(5
|
)
|
Segment income
|
|
$
|
363
|
|
|
$
|
357
|
|
|
$
|
6
|
|
|
|
2
|
%
|
Effective tax rate
|
|
|
36.0
|
%
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
GMS operates a global payments network that processes and settles proprietary and non-proprietary card transactions. GMS acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging our global closed-loop network. GMS also operates loyalty coalition businesses in certain countries around the world.
Non-interest revenues decreased, primarily due to lower discount revenue driven by Costco cobrand-related revenues in the prior year as well as higher contra-revenues in the current year.
Marketing, promotion, rewards, Card Member services and other expenses decreased, reflecting higher levels of spending on growth initiatives in the prior year.
Salaries and employee benefits and other operating expenses increased, primarily driven by higher allocated servicing-related costs, partially offset by growth of the OptBlue program, which does not entail merchant acquirer payments, and lower salaries and employee benefits costs.
Table 16: GMS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2017
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Loyalty Coalition revenue
|
|
$
|
102
|
|
|
$
|
94
|
|
|
|
9
|
%
|
Average discount rate
|
|
|
2.45
|
%
|
|
|
2.44
|
%
|
|
|
|
|
Total segment assets
(billions)
|
|
$
|
24.5
|
|
|
$
|
23.7
|
|
|
|
3
|
%
|
Segment capital
(billions)
|
|
$
|
2.7
|
|
|
$
|
2.4
|
|
|
|
13
|
%
|
Return on average segment capital
(a)
|
|
|
59.1
|
%
|
|
|
62.7
|
%
|
|
|
|
|
(a)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.5 billion for both the twelve months ended March 31, 2017 and 2016) by (ii) one-year average segment capital ($2.5 billion and $2.4 billion for the twelve months ended March 31, 2017 and 2016, respectively).
|
Corporate functions and certain other businesses, including our Prepaid Services business and other operations, are included in Corporate & Other.
Corporate & Other net expense decreased to $231 million for the three months ended March 31, 2017, compared to $298 million in the same period a year ago, primarily driven by prior year restructuring charges.
Results for both periods included net interest expense related to maintaining the liquidity requirements discussed in “Consolidated Capital Resources and Liquidity – Liquidity Management,” as well as interest expense related to other corporate indebtedness.
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 twelve-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.
|
The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank), as of March 31, 2017.
Table 17: Regulatory Risk-Based Capital and Leverage Ratios
|
|
|
|
Basel III
|
|
Ratios as of
|
|
|
|
|
|
Standards
|
|
March 31,
|
|
|
|
|
|
2017
(a)
|
|
2017
|
|
Risk-Based Capital
|
|
|
|
|
|
|
Common Equity Tier 1
|
|
5.8
|
%
|
|
|
|
|
American Express Company
|
|
|
|
12.7
|
%
|
|
|
American Express Centurion Bank
|
|
|
|
17.7
|
|
|
|
American Express Bank, FSB
|
|
|
|
14.3
|
|
|
|
Tier 1
|
|
7.3
|
|
|
|
|
|
American Express Company
|
|
|
|
13.9
|
|
|
|
American Express Centurion Bank
|
|
|
|
17.7
|
|
|
|
American Express Bank, FSB
|
|
|
|
14.3
|
|
|
Total
|
|
9.3
|
|
|
|
|
|
American Express Company
|
|
|
|
15.6
|
|
|
|
American Express Centurion Bank
|
|
|
|
19.0
|
|
|
|
American Express Bank, FSB
|
|
|
|
15.6
|
|
Tier 1 Leverage
|
|
4.0
|
|
|
|
|
|
American Express Company
|
|
|
|
11.5
|
|
|
|
American Express Centurion Bank
|
|
|
|
17.4
|
|
|
|
American Express Bank, FSB
|
|
|
|
12.2
|
|
Supplementary Leverage Ratio
(b)
|
|
3.0
|
%
|
|
|
|
|
American Express Company
|
|
|
|
9.9
|
|
|
|
American Express Centurion Bank
|
|
|
|
13.3
|
|
|
|
American Express Bank, FSB
|
|
|
|
10.1
|
%
|
(a)
|
Transitional Basel III minimum capital requirement and additional capital conservation buffer as defined by the Federal Reserve for calendar year 2017 for advanced approaches institutions.
|
(b)
|
The minimum supplementary leverage ratio (SLR) requirement of 3 percent is effective January 1, 2018.
|
Table 18: Regulatory Risk-Based Capital Components and Risk Weighted Assets
American Express Company
|
|
March 31,
|
|
($ in Billions)
|
|
2017
|
|
Risk-Based Capital
|
|
|
|
Common Equity Tier 1
|
|
$
|
16.3
|
|
Tier 1 Capital
|
|
|
17.8
|
|
Tier 2 Capital
(a)
|
|
|
2.2
|
|
Total Capital
|
|
|
20.0
|
|
|
|
|
|
|
Risk-Weighted Assets
|
|
|
128.6
|
|
Average Total Assets to calculate the Tier 1 Leverage Ratio
|
|
|
155.0
|
|
Total Leverage Exposure to calculate SLR
|
|
$
|
180.5
|
|
(a)
|
Tier 2 capital is the sum of the allowance for loan and receivable losses (limited to 1.25 percent of risk-weighted assets) and $600 million of subordinated notes adjusted for capital held by insurance subsidiaries.
|
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 regulatory agencies with oversight of American Express, Centurion Bank and American Express Bank 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. The minimum requirement for the Tier 1 risk-based capital ratio is 1.5 percent higher than the minimum for the CET1 risk-based capital ratio. We have $1.6 billion of preferred shares outstanding to help address a portion of the Tier 1 capital requirements in excess of common equity requirements.
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 loan and receivable losses (limited to 1.25 percent of risk-weighted assets), a portion of the unrealized gains on equity securities, and $600 million of subordinated notes adjusted for capital held by insurance subsidiaries.
Tier 1 Leverage Ratio
— Calculated by dividing Tier 1 capital by our average total consolidated assets for the most recent quarter.
Supplementary Leverage Ratio
— Calculated by dividing Tier 1 capital by total leverage exposure under Basel III. Leverage exposure, which reflects average total consolidated assets with adjustments for Tier 1 capital deductions, average off-balance sheet derivatives exposures, securities purchased under agreements to resell and credit equivalents of undrawn commitments that are both conditionally and unconditionally cancellable.
Fully Phased-in Basel III
Basel III, when fully phased in, will require bank holding companies and their bank subsidiaries to maintain more capital than prior requirements, with a greater emphasis on common equity. The following table presents our estimates for our regulatory risk-based capital ratios and leverage ratios had Basel III been fully phased in as of March 31, 2017. These ratios are calculated using the standardized approach for determining risk-weighted assets. As noted previously, we are currently taking steps toward Basel III advanced approaches implementation in the United States. We believe the presentation of these ratios is helpful to investors by showing the impact of future regulatory capital standards on our capital and leverage ratios.
Table 19: Estimated Fully Phased-in Basel III Capital and Leverage Ratios
|
|
March 31,
|
|
($ in Billions)
|
|
2017
|
|
Estimated Common Equity Tier 1 Ratio under Fully Phased-In Basel III
(a)
|
|
|
12.3
|
%
|
Estimated Tier 1 Capital Ratio under Fully Phased-In Basel III
(a)
|
|
|
13.5
|
|
|
|
|
|
|
Estimated Tier 1 Leverage Ratio under Fully Phased-In Basel III
(b)
|
|
|
11.3
|
|
Estimated Supplementary Leverage Ratio under Fully Phased-In Basel III
|
|
|
9.7
|
%
|
|
|
|
|
|
Estimated Risk-Weighted Assets under Fully Phased-In Basel III
(c)
|
|
$
|
130.3
|
|
Estimated Average Total Assets to calculate the Tier 1 Leverage Ratio
(b)
|
|
|
154.8
|
|
Estimated Total Leverage Exposure to calculate SLR under Fully Phased-In Basel III
(d)
|
|
$
|
180.4
|
|
(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 20 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 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.
|
(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 following table presents a comparison of our CET1 and Tier 1 risk-based capital under Transitional Basel III rules to our estimated CET1 and Tier 1 risk-based capital under Fully Phased-in Basel III rules as of March 31, 2017.
Table 20: Transitional Basel III versus Fully Phased-in Basel III
(Billions)
|
|
CET1
|
|
|
Tier 1
|
|
Risk-Based Capital under Transitional Basel III
|
|
$
|
16.3
|
|
|
$
|
17.8
|
|
Adjustments related to:
|
|
|
|
|
|
|
|
|
AOCI
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Transition provisions for intangible assets
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Other
|
|
|
―
|
|
|
|
―
|
|
Estimated CET1 and Tier 1 Risk-Based Capital under Fully Phased-in Basel III
|
|
$
|
16.0
|
|
|
$
|
17.5
|
|
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 return capital to common shareholders through dividends and share repurchases. The share repurchases reduce common shares outstanding and more than offset the issuance of new shares as part of employee compensation plans.
During the three months ended March 31, 2017, we returned $1.1 billion to our shareholders in the form of common stock dividends ($0.3 billion) and share repurchases ($0.8 billion). We repurchased 11 million common shares at an average price of $77.93 in the first quarter of 2017. These dividend and share repurchase amounts collectively represent approximately 91 percent of total capital generated during the quarter.
In addition, during the three months ended March 31, 2017, 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 during the first quarter of 2017 were $21 million.
Bank holding companies with $50.0 billion or more in total consolidated assets, including the Company, are required to develop and maintain a capital plan, and to submit the capital plan to the Federal Reserve for review under its Comprehensive Capital Analysis and Review (CCAR) process. All such bank holding companies were required to submit their capital plans and stress testing results to the Federal Reserve by April 5, 2017. The Federal Reserve is expected to publish the decisions for all the bank holding companies participating in CCAR 2017, including the reasons for any objection to capital plans, by June 30, 2017. In addition, the Federal Reserve will separately publish the results of its supervisory stress test under both the supervisory severely adverse and adverse scenarios. The information to be released will include, among other things, the Federal Reserve’s projection of company-specific information, including post-stress capital ratios and the minimum value of these ratios over the planning horizon.
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.
Summary of Consolidated Debt
We had the following consolidated debt and customer deposits outstanding as of March 31, 2017 and December 31, 2016:
Table 21: Summary of Consolidated Debt and Customer Deposits
(Billions)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Short-term borrowings
|
|
$
|
3.6
|
|
|
$
|
5.6
|
|
Long-term debt
|
|
|
51.6
|
|
|
|
47.0
|
|
Total debt
|
|
|
55.2
|
|
|
|
52.6
|
|
Customer deposits
|
|
|
53.8
|
|
|
|
53.0
|
|
Total debt and customer deposits
|
|
$
|
109.0
|
|
|
$
|
105.6
|
|
Management does not currently expect to make any significant changes to our funding programs in order to satisfy Basel III’s Liquidity 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 March 31, 2017, we issued (i) $3.1 billion of asset-backed securities from the American Express Credit Account Master Trust (the Lending Trust) consisting of $2.3 billion of three year Class A Certificates at a fixed rate of 1.93%, $700 million of five year Class A Certificates at a floating rate of 1-month LIBOR plus 45 basis points, and $99 million of three year Class B Certificates at a fixed rate of 2.10%, and (ii) $4.5 billion of senior unsecured notes from American Express Credit Corporation consisting of $2.0 billion of three year notes at a fixed rate of 2.20%, $1.7 billion of five year notes at a fixed rate of 2.70%, $450 million of three year notes at a floating rate of 3-month LIBOR plus 43 basis points, and $300 million of five year notes at a floating rate of 3-month LIBOR plus 70 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 securitization activities are rated separately.
Table 22: Unsecured Debt Ratings
Credit Agency
|
|
American Express Entity
|
|
Short-Term Ratings
|
|
Long-Term Ratings
|
|
Outlook
|
DBRS
|
|
All rated entities
|
|
R-1 (middle)
|
|
A (high)
|
|
Stable
|
Fitch
|
|
All rated entities
|
|
F1
|
|
A
|
|
Negative
|
Moody’s
|
|
TRS and rated operating subsidiaries
(a)
|
|
Prime 1
|
|
A2
|
|
Stable
|
Moody's
|
|
American Express Company
|
|
Prime 2
|
|
A3
|
|
Stable
|
S&P
|
|
TRS
(a)
|
|
N/A
|
|
A-
|
|
Stable
|
S&P
|
|
Other rated operating subsidiaries
|
|
A-2
|
|
A-
|
|
Stable
|
S&P
|
|
American Express Company
|
|
A-2
|
|
BBB+
|
|
Stable
|
(a)
|
American Express Travel Related Services Company, Inc.
|
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.
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, even in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions, in amounts sufficient to meet our expected future financial obligations and business requirements for liquidity for a period of at least twelve months. Our liquidity risk policy sets out our objectives and approach to managing liquidity risk.
The liquidity risks that we are exposed to could arise from a wide variety of scenarios. Our liquidity management strategy thus includes a number of 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.
|
The amount and type of liquidity resources 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 various regulatory liquidity requirements, such as the LCR, as well as additional stress scenarios required under our liquidity risk policy.
The investment income we receive on liquidity resources, such as cash, is less than the interest expense on the sources of funding for these balances. The net interest costs to maintain these resources have been substantial. The level of future net interest costs depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment yields.
Securitized Borrowing Capacity
As of March 31, 2017, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 16, 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). We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 17, 2018, that gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the Lending Trust. 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 March 31, 2017, $1.6 billion was drawn on the Charge Trust facility. No amounts were drawn on the Lending Trust facility.
Federal Reserve Discount Window
As insured depository institutions, Centurion Bank and American Express Bank 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 $58.2 billion as of March 31, 2017 in U.S. credit card loans and charge card receivables that could be sold over time through our 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 Facility
In addition to the secured borrowing facilities described earlier in this section, we maintained a committed syndicated bank credit facility as of March 31, 2017 of $3.0 billion, which expires on December 9, 2018. As of March 31, 2017, no amounts were drawn on this facility.
Unused Credit Outstanding
As of March 31, 2017, we had approximately $252 billion of unused credit outstanding as part of established lending product agreements. Total unused credit 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.
The following table summarizes our cash flow activity for the three months ended March 31:
(Billions)
|
|
2017
|
|
|
2016
|
|
Total cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1.2
|
|
|
$
|
2.5
|
|
Investing activities
|
|
|
0.7
|
|
|
|
3.7
|
|
Financing activities
|
|
|
2.2
|
|
|
|
(3.9
|
)
|
Effect of foreign currency exchange rates on cash and cash equivalents and other
|
|
|
0.1
|
|
|
|
―
|
|
Net increase in cash and cash equivalents
|
|
$
|
4.2
|
|
|
$
|
2.3
|
|
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 three months ended March 31, 2017 and 2016, net cash provided by operating activities was $1.2 billion and $2.5 billion, respectively, driven by net income of $1.2 billion and $1.4 billion, respectively, adjusted for non-cash items including changes in provisions for losses, depreciation and amortization, deferred taxes, and stock-based compensation. The decrease during the periods of comparison was driven primarily by impacts from movements in Accounts payable and other liabilities as a result of normal business operating 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 three months ended March 31, 2017 and 2016, net cash provided by investing activities was $0.7 billion and $3.7 billion, respectively. The decrease in the current period, as compared to the three months ended March 31, 2016, primarily reflected the sale of the JetBlue HFS portfolio and a decrease in the remaining HFS portfolio balances in the prior period.
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 three months ended March 31, 2017 and 2016, net cash provided by (used in) financing activities was $2.2 billion and ($3.9) billion, respectively. The increase in the current period, as compared to the three months ended March 31, 2016, primarily resulted from a lower net decrease in short-term borrowings and higher net long-term debt issuance in the current year, as compared to the prior year.
OTHER MATTERS
Certain Legislative, Regulatory and Other Developments
We are subject to comprehensive government regulation and supervision in jurisdictions around the world, and the costs of compliance are substantial. In recent years, the financial services industry has been subject to rigorous scrutiny, high regulatory expectations, and a stringent and unpredictable regulatory enforcement environment.
Please see the “Supervision and Regulation” and “Risk Factors” sections of the Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Form 10-K) for further information.
Payments Regulation
Legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust actions, legislation and regulations to change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, to establish broad and ongoing regulatory oversight regimes for payment systems.
The European Union, Australia and other jurisdictions 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), 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 affect all networks directly or indirectly, as well as adversely impact consumers and merchants. Among other things, lower interchange and/or merchant discount revenue can be expected to lead card issuers either to look to reduce costs by scaling back or eliminating rewards, services or benefits to cardholders and other customers or to look for other sources of revenue from consumers such as higher annual card fees or interest charges. For more information on the European Union payments legislation and the Australia payments regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2016 Form 10-K.
Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to localize aspects of their 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 and extend our global network.
Surcharging
In certain countries, such as certain Member States in the European Union and Australia, 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. For example, the Reserve Bank of Australia amended its rules to limit surcharging in Australia to the actual cost of card acceptance paid to the merchant acquirer.
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. As revisions to the Payment Services Directive in the European Union are transposed into national law by each Member State, there may be increased instances of differential surcharging of our cards, customer and merchant confusion as to which transactions may be surcharged and Card Member dissatisfaction. In addition, the laws of a number of states in the United States that prohibit surcharging are being challenged in litigation brought by merchant groups.
For more information on the potential impacts of surcharging and other actions that could impair the Card Member experience, please see the “Risk Factors” section of the 2016 Form 10-K.
Consumer Financial Products Regulation
In the United States, our marketing and sale of consumer financial products and our compliance with certain federal consumer financial laws are supervised and examined by the Consumer Financial Protection Bureau (CFPB), which has broad rulemaking and enforcement authority over providers of credit, savings and payment services and products and authority to prevent “unfair, deceptive or abusive” acts or practices. In addition, a number of U.S. states have significant consumer credit protection and disclosure laws (in certain cases more stringent than U.S. federal laws). U.S. federal law also regulates abusive debt collection practices, which along with bankruptcy and debtor relief laws, can affect our ability to collect amounts owed to us.
The review of products and practices to assess compliance with such laws and regulations and to prevent unfair, deceptive or abusive conduct will be a continuing focus of the CFPB and 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, substantial restitution to our Card Members and increased costs related to regulatory oversight, supervision and examination. Such reviews may also result in additional regulatory actions, including civil money penalties.
For more information on CFPB proposed rules, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2016 Form 10-K.
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 ruled that the challenged provisions violate U.S. antitrust laws and issued an injunction. Following our appeal of this judgment, 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, which occurred on January 25, 2017. We continue to vigorously defend similar antitrust claims initiated by merchants in other court and arbitration proceedings. See the “Legal Proceedings” section in our 2016 Form 10-K for descriptions of the DOJ 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. For more information on the potential impacts of an adverse decision in the merchant litigations on our business, please see the “Risk Factors” section of the 2016 Form 10-K.
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 net interest income
— A non-GAAP measure that represents net interest income attributable to our Card Member loans and 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. We believe 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 loans or receivables 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 loans and receivables. The trust uses the proceeds from the sale of such securities to pay the purchase price for the underlying loans or receivables. The loans and receivables of our Lending Trust and Charge Trust 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-purpose American Express cards. It represents the percentage of billed business (generated from both proprietary and GNS Card Member 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, (i.e., not including additional supplemental cards issued on accounts). Proprietary basic small business and corporate cards-in-force includes both basic and supplemental cards issued. Non-proprietary basic cards-in-force includes cards that are issued and outstanding under network partnership agreements, except for supplemental cards and retail cobrand Card Member accounts which have had no out-of-store spending activity during the prior twelve-month period.
Billed business
— Includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements (non-proprietary billed business), corporate payment services and certain insurance fees charged on proprietary cards. In-store spending activity within retail cobrand portfolios in GNS, from which we earn no revenue, is not included in non-proprietary billed business. Card billed business is included in the United States or outside the 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 the sales were 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.
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 Card Member’s most recent credit information and spend patterns. Some charge card accounts have additional Pay Over Time feature(s) that allow revolving of certain balances.
Cobrand cards
— Cards issued under cobrand agreements with selected commercial firms. Pursuant to the cobrand agreements, we make payments to our cobrand partners, which can be significant, based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. In some cases, the partner is liable for providing rewards to the Card Member under the cobrand partner’s own loyalty program.
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 incentive payments made to merchants, payments to third-party card issuing partners, cash-back reward costs and statement credits, corporate incentive payments and other similar items.
Interest expense
— Includes interest incurred primarily to fund Card Member loans and 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, (e.g., commercial paper, federal funds purchased, bank overdrafts and other short-term borrowings), as well as the realized impact of derivatives hedging interest rate risk on our long-term debt.
Interest income
— Includes (i) interest on loans, (ii) interest and dividends on investment securities and (iii) interest income on deposits with banks and other.
Interest on loans
— Assessed using the average daily balance method for 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
— Primarily relates to our performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so a constant rate of return is recognized on the outstanding balance of the related investment security throughout its term. Amounts are recognized until 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
— Recognized 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 minimum standards 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 and deferred acquisition costs.
Net interest yield on Card Member loans —
A non-GAAP measure that is computed by dividing adjusted net interest income by average loans, computed on an annualized basis. Reserves and net write-offs related to uncollectible interest are recorded through provisions for losses, and are thus not included in the net interest yield calculation. We believe net interest yield on Card Member loans is useful to investors because it provides a measure of profitability of our Card Member loan portfolio.
Net loss ratio
— Represents the ratio of GCP 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 receivables written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage of the average loan or 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 Card Member receivables.
Operating expenses
— Represents salaries and employee benefits, professional services, occupancy and equipment, 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.
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 total number of charge and credit cards that are issued and outstanding and accepted on our network. Non-proprietary cards-in-force includes all charge and credit cards that are issued and outstanding under network partnership agreements, except for retail cobrand Card Member accounts which have no out-of-store spending activity during the prior twelve-month period.