ITEM 1.
FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
(Millions, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
|
|
|
|
|
|
|
Discount revenue
|
|
$
|
4,824
|
|
|
$
|
4,946
|
|
Net card fees
|
|
|
715
|
|
|
|
667
|
|
Other fees and commissions
|
|
|
702
|
|
|
|
727
|
|
Other
|
|
|
545
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
6,786
|
|
|
|
6,861
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
Interest on loans
|
|
|
1,818
|
|
|
|
1,776
|
|
Interest and dividends on investment securities
|
|
|
34
|
|
|
|
41
|
|
Deposits with banks and other
|
|
|
33
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,885
|
|
|
|
1,837
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
150
|
|
|
|
109
|
|
Long-term debt and other
|
|
|
286
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
436
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,449
|
|
|
|
1,423
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
8,235
|
|
|
|
8,284
|
|
|
|
|
|
|
|
|
|
|
Provisions for losses
|
|
|
|
|
|
|
|
|
Charge card
|
|
|
153
|
|
|
|
165
|
|
Card Member loans
|
|
|
285
|
|
|
|
285
|
|
Other
|
|
|
25
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total provisions for losses
|
|
|
463
|
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
7,772
|
|
|
|
7,817
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Marketing and promotion
|
|
|
788
|
|
|
|
761
|
|
Card Member rewards
|
|
|
1,766
|
|
|
|
1,799
|
|
Card Member services and other
|
|
|
281
|
|
|
|
242
|
|
Salaries and employee benefits
|
|
|
1,451
|
|
|
|
1,250
|
|
Other, net
|
|
|
470
|
|
|
|
1,535
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,756
|
|
|
|
5,587
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
|
3,016
|
|
|
|
2,230
|
|
Income tax provision
|
|
|
1,001
|
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,015
|
|
|
$
|
1,473
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share (Note 15):
(a)
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.11
|
|
|
$
|
1.43
|
|
Diluted
|
|
$
|
2.10
|
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding for earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
938
|
|
|
|
1,009
|
|
Diluted
|
|
|
941
|
|
|
|
1,013
|
|
Cash dividends declared per common share
|
|
$
|
0.29
|
|
|
$
|
0.29
|
|
|
|
(a)
|
Represents net income less (i) earnings allocated to participating share awards of $17 million and $11 million for the three months ended June 30, 2016 and 2015, respectively, and (ii) dividends on preferred shares of
$19 million and $20 million for the three months ended June 30, 2016 and 2015, respectively.
|
See Notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(Millions, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
|
|
|
|
|
|
|
Discount revenue
|
|
$
|
9,467
|
|
|
$
|
9,606
|
|
Net card fees
|
|
|
1,414
|
|
|
|
1,334
|
|
Other fees and commissions
|
|
|
1,382
|
|
|
|
1,435
|
|
Other
|
|
|
1,031
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
13,294
|
|
|
|
13,364
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
Interest on loans
|
|
|
3,756
|
|
|
|
3,571
|
|
Interest and dividends on investment securities
|
|
|
70
|
|
|
|
82
|
|
Deposits with banks and other
|
|
|
64
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,890
|
|
|
|
3,694
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
300
|
|
|
|
212
|
|
Long-term debt and other
|
|
|
561
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
861
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
3,029
|
|
|
|
2,870
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
16,323
|
|
|
|
16,234
|
|
|
|
|
|
|
|
|
|
|
Provisions for losses
|
|
|
|
|
|
|
|
|
Charge card
|
|
|
322
|
|
|
|
339
|
|
Card Member loans
|
|
|
512
|
|
|
|
520
|
|
Other
|
|
|
63
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total provisions for losses
|
|
|
897
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
15,426
|
|
|
|
15,347
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Marketing and promotion
|
|
|
1,515
|
|
|
|
1,370
|
|
Card Member rewards
|
|
|
3,469
|
|
|
|
3,439
|
|
Card Member services and other
|
|
|
563
|
|
|
|
503
|
|
Salaries and employee benefits
|
|
|
2,789
|
|
|
|
2,555
|
|
Other, net
|
|
|
1,890
|
|
|
|
2,934
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,226
|
|
|
|
10,801
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
|
5,200
|
|
|
|
4,546
|
|
Income tax provision
|
|
|
1,759
|
|
|
|
1,548
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,441
|
|
|
$
|
2,998
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share (Note 15):
(a)
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.55
|
|
|
$
|
2.92
|
|
Diluted
|
|
$
|
3.54
|
|
|
$
|
2.90
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding for earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
949
|
|
|
|
1,013
|
|
Diluted
|
|
|
952
|
|
|
|
1,018
|
|
Cash dividends declared per common share
|
|
$
|
0.58
|
|
|
$
|
0.55
|
|
|
|
(a)
|
Represents net income less (i) earnings allocated to participating share awards of $28 million and $22 million for the six months ended June 30, 2016 and 2015, respectively, and (ii) dividends on preferred shares
of $40 million and $20 million for the six months ended June 30, 2016 and 2015, respectively.
|
See Notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ 2,015
|
|
$ 1,473
|
|
$ 3,441
|
|
$ 2,998
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Net unrealized securities gains (losses), net of tax of: 2016, $2 and $2; 2015, $(10) and
$(11)
|
|
5
|
|
(20)
|
|
7
|
|
(20)
|
Foreign currency translation adjustments, net of tax of: 2016, $100 and $61; 2015, $(48) and
$40
|
|
(130)
|
|
11
|
|
(126)
|
|
(244)
|
Net unrealized pension and other postretirement benefit gains, net of tax of: 2016, $10 and
$29; 2015, $(3) and $16
|
|
6
|
|
6
|
|
32
|
|
29
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
(119)
|
|
(3)
|
|
(87)
|
|
(235)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$ 1,896
|
|
$ 1,470
|
|
$ 3,354
|
|
$ 2,763
|
|
See Notes to Consolidated Financial
Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
(Millions, except share data)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,811
|
|
|
$
|
2,935
|
|
Interest-bearing deposits in banks (includes securities purchased under resale agreements:
2016,
$129; 2015, $41)
|
|
|
30,379
|
|
|
|
19,569
|
|
Short-term investment securities
|
|
|
577
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
33,767
|
|
|
|
22,762
|
|
Card Member loans and receivables held for sale (includes gross loans and receivables available to
settle obligations of consolidated variable interest entities: 2016, nil; 2015, $4,966)
|
|
|
|
|
|
|
14,992
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Card Member receivables (includes gross receivables available to settle obligations of a
consolidated variable interest entity: 2016, $5,828; 2015, $6,649), less reserves: 2016, $423; 2015, $462
|
|
|
44,800
|
|
|
|
43,671
|
|
Other receivables, less reserves: 2016, $50; 2015, $43
|
|
|
2,697
|
|
|
|
3,024
|
|
Loans
|
|
|
|
|
|
|
|
|
Card Member loans (includes gross loans available to settle obligations of a consolidated variable
interest entity:
2016, $25,334; 2015, $23,559), less reserves: 2016, $1,091; 2015, $1,028
|
|
|
58,796
|
|
|
|
57,545
|
|
Other loans, less reserves: 2016, $36; 2015, $20
|
|
|
1,132
|
|
|
|
1,254
|
|
Investment securities
|
|
|
3,892
|
|
|
|
3,759
|
|
Premises and equipment, less accumulated depreciation and amortization: 2016, $4,855; 2015,
$6,801
|
|
|
4,210
|
|
|
|
4,108
|
|
Other assets (includes restricted cash of consolidated variable interest entities: 2016, $35; 2015,
$155)
|
|
|
10,348
|
|
|
|
10,069
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
159,642
|
|
|
$
|
161,184
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
54,404
|
|
|
$
|
54,997
|
|
Travelers Cheques and other prepaid products
|
|
|
2,803
|
|
|
|
3,247
|
|
Accounts payable
|
|
|
11,729
|
|
|
|
11,822
|
|
Short-term borrowings (includes debt issued by a consolidated variable interest entity: 2016, nil;
2015, $100)
|
|
|
2,343
|
|
|
|
4,812
|
|
Long-term debt (includes debt issued by consolidated variable interest entities: 2016, $14,609;
2015, $13,602)
|
|
|
50,649
|
|
|
|
48,061
|
|
Other liabilities
|
|
|
17,002
|
|
|
|
17,572
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
138,930
|
|
|
|
140,511
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred shares, $1.66
2/3
par value,
authorized 20 million shares; issued and outstanding 1,600 shares as of June 30, 2016 and December 31, 2015
|
|
|
|
|
|
|
|
|
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 925 million
shares as of June 30, 2016 and 969 million shares as of December 31, 2015
|
|
|
185
|
|
|
|
194
|
|
Additional paid-in capital
|
|
|
12,868
|
|
|
|
13,348
|
|
Retained earnings
|
|
|
10,280
|
|
|
|
9,665
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
Net unrealized securities gains, net of tax: 2016, $34; 2015, $32
|
|
|
65
|
|
|
|
58
|
|
Foreign currency translation adjustments, net of tax: 2016, $(39); 2015, $(100)
|
|
|
(2,170)
|
|
|
|
(2,044)
|
|
Net unrealized pension and other postretirement benefit losses, net of tax: 2016, $(194); 2015,
$(223)
|
|
|
(516)
|
|
|
|
(548)
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
|
(2,621)
|
|
|
|
(2,534)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
20,712
|
|
|
|
20,673
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
159,642
|
|
|
$
|
161,184
|
|
|
|
See Notes to Consolidated Financial
Statements.
4
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(Millions)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,441
|
|
|
$
|
2,998
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provisions for losses
|
|
|
897
|
|
|
|
887
|
|
Depreciation and amortization
|
|
|
536
|
|
|
|
514
|
|
Deferred taxes and other
|
|
|
(852)
|
|
|
|
146
|
|
Stock-based compensation
|
|
|
133
|
|
|
|
140
|
|
Changes in operating assets and liabilities, net of effects of acquisitions and
dispositions:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
293
|
|
|
|
(271)
|
|
Other assets
|
|
|
(107)
|
|
|
|
1,616
|
|
Accounts payable and other liabilities
|
|
|
(759)
|
|
|
|
(1,381)
|
|
Travelers Cheques and other prepaid products
|
|
|
(444)
|
|
|
|
(414)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,138
|
|
|
|
4,235
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Sales of available-for-sale investment securities
|
|
|
45
|
|
|
|
|
|
Maturities and redemptions of available-for-sale investment securities
|
|
|
567
|
|
|
|
991
|
|
Purchases of investments
|
|
|
(791)
|
|
|
|
(1,212)
|
|
Net decrease (increase) in Card Member receivables and loans, including held for sale
(a)
|
|
|
13,002
|
|
|
|
(569)
|
|
Purchase of premises and equipment, net of sales: 2016, $2; 2015, $32
|
|
|
(649)
|
|
|
|
(537)
|
|
Acquisitions/dispositions, net of cash acquired
|
|
|
(162)
|
|
|
|
(74)
|
|
Net decrease (increase) in restricted cash
|
|
|
126
|
|
|
|
(1,529)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
12,138
|
|
|
|
(2,930)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Net (decrease) increase in customer deposits
|
|
|
(594)
|
|
|
|
3,017
|
|
Net (decrease) increase in short-term borrowings
|
|
|
(2,520)
|
|
|
|
1,033
|
|
Issuance of long-term debt
|
|
|
3,778
|
|
|
|
3,457
|
|
Principal payments on long-term debt
|
|
|
(1,558)
|
|
|
|
(8,410)
|
|
Issuance of American Express preferred shares
|
|
|
|
|
|
|
841
|
|
Issuance of American Express common shares
|
|
|
75
|
|
|
|
143
|
|
Repurchase of American Express common shares
|
|
|
(2,852)
|
|
|
|
(1,971)
|
|
Dividends paid
|
|
|
(601)
|
|
|
|
(533)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(4,272)
|
|
|
|
(2,423)
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash equivalents
|
|
|
1
|
|
|
|
(99)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
11,005
|
|
|
|
(1,217)
|
|
Cash and cash equivalents at beginning of period
|
|
|
22,762
|
|
|
|
22,288
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
33,767
|
|
|
$
|
21,071
|
|
|
|
(a)
|
Refer to Note 2 for additional information.
|
See Notes to Consolidated Financial Statements
5
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis
of Presentation
The Company
American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences
that enrich lives and build business success. The Companys principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related
services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). The Companys various products and services are sold globally to diverse customer groups, including consumers, small businesses,
mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising.
Effective for the first quarter of 2016, the Company realigned its segment presentation to reflect the organizational changes announced during
the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments, which are as follows:
|
|
|
U.S. Consumer Services (USCS), including the proprietary U.S. Consumer Card Services business and travel services in the United States;
|
|
|
|
International Consumer and Network Services (ICNS), including the proprietary International Consumer Card Services business, Global Network Services (GNS) business and travel services outside the United States;
|
|
|
|
Global Commercial Services (GCS), including the proprietary Global Corporate Payments (GCP) business, small business services businesses in the United States and internationally (collectively, Global Small Business
Services), merchant financing products and foreign exchange services operations; and
|
|
|
|
Global Merchant Services (GMS), including the Global Merchant Services business and global loyalty coalition businesses.
|
Corporate functions and certain other businesses and operations are included in Corporate & Other.
The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2015 (the Annual Report). If not materially different, certain footnote disclosures included therein have been omitted from this Quarterly Report on Form 10-Q.
The interim consolidated financial information in this report has not been audited. In the opinion of management, all adjustments, which
consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial information, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the
entire year.
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting
estimates reflect the best judgment of management, but actual results could differ.
Certain reclassifications of prior period amounts
have been made to conform to the current period presentation. During 2016, the Company determined that in the Consolidated Statements of Cash Flows for the comparative periods ended June 30, 2015, September 30, 2015 and December 31, 2015, certain
6
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
activities related to long-term debt repayments were misclassified between financing activities and operating activities. There is no impact to the Consolidated Statements of Income or
Consolidated Balance Sheets. The Company has evaluated the effects of these misclassifications and concluded that none are material to any of its previously issued quarterly or annual Consolidated Financial Statements. Nevertheless, the Company
has elected to revise prospectively the comparative periods mentioned above. For the six months ended June 30, 2015, this revision resulted in a $66 million decrease to both Net cash used in financing activities and Net cash provided by operating
activities. In addition, travel commissions and fees, which were separately disclosed on the Consolidated Statements of Income historically, are now included within Other fees and commissions.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The guidance
establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of
revenues and related cash flows. The guidance, as amended, supersedes most of the current revenue recognition requirements, and is effective January 1, 2018, with early adoption as of January 1, 2017, permitted. The Company does not intend to
adopt the new standard early and continues to evaluate the impact this guidance, including the method of implementation, will have on its financial position, results of operations and cash flows, among other items.
In January 2016, the FASB issued new accounting guidance on the recognition and measurement of financial assets and financial liabilities. The
guidance, which is effective January 1, 2018, makes targeted changes to current GAAP, specifically to the classification and measurement of equity securities, and to certain disclosure requirements associated with the fair value of financial
instruments. The Company continues to evaluate the impact this guidance will have on its financial position, results of operations and cash flows, among other items.
In February 2016, the FASB issued new accounting guidance on leases. The guidance, which is effective January 1, 2019, with early adoption
permitted, requires virtually all leases to be recognized on the Consolidated Balance Sheets. The Company continues to evaluate the impact this guidance will have on its financial position, results of operations and cash flows, among other items.
In March 2016, the FASB issued new accounting guidance on employee share-based payments. The guidance, which is effective January 1,
2017, with early adoption permitted, simplifies various aspects of the accounting for share-based payment transactions, including the income tax consequences, accounting for award forfeitures, and classification on the Consolidated Statements of
Cash Flows. The Company continues to evaluate the impact this guidance will have on its financial position, results of operations and cash flows, among other items.
In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial instruments, which is effective January 1,
2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred
loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking
information and will likely result in earlier recognition of credit reserves. The Company is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the
new CECL model will alter the assumptions used in
7
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
calculating credit losses on Card Member loans and receivables, among other financial instruments, and may result in material changes to the Companys credit reserves.
2. Business Events
During the first half of 2016, the Company completed the sales of substantially all of its outstanding Card Member loans and receivables held
for sale (HFS) and recognized gains, as an expense reduction, in Other expenses, of $127 million and $1.1 billion during the three months ended March 31, 2016 and June 30, 2016, respectively. In addition, the Company reclassified $245 million and $1
million of retained Card Member loans and receivables HFS back to Card Member loans and Card Member receivables held for investment, respectively. The impact of the sales, including the recognition of the proceeds received and the reclassification
of the retained Card Member loans and receivables, is reported within the investing section of the Consolidated Statements of Cash Flows as a net decrease in Card Member receivables and loans, including held for sale.
3. Loans and Accounts Receivable
The Companys lending and charge payment card products result in the generation of Card Member loans and Card Member receivables,
respectively. This Note is presented excluding amounts associated with the Card Member loans and receivables HFS as of December 31, 2015; the Company did not have any Card Member loans and receivables HFS as of June 30, 2016.
Card Member loans by segment and Other loans as of June 30, 2016 and December 31, 2015 consisted of:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
U.S. Consumer Services
(a)
|
|
$
|
44,594
|
|
|
$
|
43,495
|
|
International Consumer and Network Services
|
|
|
6,600
|
|
|
|
7,072
|
|
Global Commercial Services
|
|
|
8,693
|
|
|
|
8,006
|
|
|
|
|
|
|
|
|
|
|
Card Member loans
|
|
|
59,887
|
|
|
|
58,573
|
|
Less: Reserve for losses
|
|
|
1,091
|
|
|
|
1,028
|
|
|
|
|
|
|
|
|
|
|
Card Member loans, net
|
|
$
|
58,796
|
|
|
$
|
57,545
|
|
|
|
|
|
|
|
|
|
|
Other loans, net
(b)
|
|
$
|
1,132
|
|
|
$
|
1,254
|
|
|
|
|
(a)
|
Includes approximately $25.3 billion and $23.6 billion of gross Card Member loans available to settle obligations of a consolidated variable interest entity (VIE) as of June 30, 2016 and December 31, 2015,
respectively.
|
|
(b)
|
Other loans primarily represent loans to merchants. Other loans are presented net of reserves for losses of $36 million and $20 million as of June 30, 2016 and December 31, 2015, respectively.
|
8
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member accounts receivable by segment and Other receivables as of June 30, 2016 and
December 31, 2015 consisted of:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
U.S. Consumer Services
(a)
|
|
$
|
10,587
|
|
|
$
|
11,807
|
|
International Consumer and Network Services
|
|
|
5,582
|
|
|
|
5,599
|
|
Global Commercial Services
|
|
|
29,054
|
|
|
|
26,727
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables
(b)
|
|
|
45,223
|
|
|
|
44,133
|
|
Less: Reserve for losses
|
|
|
423
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables, net
|
|
$
|
44,800
|
|
|
$
|
43,671
|
|
|
|
|
|
|
|
|
|
|
Other receivables, net
(c)
|
|
$
|
2,697
|
|
|
$
|
3,024
|
|
|
|
|
(a)
|
Includes $5.8 billion and $6.6 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of June 30, 2016 and December 31, 2015, respectively.
|
|
(b)
|
Includes approximately $12.7 billion and $11.9 billion of Card Member receivables outside the United States as of June 30, 2016 and December 31, 2015, respectively.
|
|
(c)
|
Other receivables primarily represent amounts related to (i) GNS partner banks for items such as royalty and franchise fees, (ii) certain merchants for billed discount revenue, and (iii) loyalty coalition partners for
points issued, as well as program participation and servicing fees. Other receivables are presented net of reserves for losses of $50 million and $43 million as of June 30, 2016 and December 31, 2015, respectively.
|
9
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Card Member Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The
following table presents the aging of Card Member loans and receivables as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days
Past
Due
|
|
|
90+
Days
Past
Due
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
(Millions)
|
|
|
|
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
44,120
|
|
|
$
|
128
|
|
|
$
|
100
|
|
|
$
|
246
|
|
|
$
|
44,594
|
|
International Consumer and Network Services
|
|
|
6,491
|
|
|
|
33
|
|
|
|
23
|
|
|
|
53
|
|
|
|
6,600
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
8,547
|
|
|
|
27
|
|
|
|
20
|
|
|
|
50
|
|
|
|
8,644
|
|
Global Corporate Payments
(a)
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
1
|
|
|
|
49
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
10,464
|
|
|
$
|
44
|
|
|
$
|
24
|
|
|
$
|
55
|
|
|
$
|
10,587
|
|
International Consumer and Network Services
|
|
|
5,503
|
|
|
|
24
|
|
|
|
15
|
|
|
|
40
|
|
|
|
5,582
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
13,516
|
|
|
|
64
|
|
|
|
39
|
|
|
|
87
|
|
|
|
13,706
|
|
Global Corporate Payments
(a)
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
111
|
|
|
|
15,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
|
|
|
60-89
|
|
|
90+
|
|
|
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
Past
|
|
|
Past
|
|
|
Past
|
|
|
|
|
2015
(Millions)
|
|
Current
|
|
|
Due
|
|
|
Due
|
|
|
Due
|
|
|
Total
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
43,063
|
|
|
$
|
128
|
|
|
$
|
94
|
|
|
$
|
210
|
|
|
$
|
43,495
|
|
International Consumer and Network Services
|
|
|
6,961
|
|
|
|
34
|
|
|
|
25
|
|
|
|
52
|
|
|
|
7,072
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
7,867
|
|
|
|
26
|
|
|
|
18
|
|
|
|
40
|
|
|
|
7,951
|
|
Global Corporate Payments
(a)
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
1
|
|
|
|
55
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
11,646
|
|
|
$
|
54
|
|
|
$
|
32
|
|
|
$
|
75
|
|
|
$
|
11,807
|
|
International Consumer and Network Services
|
|
|
5,515
|
|
|
|
24
|
|
|
|
18
|
|
|
|
42
|
|
|
|
5,599
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
12,734
|
|
|
|
69
|
|
|
|
45
|
|
|
|
102
|
|
|
|
12,950
|
|
Global Corporate Payments
(a)
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
124
|
|
|
|
13,777
|
|
|
|
|
(a)
|
For GCP Card Member receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received
within 90 days of the Card Members billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is
classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
|
|
(b)
|
Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days
past due can be derived as the difference between the Total and the 90+ Days Past Due balances.
|
10
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Net Write-Off Rate
|
|
|
|
|
|
Net Write-Off Rate
|
|
|
|
|
|
|
|
Principal
Only
|
(a)
|
|
|
Principal,
Interest, &
Fees
|
(a)
|
|
|
30+ Days
Past Due
as a % of
Total
|
|
|
|
Principal
Only
|
(a)
|
|
|
Principal,
Interest, &
Fees
|
(a)
|
|
|
30+ Days
Past Due
as a % of
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
|
|
1.7
|
%
|
|
|
0.9
|
%
|
International Consumer and Network Services
|
|
|
2.0
|
%
|
|
|
2.4
|
%
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
2.5
|
%
|
|
|
1.6
|
%
|
Global Small Business Services
|
|
|
1.3
|
%
|
|
|
1.6
|
%
|
|
|
1.1
|
%
|
|
|
1.3
|
%
|
|
|
1.5
|
%
|
|
|
0.9
|
%
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
1.5
|
%
|
|
|
1.8
|
%
|
|
|
1.2
|
%
|
|
|
1.7
|
%
|
|
|
1.9
|
%
|
|
|
1.4
|
%
|
International Consumer and Network Services
|
|
|
2.2
|
%
|
|
|
2.4
|
%
|
|
|
1.4
|
%
|
|
|
2.0
|
%
|
|
|
2.2
|
%
|
|
|
1.5
|
%
|
Global Small Business Services
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
1.4
|
%
|
|
|
2.0
|
%
|
|
|
2.3
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net Loss
Ratio as
a % of
Charge
Volume
|
|
|
|
90+ Days
Past Billing
as a % of
Receivables
|
|
|
|
Net Loss
Ratio as
a % of
Charge
Volume
|
|
|
|
90+ Days
Past Billing
as a % of
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Corporate Payments
|
|
|
0.09
|
%
|
|
|
0.7
|
%
|
|
|
0.10
|
%
|
|
|
0.7
|
%
|
|
|
|
(a)
|
The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible
interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented.
|
Impaired Card Member Loans and Receivables
Impaired loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is
probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. In certain cases, these Card Member loans and receivables are included in one of the Companys various
Troubled Debt Restructuring (TDR) modification programs.
11
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables provide additional information with respect to the Companys
impaired Card Member loans and receivables. Impaired Card Member receivables are not significant for ICNS as of June 30, 2016 and December 31, 2015; therefore, the segments receivables are not included in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Over 90 days
|
|
|
|
|
|
Accounts Classified
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due &
|
|
|
|
|
|
as a TDR
(c)
|
|
|
Total
|
|
|
Unpaid
|
|
|
|
|
|
|
Accruing
|
|
|
Non-
|
|
|
|
|
|
Out of
|
|
|
Impaired
|
|
|
Principal
|
|
|
Allowance
|
|
2016
(Millions)
|
|
|
Interest
|
(a)
|
|
|
Accruals
|
(b)
|
|
|
In Program
(d)
|
|
|
|
Program
(e)
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
for TDRs
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
162
|
|
|
$
|
141
|
|
|
$
|
174
|
|
|
$
|
116
|
|
|
$
|
593
|
|
|
$
|
545
|
|
|
$
|
52
|
|
International Consumer and Network Services
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
Global Commercial Services
|
|
|
29
|
|
|
|
32
|
|
|
|
28
|
|
|
|
24
|
|
|
|
113
|
|
|
|
104
|
|
|
|
10
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
4
|
|
|
|
12
|
|
|
|
11
|
|
|
|
5
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
7
|
|
|
|
25
|
|
|
|
25
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
244
|
|
|
$
|
173
|
|
|
$
|
228
|
|
|
$
|
151
|
|
|
$
|
796
|
|
|
$
|
738
|
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Over 90 days
|
|
|
|
|
|
Accounts Classified
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due &
|
|
|
|
|
|
as a TDR
(c)
|
|
|
Total
|
|
|
Unpaid
|
|
|
|
|
|
|
Accruing
|
|
|
Non-
|
|
|
|
|
|
Out of
|
|
|
Impaired
|
|
|
Principal
|
|
|
Allowance
|
|
2015
(Millions)
|
|
|
Interest
|
(a)
|
|
|
Accruals
|
(b)
|
|
|
In Program
(d)
|
|
|
|
Program
(e)
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
for TDRs
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
140
|
|
|
$
|
124
|
|
|
$
|
149
|
|
|
$
|
89
|
|
|
$
|
502
|
|
|
$
|
463
|
|
|
$
|
44
|
|
International Consumer and Network Services
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
51
|
|
|
|
|
|
Global Commercial Services
|
|
|
24
|
|
|
|
26
|
|
|
|
23
|
|
|
|
18
|
|
|
|
91
|
|
|
|
85
|
|
|
|
9
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
3
|
|
|
|
14
|
|
|
|
14
|
|
|
|
8
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
3
|
|
|
|
19
|
|
|
|
19
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
216
|
|
|
$
|
150
|
|
|
$
|
199
|
|
|
$
|
113
|
|
|
$
|
678
|
|
|
$
|
632
|
|
|
$
|
73
|
|
|
|
|
(a)
|
The Companys policy is generally to accrue interest through the date of write-off (typically 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts
presented exclude loans classified as a TDR.
|
|
(b)
|
Non-accrual loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest.
|
|
(c)
|
Accounts classified as a TDR include $19 million and $20 million that are over 90 days past due and accruing interest and $16 million and $18 million that are non-accruals as of June 30, 2016 and December 31, 2015,
respectively.
|
|
(d)
|
In Program TDRs include Card Member accounts that are currently enrolled in a modification program.
|
|
(e)
|
Out of Program TDRs include $114 million and $84 million of Card Member accounts that have successfully completed a modification program and $37 million and $29 million of Card Member accounts that were not in
compliance with the terms of the modification programs as of June 30, 2016 and December 31, 2015, respectively.
|
12
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information with respect to the Companys average balances
of, and interest income recognized from, impaired Card Member loans and the average balances of impaired Card Member receivables for the three and six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
Average
|
|
|
Income
|
|
|
Average
|
|
|
Income
|
|
(Millions)
|
|
Balance
|
|
|
Recognized
|
|
|
Balance
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
551
|
|
|
$
|
12
|
|
|
$
|
555
|
|
|
$
|
24
|
|
International Consumer and Network Services
|
|
|
54
|
|
|
|
4
|
|
|
|
53
|
|
|
|
8
|
|
Global Commercial Services
|
|
|
102
|
|
|
|
3
|
|
|
|
103
|
|
|
|
6
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
13
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Global Commercial Services
|
|
|
25
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
745
|
|
|
$
|
19
|
|
|
$
|
743
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2015
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
Average
|
|
|
Income
|
|
|
Average
|
|
|
Income
|
|
(Millions)
|
|
Balance
|
|
|
Recognized
|
|
|
Balance
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
582
|
|
|
$
|
11
|
|
|
$
|
578
|
|
|
$
|
22
|
|
International Consumer and Network Services
|
|
|
55
|
|
|
|
3
|
|
|
|
58
|
|
|
|
7
|
|
Global Commercial Services
|
|
|
109
|
|
|
|
3
|
|
|
|
106
|
|
|
|
5
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
10
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Global Commercial Services
|
|
|
17
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
773
|
|
|
$
|
17
|
|
|
$
|
780
|
|
|
$
|
34
|
|
|
|
13
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Receivables Modified as TDRs
The following table provides additional information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs for the
three and six months ended June 30, 2016 and 2015. The ICNS Card Member loans and receivables modifications were not significant; therefore, this segment is not included in the following TDR disclosures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Payment
|
|
|
|
|
|
|
|
|
Average
|
|
|
Payment
|
|
|
|
Number of
|
|
|
Outstanding
|
|
|
Interest Rate
|
|
|
Term
|
|
|
Number of
|
|
|
Outstanding
|
|
|
Interest Rate
|
|
|
Term
|
|
|
|
Accounts
|
|
|
Balances
(a)
|
|
|
Reduction
|
|
|
Extension
|
|
|
Accounts
|
|
|
Balances
(a)
|
|
|
Reduction
|
|
|
Extension
|
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
|
(% Points)
|
|
|
(# of Months)
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
|
(% Points)
|
|
|
(# of Months)
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
7
|
|
|
$
|
50
|
|
|
|
10
|
|
|
|
(b)
|
|
|
|
15
|
|
|
$
|
107
|
|
|
|
11
|
|
|
|
(b)
|
|
Card Member Receivables
|
|
|
2
|
|
|
|
27
|
|
|
|
(c)
|
|
|
|
17
|
|
|
|
5
|
|
|
|
65
|
|
|
|
(c)
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2015
|
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Payment
|
|
|
|
|
|
|
|
|
Average
|
|
|
Payment
|
|
|
|
Number of
|
|
|
Outstanding
|
|
|
Interest Rate
|
|
|
Term
|
|
|
Number of
|
|
|
Outstanding
|
|
|
Interest Rate
|
|
|
Term
|
|
|
|
Accounts
|
|
|
Balances
(a)
|
|
|
Reduction
|
|
|
Extension
|
|
|
Accounts
|
|
|
Balances
(a)
|
|
|
Reduction
|
|
|
Extension
|
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
|
(% Points)
|
|
|
(# of Months)
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
|
(% Points)
|
|
|
(# of Months)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
10
|
|
|
$
|
70
|
|
|
|
10
|
|
|
|
(b)
|
|
|
|
21
|
|
|
$
|
150
|
|
|
|
11
|
|
|
|
(b)
|
|
Card Member Receivables
|
|
|
3
|
|
|
|
34
|
|
|
|
(c)
|
|
|
|
12
|
|
|
|
6
|
|
|
|
74
|
|
|
|
(c)
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13
|
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables.
Modifications did not reduce the principal balance.
|
|
(b)
|
For Card Member loans, there have been no payment term extensions.
|
|
(c)
|
The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.
|
14
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information with respect to the USCS and GCS Card Member loans
and receivables modified as TDRs that subsequently defaulted within 12 months of modification during the three and six months ended June 30, 2016 and 2015. A Card Member is considered in default of a modification program after one and up to two
consecutive missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2016
|
|
|
|
|
|
|
Aggregated
|
|
|
|
|
|
Aggregated
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Balances
|
|
|
Number of
|
|
|
Balances
|
|
|
|
Accounts
|
|
|
Upon Default
(a)
|
|
|
Accounts
|
|
|
Upon Default
(a)
|
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
Troubled Debt Restructurings That Subsequently Defaulted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
1
|
|
|
$
|
9
|
|
|
|
2
|
|
|
$
|
18
|
|
Card Member Receivables
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
10
|
|
|
|
4
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2015
|
|
|
June 30, 2015
|
|
|
|
|
|
|
Aggregated
|
|
|
|
|
|
Aggregated
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Balances
|
|
|
Number of
|
|
|
Balances
|
|
|
|
Accounts
|
|
|
Upon Default
(a)
|
|
|
Accounts
|
|
|
Upon Default
(a)
|
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
|
(in thousands)
|
|
|
($ in millions)
|
|
Troubled Debt Restructurings That Subsequently Defaulted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
3
|
|
|
$
|
15
|
|
|
|
5
|
|
|
$
|
25
|
|
Card Member Receivables
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4
|
|
|
$
|
16
|
|
|
|
7
|
|
|
$
|
27
|
|
|
|
|
(a)
|
The outstanding balances upon default include principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables.
|
4. Reserves for Losses
Reserves for losses relating to Card Member loans and receivables represent managements best estimate of the probable inherent losses in
the Companys outstanding portfolio of loans and receivables, as of the balance sheet date. Managements evaluation process requires certain estimates and judgments.
This Note is presented excluding amounts associated with the Card Member loans and receivables HFS as of December 31, 2015; the Company did
not have any Card Member loans and receivables HFS as of June 30, 2016.
15
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes in Card Member Loans Reserve for Losses
The following table presents changes in the Card Member loans reserve for losses for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Balance, January 1
|
|
$
|
1,028
|
|
|
$
|
1,201
|
|
Provisions
(a)
|
|
|
512
|
|
|
|
520
|
|
Net write-offs
|
|
|
|
|
|
|
|
|
Principal
(b)
|
|
|
(437)
|
|
|
|
(502)
|
|
Interest and fees
(b)
|
|
|
(80)
|
|
|
|
(85)
|
|
Other
(c)
|
|
|
68
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30
|
|
$
|
1,091
|
|
|
$
|
1,132
|
|
|
|
|
(a)
|
Provisions for principal, interest and fee reserve components.
|
|
(b)
|
Consists of principal write-offs, less recoveries of $179 million and $212 million, including net write-offs from TDRs of $17 million and $22 million, for the six months ended June 30, 2016 and 2015, respectively.
Recoveries of interest and fees were de minimis.
|
|
(c)
|
Includes foreign currency translation adjustments of $(2) million and $(8) million and other adjustments of $3 million and $6 million for the six months ended June 30, 2016 and 2015, respectively. The six months ended
June 30, 2016 also includes reserves of $7 million in the first quarter and $60 million in the second quarter associated with $20 million and $245 million of retained Card Member loans, respectively, reclassified from HFS to held for investment
during those periods as a result of the respective sales of the JetBlue Airways Corporation (JetBlue) and Costco Wholesale Corporation in the United States (Costco) cobrand card portfolios.
|
Card Member Loans Evaluated Individually and Collectively for Impairment
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of June 30, 2016
and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Card Member loans evaluated individually for impairment
(a)
|
|
$
|
342
|
|
|
$
|
279
|
|
Related reserves
(a)
|
|
$
|
62
|
|
|
$
|
53
|
|
|
|
Card Member loans evaluated collectively for impairment
(b)
|
|
$
|
59,545
|
|
|
$
|
58,294
|
|
Related reserves
(b)
|
|
$
|
1,029
|
|
|
$
|
975
|
|
|
|
|
(a)
|
Represents loans modified as a TDR and related reserves.
|
|
(b)
|
Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are
specific to individual pools of loans, and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment.
|
Changes in Card Member Receivables Reserve for Losses
The following table presents changes in the Card Member receivables reserve for losses for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Balance, January 1
|
|
$
|
462
|
|
|
$
|
465
|
|
Provisions
(a)
|
|
|
322
|
|
|
|
339
|
|
Net write-offs
(b)
|
|
|
(359)
|
|
|
|
(370)
|
|
Other
(c)
|
|
|
(2)
|
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30
|
|
$
|
423
|
|
|
$
|
420
|
|
|
|
|
(a)
|
Provisions for principal and fee reserve components.
|
|
(b)
|
Consists of principal and fee components, less recoveries of $202 million and $201 million, including net write-offs from TDRs of $16 million and $42 million, for the six months ended June 30, 2016 and 2015,
respectively.
|
|
(c)
|
Includes foreign currency translation adjustments of $(1) million and $(7) million and other adjustments of $(1) million and $(7) million for the six months ended June 30, 2016 and 2015, respectively.
|
16
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Receivables Evaluated Individually and Collectively for Impairment
The following table presents Card Member receivables evaluated individually and collectively for impairment, and related reserves,
as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Card Member receivables evaluated individually for impairment
(a)
|
|
$
|
37
|
|
|
$
|
33
|
|
Related reserves
(a)
|
|
$
|
19
|
|
|
$
|
20
|
|
|
|
Card Member receivables evaluated collectively for impairment
|
|
$
|
45,186
|
|
|
$
|
44,100
|
|
Related reserves
(b)
|
|
$
|
404
|
|
|
$
|
442
|
|
|
|
|
(a)
|
Represents receivables modified as a TDR and related reserves.
|
|
(b)
|
The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are
collectively evaluated for impairment.
|
5. Investment Securities
Investment securities principally include debt securities the Company classifies as available-for-sale and carries at fair value on the
Consolidated Balance Sheets, with unrealized gains (losses) recorded in Accumulated Other Comprehensive Loss (AOCI), net of income taxes. Realized gains and losses are recognized on a trade-date basis in the Consolidated Statements of Income upon
disposition of the securities using the specific identification method.
The following is a summary of investment securities as of June
30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Description of
Securities
(Millions)
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
State and municipal obligations
|
|
$
|
2,530
|
|
|
$
|
72
|
|
|
$
|
|
|
|
$
|
2,602
|
|
|
$
|
2,813
|
|
|
$
|
85
|
|
|
$
|
(5)
|
|
|
$
|
2,893
|
|
U.S. Government agency obligations
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
U.S. Government treasury obligations
|
|
|
354
|
|
|
|
14
|
|
|
|
|
|
|
|
368
|
|
|
|
406
|
|
|
|
4
|
|
|
|
(1)
|
|
|
|
409
|
|
Corporate debt securities
|
|
|
26
|
|
|
|
1
|
|
|
|
|
|
|
|
27
|
|
|
|
29
|
|
|
|
1
|
|
|
|
|
|
|
|
30
|
|
Mortgage-backed securities
(a)
|
|
|
111
|
|
|
|
5
|
|
|
|
|
|
|
|
116
|
|
|
|
117
|
|
|
|
4
|
|
|
|
|
|
|
|
121
|
|
Equity securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign government bonds and obligations
|
|
|
718
|
|
|
|
9
|
|
|
|
|
|
|
|
727
|
|
|
|
250
|
|
|
|
6
|
|
|
|
(1)
|
|
|
|
255
|
|
Other
(b)
|
|
|
50
|
|
|
|
|
|
|
|
(1)
|
|
|
|
49
|
|
|
|
50
|
|
|
|
|
|
|
|
(2)
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,792
|
|
|
$
|
101
|
|
|
$
|
(1)
|
|
|
$
|
3,892
|
|
|
$
|
3,668
|
|
|
$
|
100
|
|
|
$
|
(9)
|
|
|
$
|
3,759
|
|
|
|
|
(a)
|
Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
|
|
(b)
|
Other comprises investments in various mutual funds.
|
17
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information about the Companys investment securities with
gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
Description of Securities
(Millions)
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
State and municipal obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
(3)
|
|
|
$
|
13
|
|
|
$
|
(2)
|
|
U.S. Government treasury obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Foreign government bonds and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33
|
|
|
$
|
(1)
|
|
|
$
|
452
|
|
|
$
|
(5)
|
|
|
$
|
46
|
|
|
$
|
(4)
|
|
|
|
The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value
to amortized cost as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
Ratio of Fair Value to Amortized Cost
|
|
Number of
|
|
|
Estimated
|
|
|
Gross
Unrealized
|
|
|
Number of
|
|
|
Estimated
|
|
|
Gross
Unrealized
|
|
|
Number of
|
|
|
Estimated
|
|
|
Gross
Unrealized
|
|
(Dollars in millions)
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90%100%
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
24
|
|
|
$
|
36
|
|
|
$
|
(1)
|
|
|
|
24
|
|
|
$
|
36
|
|
|
$
|
(1)
|
|
Less than 90%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of June 30, 2016
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
24
|
|
|
$
|
36
|
|
|
$
|
(1)
|
|
|
|
24
|
|
|
$
|
36
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90%100%
|
|
|
52
|
|
|
$
|
450
|
|
|
$
|
(5)
|
|
|
|
15
|
|
|
$
|
37
|
|
|
$
|
(2)
|
|
|
|
67
|
|
|
$
|
487
|
|
|
$
|
(7)
|
|
Less than 90%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
2
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2015
|
|
|
52
|
|
|
$
|
450
|
|
|
$
|
(5)
|
|
|
|
17
|
|
|
$
|
46
|
|
|
$
|
(4)
|
|
|
|
69
|
|
|
$
|
496
|
|
|
$
|
(9)
|
|
|
|
Overall, for the investment securities in gross unrealized loss positions (i) the Company does not intend
to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual
principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.
Contractual maturities of investment securities with stated maturities as of June 30, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
(Millions)
|
|
Cost
|
|
|
Fair Value
|
|
Due within 1 year
|
|
$
|
815
|
|
|
$
|
817
|
|
Due after 1 year but within 5 years
|
|
|
172
|
|
|
|
177
|
|
Due after 5 years but within 10 years
|
|
|
413
|
|
|
|
435
|
|
Due after 10 years
|
|
|
2,341
|
|
|
|
2,413
|
|
|
|
|
|
|
|
|
|
|
Total
(a)
|
|
$
|
3,741
|
|
|
$
|
3,842
|
|
|
|
|
(a)
|
Balances primarily represent investments in state and municipal obligations, and foreign government bonds and obligations.
|
The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities
because the issuers have the right to call or prepay certain obligations.
18
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Asset Securitizations
The Company periodically securitizes Card Member loans and receivables arising from its card business, including Card Member loans and
receivables HFS, through the transfer of those assets to securitization trusts. The trusts then issue debt securities to third-party investors, collateralized by the transferred assets.
The following table provides information on the restricted cash held by the American Express Issuance Trust II (the Charge Trust) and the
American Express Credit Account Master Trust (the Lending Trust, collectively the Trusts) as of June 30, 2016 and December 31, 2015, included in Other assets on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Charge Trust
|
|
$
|
2
|
|
|
$
|
2
|
|
Lending Trust
|
|
|
33
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35
|
|
|
$
|
155
|
|
|
|
These amounts relate to collections of Card Member loans and receivables to be used by the Trusts to fund
future expenses and obligations, including interest on debt securities, credit losses and upcoming debt maturities.
American Express
Travel Related Services Company, Inc. (TRS), in its role as servicer of the Trusts, has the power to direct the most significant activity of the Trusts, which is the collection of the underlying Card Member loans and receivables. In addition, TRS
directly and indirectly (through its consolidated subsidiaries) holds all of the variable interests in both Trusts, with the exception of the debt securities issued to third-party investors. As of June 30, 2016, TRS direct and indirect
ownership of variable interests was $13.9 billion for the Lending Trust and $2.5 billion for the Charge Trust. These variable interests held by TRS provide it with the right to receive benefits and the obligation to absorb losses, which could
be significant to both the Lending Trust and the Charge Trust. Based on these considerations, TRS is the primary beneficiary of both Trusts and therefore consolidates both Trusts.
Under the respective terms of the Charge Trust and the Lending Trust agreements, the occurrence of certain triggering events associated with
the performance of the assets of each Trust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of debt securities. During the six months ended June 30, 2016 and the year ended
December 31, 2015, no such triggering events occurred.
19
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Customer Deposits
As of June 30, 2016 and December 31, 2015, customer deposits were categorized as interest bearing or non-interest bearing, as follows:
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
U.S.:
|
|
|
|
|
|
|
Interest bearing
|
|
$
|
53,666
|
|
|
$ 54,102
|
Non-interest bearing (includes Card Member credit balances of: 2016, $311 million; 2015, $389
million)
|
|
|
343
|
|
|
478
|
Non-U.S.:
|
|
|
|
|
|
|
Interest bearing
|
|
|
89
|
|
|
82
|
Non-interest bearing (includes Card Member credit balances of: 2016, $293 million; 2015, $323
million)
|
|
|
306
|
|
|
335
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
54,404
|
|
|
$ 54,997
|
|
Customer deposits by deposit type as of June 30, 2016 and December 31, 2015 were as follows:
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
U.S. retail deposits:
|
|
|
|
|
|
|
Savings accounts Direct
|
|
$
|
30,221
|
|
|
$ 29,023
|
Certificates of deposit:
|
|
|
|
|
|
|
Direct
|
|
|
287
|
|
|
281
|
Third-party (brokered)
|
|
|
13,460
|
|
|
13,856
|
Sweep accounts Third-party (brokered)
|
|
|
9,698
|
|
|
10,942
|
Other retail deposits:
|
|
|
|
|
|
|
Non-U.S. deposits and U.S. non-interest bearing deposits
|
|
|
134
|
|
|
183
|
Card Member credit balances U.S. and non-U.S.
|
|
|
604
|
|
|
712
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
54,404
|
|
|
$ 54,997
|
|
The scheduled maturities of certificates of deposit as of June 30, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
2016
|
|
$
|
2,030
|
|
|
$
|
5
|
|
|
$
|
2,035
|
|
2017
|
|
|
3,657
|
|
|
|
5
|
|
|
|
3,662
|
|
2018
|
|
|
3,197
|
|
|
|
|
|
|
|
3,197
|
|
2019
|
|
|
2,332
|
|
|
|
|
|
|
|
2,332
|
|
2020
|
|
|
2,517
|
|
|
|
|
|
|
|
2,517
|
|
After 5 years
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,747
|
|
|
$
|
10
|
|
|
$
|
13,757
|
|
|
|
As of June 30, 2016 and December 31, 2015, certificates of deposit in denominations of $250,000 or more, in
the aggregate, were as follows:
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
U.S.
|
|
$
|
113
|
|
|
$ 105
|
Non-U.S.
|
|
|
3
|
|
|
1
|
|
|
|
|
|
|
|
Total
|
|
$
|
116
|
|
|
$ 106
|
|
20
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Contingencies
In the ordinary course of business, the Company and its subsidiaries are subject to various claims, investigations, examinations, pending and
potential legal actions, and other matters relating to compliance with laws and regulations (collectively, legal proceedings). The Company discloses its material legal proceedings under Part II, Item 1. Legal Proceedings in this
Quarterly Report on Form 10-Q and Part I, Item 3. Legal Proceedings in the Annual Report.
The Company has recorded reserves
for certain of its outstanding legal proceedings. A reserve is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the
recorded reserve. The Company evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range
of possible losses, as applicable.
The Companys legal proceedings range from cases brought by a single plaintiff to class actions
with millions of putative class members. These legal proceedings involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of
which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff or class, many seek an unspecified amount of damages or are at very early stages of the
legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and/or development of
important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss, while other matters have progressed sufficiently such that the Company is able to estimate an amount of loss or a range
of possible loss.
For those disclosed material legal proceedings where a loss is reasonably possible in future periods, whether in excess
of a related reserve for legal contingencies or where there is no such reserve, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $350 million in excess of any reserves related to those
matters. This range represents managements estimate based on currently available information and does not represent the Companys maximum loss exposure; actual results may vary significantly. As such proceedings evolve, including the
merchant claims described under Legal Proceedings in the Annual Report, the Company may need to increase its range of possible loss or reserves for legal contingencies.
Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes it is not a party to,
nor are any of its properties the subject of, any legal proceeding that would have a material adverse effect on the Companys consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, it is
possible that the outcome of legal proceedings, including the possible resolution of merchant claims, could have a material impact on the Companys results of operations.
21
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Derivatives and Hedging Activities
The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their
value from an underlying variable or multiple variables, including interest rates, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase,
reduce or alter exposure to various market risks and, for that reason, are an integral component of the Companys market risk management. The Company does not transact in derivatives for trading purposes.
In relation to the Companys credit risk, under the terms of the derivative agreements it has with its various counterparties, the
Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on the assessment of credit risk of the Companys derivative
counterparties as of June 30, 2016 and December 31, 2015, the Company does not have derivative positions that warrant credit valuation adjustments.
The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of June 30,
2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
Fair Value
|
|
|
Other Liabilities
Fair Value
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
$
|
452
|
|
|
$
|
236
|
|
|
$
|
|
|
|
$
|
9
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
|
|
216
|
|
|
|
191
|
|
|
|
141
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
668
|
|
|
|
427
|
|
|
|
141
|
|
|
|
66
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts, including certain embedded derivatives
(a)
|
|
|
475
|
|
|
|
117
|
|
|
|
248
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, gross
|
|
|
1,143
|
|
|
|
544
|
|
|
|
389
|
|
|
|
201
|
|
Less: Cash collateral netting
(b)
|
|
|
(361)
|
|
|
|
(155)
|
|
|
|
|
|
|
|
|
|
Derivative asset and derivative liability netting
(c)
|
|
|
(169)
|
|
|
|
(107)
|
|
|
|
(169)
|
|
|
|
(107)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, net
(d)
|
|
$
|
613
|
|
|
$
|
282
|
|
|
$
|
220
|
|
|
$
|
94
|
|
|
|
|
(a)
|
Includes foreign currency derivatives embedded in certain operating agreements.
|
|
(b)
|
Represents the offsetting of derivative instruments and the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) executed with the
same counterparty under an enforceable master netting arrangement. The Company received non-cash collateral from a counterparty in the form of security interests in U.S. Treasury securities with a fair value of $30 million as of June 30, 2016,
none of which was sold or repledged. Such non-cash collateral economically reduced the Companys risk exposure to $583 million but did not reduce the net exposure on the Companys Consolidated Balance Sheets. The Company did not have any
such non-cash collateral as of December 31, 2015. Additionally, the Company posted $159 million and $149 million as of June 30, 2016 and December 31, 2015, respectively, as initial margin on its centrally cleared interest rate swaps;
such amounts are recorded within Other receivables on the Consolidated Balance Sheets and are not netted against the derivative balances.
|
|
(c)
|
Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.
|
|
(d)
|
The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and derivative liabilities are
presented within Other assets and Other liabilities on the Consolidated Balance Sheets.
|
A majority of the Companys
derivative assets and liabilities as of June 30, 2016 and December 31, 2015 are subject to master netting agreements with its derivative counterparties. The Company has no derivative amounts subject to enforceable master netting
arrangements that are not offset on the Consolidated Balance Sheets.
22
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value Hedges
The Company is exposed to interest rate risk associated with its fixed-rate long-term debt. The Company uses interest rate swaps to
economically convert certain fixed-rate debt obligations to floating-rate obligations at the time of issuance. The Company hedged $20.3 billion and $18.8 billion of its fixed-rate debt to floating-rate debt using interest rate swaps as of June 30,
2016 and December 31, 2015, respectively.
The following table summarizes the impact on the Consolidated Statements of Income associated
with the Companys fair value hedges for the three and six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
(Millions)
|
|
|
|
Gains (losses) recognized in income
|
|
|
|
Derivative contract
|
|
|
Hedged item
|
|
|
Net hedge
|
|
|
|
|
|
Amount
|
|
|
|
|
Amount
|
|
|
ineffectiveness
|
|
Derivative
relationship
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest rate
contracts
|
|
Other expenses
|
|
$
|
61
|
|
|
$
|
(89)
|
|
|
Other expenses
|
|
$
|
(53)
|
|
|
$
|
85
|
|
|
$
|
8
|
|
|
$
|
(4)
|
|
|
|
|
|
|
Six Months Ended June 30
(Millions)
|
|
|
|
Gains (losses) recognized in income
|
|
|
|
Derivative contract
|
|
|
Hedged item
|
|
|
Net hedge
|
|
|
|
|
|
Amount
|
|
|
|
|
Amount
|
|
|
ineffectiveness
|
|
Derivative
relationship
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest rate
contracts
|
|
Other expenses
|
|
$
|
226
|
|
|
$
|
(26)
|
|
|
Other expenses
|
|
$
|
(224)
|
|
|
$
|
29
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
|
The Company also recognized a net reduction in interest expense on long-term debt of $59 million and $71
million for the three months ended June 30, 2016 and 2015, respectively, and $118 million and $140 million for the six months ended June 30, 2016 and 2015, respectively, primarily related to the net settlements (interest accruals) on the
Companys interest rate derivatives designated as fair value hedges.
Net Investment Hedges
The effective portion of the gain or (loss) on net investment hedges, net of taxes, recorded in AOCI as part of the cumulative translation
adjustment, was $ 135 million and $(34) million for the three months ended June 30, 2016 and 2015, respectively, and $43 million and $161 million for the six months ended June 30, 2016 and 2015, respectively, with any ineffective portion recognized
in Other expenses during the period of change.
23
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the impact on the Consolidated Statements of Income associated
with the Companys net investment hedges for the three and six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30:
(Millions)
|
|
|
|
Gains (losses) recognized in income
|
|
|
|
|
|
Amount reclassified from
AOCI into income
|
|
|
|
|
Net hedge
ineffectiveness
|
|
Description
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other, net expenses
|
|
$
|
5
|
|
|
$
|
|
|
|
Other, net expenses
|
|
$
|
|
|
|
$
|
1
|
|
|
|
Six Months Ended June 30:
(Millions)
|
|
|
|
Gains (losses) recognized in income
|
|
|
|
|
|
Amount reclassified from
AOCI into income
|
|
|
|
|
Net hedge
ineffectiveness
|
|
Description
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
|
Income Statement Line Item
|
|
2016
|
|
|
2015
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other, net expenses
|
|
$
|
5
|
|
|
$
|
|
|
|
Other, net expenses
|
|
$
|
|
|
|
$
|
1
|
|
|
|
Derivatives Not Designated as Hedges
The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or
losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in net gains of $6 million and $8 million for the three months ended June 30, 2016
and 2015, respectively, and a net loss of $8 million and a net gain of $105 million for the six months ended June 30, 2016 and 2015, respectively, and are recognized in Other expenses.
Related to its derivatives not designated as hedges, the Company previously disclosed in Note 9 to the Consolidated Financial Statements in
its Quarterly Report on Form 10-Q for the period ended June 30, 2015, a gain of $40 million for the three months ended June 30, 2015, and a loss of $4 million for the six months ended June 30, 2015. These amounts should have been disclosed
as gains of $87 million and $381 million, respectively, which are the amounts used to calculate the above-referenced net gains of $8 million and $105 million. These changes to the previously disclosed amounts have no impact on the Consolidated
Statements of Income, Balance Sheets or Cash Flows.
The changes in the fair value of an embedded derivative are nil and a gain of $4
million for the three months ended June 30, 2016 and 2015, respectively, and gains of $6 million and $3 million for the six months ended June 30, 2016 and 2015, respectively, and are recognized in Card Member services and other expense.
24
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Fair Values
Financial Assets and Financial Liabilities Carried at Fair Value
The following table summarizes the Companys financial assets and financial liabilities measured at fair value on a recurring basis,
categorized by GAAPs valuation hierarchy, as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(Millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
Debt securities and other
|
|
|
3,891
|
|
|
|
368
|
|
|
|
3,523
|
|
|
|
|
|
|
|
3,758
|
|
|
|
409
|
|
|
|
3,349
|
|
|
|
|
|
Derivatives
(a)
|
|
|
1,143
|
|
|
|
|
|
|
|
1,143
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
5,035
|
|
|
|
369
|
|
|
|
4,666
|
|
|
|
|
|
|
|
4,303
|
|
|
|
410
|
|
|
|
3,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
(a)
|
|
|
389
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
389
|
|
|
$
|
|
|
|
$
|
389
|
|
|
$
|
|
|
|
$
|
201
|
|
|
$
|
|
|
|
$
|
201
|
|
|
$
|
|
|
|
|
|
(a)
|
Refer to Note 5 for the fair values of investment securities and to Note 9 for the fair values of derivative assets and liabilities, on a further disaggregated basis.
|
25
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the estimated fair values of the Companys financial
assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of June 30, 2016 and December 31, 2015. The fair values of these financial instruments are estimates based upon the market conditions and
perceived risks as of June 30, 2016 and December 31, 2015, and require management judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
|
Corresponding Fair Value Amount
|
|
2016
(Billions)
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets for which carrying values equal or approximate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
33
|
|
|
$
|
1
|
(a)
|
|
$
|
|
|
Other financial assets
(b)
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
Financial assets carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
|
60
|
|
|
|
61
|
(c)
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities for which carrying values equal or approximate fair value
|
|
|
63
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
Financial liabilities carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
(d)
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Long-term debt
|
|
$
|
51
|
|
|
$
|
52
|
(c)
|
|
$
|
|
|
|
$
|
52
|
|
|
$
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
|
Corresponding Fair Value Amount
|
|
2015
(Billions)
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets for which carrying values equal or approximate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
22
|
|
|
$
|
1
|
(a)
|
|
$
|
|
|
Other financial assets
(b)
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
Financial assets carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans and receivables
HFS
(e)
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Loans, net
|
|
|
59
|
|
|
|
60
|
(c)
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities for which carrying values equal or approximate fair value
|
|
|
67
|
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
Financial liabilities carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
(d)
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Long-term debt
|
|
$
|
48
|
|
|
$
|
49
|
(c)
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
|
|
|
|
|
(a)
|
Reflects time deposits and short-term investments.
|
|
(b)
|
Includes Card Member receivables (including fair values of Card Member receivables of $5.8 billion and $6.7 billion held by a consolidated VIE as of June 30, 2016 and December 31, 2015, respectively), Other receivables,
restricted cash and other miscellaneous assets.
|
|
(c)
|
Includes the fair values of Card Member loans of $25.3 billion and $23.5 billion and long-term debt of $14.7 billion and $13.6 billion held by a consolidated VIE as of June 30, 2016 and December 31, 2015, respectively.
|
|
(d)
|
Presented as a component of customer deposits on the Consolidated Balance Sheets.
|
|
(e)
|
Does not include any fair value associated with the Card Member account relationships. Refer to Note 2 for additional information.
|
26
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nonrecurring Fair Value Measurements
The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair
value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the six months ended June 30, 2016, the Company did not have any material assets that were measured at fair value due to
impairment. During the year ended December 31, 2015, the Company recorded a $384 million impairment charge, consisting of a $219 million write-down of the entire balance of goodwill in the Prepaid Services business and a $165 million
write-down of technology and other assets to fair value.
11. Guarantees
The Company provides Card
Member protection plans that cover losses associated with purchased products, as well as certain other guarantees and indemnifications in the ordinary course of business.
In relation to its maximum potential undiscounted future payments as shown in the table that follows, to date the Company has not experienced
any significant losses related to guarantees or indemnifications. The Companys initial recognition of these instruments is at fair value. In addition, the Company establishes reserves when a loss is probable and the amount can be reasonably
estimated.
The following table provides information related to such guarantees and indemnifications as of June 30, 2016 and
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum potential
undiscounted future
payments
(a)
(Billions)
|
|
|
Related liability
(b)
(Millions)
|
|
Type of Guarantee
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Return and Merchant Protection
|
|
$
|
44
|
|
|
$
|
42
|
|
|
$
|
41
|
|
|
$
|
49
|
|
Other
(c)
|
|
|
6
|
|
|
|
6
|
|
|
|
44
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50
|
|
|
$
|
48
|
|
|
$
|
85
|
|
|
$
|
86
|
|
|
|
|
(a)
|
Represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed or indemnified parties. The maximum potential undiscounted future payments for
Merchant Protection are measured using managements best estimate of maximum exposure, which is based on all eligible claims in relation to annual billed business volumes.
|
|
(b)
|
Included in Other liabilities on the Consolidated Balance Sheets.
|
|
(c)
|
Primarily includes guarantees related to the Companys purchase protection, real estate and business dispositions.
|
27
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. Changes In Accumulated Other Comprehensive Loss
AOCI is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events
occur. Changes in each component for the three and six months ended June 30, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
(Millions)
, net of tax
|
|
Net Unrealized
Gains (Losses) on
Investment
Securities
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Net Unrealized
Pension and Other
Postretirement
Benefit (Losses)
Gains
|
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
|
Balances as of March 31, 2016
|
|
$
|
60
|
|
|
$
|
(2,040)
|
|
|
$
|
(522)
|
|
|
$
|
(2,502)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
Increase (decrease) due to amounts reclassified into earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net translation loss of investments in foreign operations
|
|
|
|
|
|
|
(265)
|
|
|
|
|
|
|
|
(265)
|
|
|
|
|
|
|
Net gains related to hedges of investments in foreign operations
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
Pension and other postretirement benefit gains
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
|
|
5
|
|
|
|
(130)
|
|
|
|
6
|
|
|
|
(119)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2016
|
|
$
|
65
|
|
|
$
|
(2,170)
|
|
|
$
|
(516)
|
|
|
$
|
(2,621)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
(Millions)
, net of tax
|
|
Net Unrealized
Gains (Losses) on
Investment
Securities
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Net Unrealized
Pension and Other
Postretirement
Benefit (Losses)
Gains
|
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
|
Balances as of December 31, 2015
|
|
$
|
58
|
|
|
$
|
(2,044)
|
|
|
$
|
(548)
|
|
|
$
|
(2,534)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
Decrease due to amounts reclassified into earnings
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
Net translation loss of investments in foreign operations
|
|
|
|
|
|
|
(169)
|
|
|
|
|
|
|
|
(169)
|
|
|
|
|
|
|
Net gains related to hedges of investments in foreign operations
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
Pension and other postretirement benefit gains
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
|
|
7
|
|
|
|
(126)
|
|
|
|
32
|
|
|
|
(87)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2016
|
|
$
|
65
|
|
|
$
|
(2,170)
|
|
|
$
|
(516)
|
|
|
$
|
(2,621)
|
|
|
|
28
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
(Millions)
, net of tax
|
|
Net Unrealized
Gains (Losses) on
Investment
Securities
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Net Unrealized
Pension and Other
Postretirement
Benefit (Losses)
Gains
|
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
|
Balances as of March 31, 2015
|
|
$
|
96
|
|
|
$
|
(1,754)
|
|
|
$
|
(493)
|
|
|
$
|
(2,151)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
(20)
|
|
|
|
|
|
|
Decrease due to amounts reclassified into earnings
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
Net translation gain of investments in foreign operations
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
Net losses related to hedges of investments in foreign operations
|
|
|
|
|
|
|
(33)
|
|
|
|
|
|
|
|
(33)
|
|
|
|
|
|
|
Pension and other postretirement benefit gains
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
|
|
(20)
|
|
|
|
11
|
|
|
|
6
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2015
|
|
$
|
76
|
|
|
$
|
(1,743)
|
|
|
$
|
(487)
|
|
|
$
|
(2,154)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
(Millions)
, net of tax
|
|
Net Unrealized
Gains (Losses) on
Investment
Securities
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Net Unrealized
Pension and Other
Postretirement
Benefit (Losses)
Gains
|
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
|
Balances as of December 31, 2014
|
|
$
|
96
|
|
|
$
|
(1,499)
|
|
|
$
|
(516)
|
|
|
$
|
(1,919)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
(20)
|
|
|
|
|
|
|
Decrease due to amounts reclassified into earnings
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
Net translation loss of investments in foreign operations
|
|
|
|
|
|
|
(405)
|
|
|
|
|
|
|
|
(405)
|
|
|
|
|
|
|
Net gains related to hedges of investments in foreign operations
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
Pension and other postretirement benefit gains
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
|
|
(20)
|
|
|
|
(244)
|
|
|
|
29
|
|
|
|
(235)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2015
|
|
$
|
76
|
|
|
$
|
(1,743)
|
|
|
$
|
(487)
|
|
|
$
|
(2,154)
|
|
|
|
The following table presents the effects of reclassifications out of AOCI and into the Consolidated Statements
of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in earnings
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
Income Statement
|
|
Amount
|
|
|
Amount
|
|
Description (
Millions
)
|
|
Line Item
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications for previously unrealized net
gains on investment securities
|
|
Other non-interest revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
|
|
Related income tax expense
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to net income related to
available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of realized losses on
translation adjustments and related hedges
|
|
Other expenses
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Related income tax benefit
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of foreign currency
translation adjustments
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
|
29
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Non-Interest Revenue and Expense Detail
The following is a detail of Other fees and commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Foreign currency conversion fee revenue
|
|
$
|
207
|
|
|
$
|
222
|
|
|
$
|
403
|
|
|
$
|
433
|
|
Delinquency fees
|
|
|
192
|
|
|
|
194
|
|
|
|
392
|
|
|
|
389
|
|
Loyalty coalition-related fees
|
|
|
104
|
|
|
|
88
|
|
|
|
198
|
|
|
|
179
|
|
Travel commissions and fees
|
|
|
87
|
|
|
|
95
|
|
|
|
167
|
|
|
|
184
|
|
Service fees
|
|
|
79
|
|
|
|
95
|
|
|
|
157
|
|
|
|
182
|
|
Other
(a)
|
|
|
33
|
|
|
|
33
|
|
|
|
65
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other fees and commissions
|
|
$
|
702
|
|
|
$
|
727
|
|
|
$
|
1,382
|
|
|
$
|
1,435
|
|
|
|
|
(a)
|
Other primarily includes revenues from fees related to Membership Rewards programs.
|
The
following is a detail of Other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Global Network Services partner revenues
|
|
$
|
197
|
|
|
$
|
155
|
|
|
$
|
342
|
|
|
$
|
318
|
|
Gross realized gains on sale of investment securities
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Other
(a)
|
|
|
348
|
|
|
|
366
|
|
|
|
685
|
|
|
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other revenues
|
|
$
|
545
|
|
|
$
|
521
|
|
|
$
|
1,031
|
|
|
$
|
989
|
|
|
|
|
(a)
|
Other includes revenues arising from net revenue earned on cross-border Card Member spending, merchant-related fees, insurance premiums earned from Card Member travel and other insurance programs, Travelers
Cheques-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.
|
The following is a detail of Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Professional services
|
|
$
|
628
|
|
|
$
|
655
|
|
|
$
|
1,232
|
|
|
$
|
1,279
|
|
Occupancy and equipment
|
|
|
438
|
|
|
|
415
|
|
|
|
903
|
|
|
|
849
|
|
Communications
|
|
|
80
|
|
|
|
85
|
|
|
|
163
|
|
|
|
173
|
|
Card and merchant-related fraud losses
|
|
|
57
|
|
|
|
83
|
|
|
|
115
|
|
|
|
183
|
|
Gain on sale of HFS portfolios
(a)
|
|
|
(1,091)
|
|
|
|
|
|
|
|
(1,218)
|
|
|
|
|
|
Other
(b)
|
|
|
358
|
|
|
|
297
|
|
|
|
695
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other expenses
|
|
$
|
470
|
|
|
$
|
1,535
|
|
|
$
|
1,890
|
|
|
$
|
2,934
|
|
|
|
|
(a)
|
Refer to Note 2 for additional information.
|
|
(b)
|
Other expense includes general operating expenses, gains and losses on sale of assets or businesses not classified as discontinued operations, litigation, certain internal and regulatory review-related reimbursements
and insurance costs or settlements, certain loyalty coalition-related expenses, the valuation allowance adjustment associated with loans and receivables HFS (refer to Note 2), and foreign currency-related gains and losses (including the favorable
impact from the reassessment of the functional currency of certain UK legal entities in prior year).
|
30
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. Income Taxes
The effective tax rate was 33.2 percent and 33.9 percent for the three months ended June 30, 2016 and 2015, respectively, and 33.8 percent and
34.0 percent for the six months ended June 30, 2016 and 2015, respectively. The tax rates in all periods primarily reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business.
The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which
the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The IRS has completed its field examination of the Companys federal tax returns for years through 2007; however,
refund claims for certain years continue to be reviewed by the IRS. In addition, the Company is currently under examination by the IRS for the years 2008 through 2014.
The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as
$237 million principally as a result of potential resolutions of prior years tax items with various taxing authorities. The prior years tax items include unrecognized tax benefits relating to the deductibility of certain expenses or
losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $237 million of unrecognized tax benefits, approximately $21 million relates to amounts that if recognized would be recorded in shareholders
equity and would not impact the Companys results of operations or its effective tax rate.
15. Earnings Per Common Share (EPS)
The computations of basic and diluted EPS were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Millions, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,015
|
|
|
$
|
1,473
|
|
|
$
|
3,441
|
|
|
$
|
2,998
|
|
Preferred dividends
|
|
|
(19)
|
|
|
|
(20)
|
|
|
|
(40)
|
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
|
1,996
|
|
|
|
1,453
|
|
|
|
3,401
|
|
|
|
2,978
|
|
Earnings allocated to participating share
awards
(a)
|
|
|
(17)
|
|
|
|
(11)
|
|
|
|
(28)
|
|
|
|
(22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
1,979
|
|
|
$
|
1,442
|
|
|
$
|
3,373
|
|
|
$
|
2,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: Weighted-average common stock
|
|
|
938
|
|
|
|
1,009
|
|
|
|
949
|
|
|
|
1,013
|
|
Add: Weighted-average stock options
(b)
|
|
|
3
|
|
|
|
4
|
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
941
|
|
|
|
1,013
|
|
|
|
952
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
2.11
|
|
|
$
|
1.43
|
|
|
$
|
3.55
|
|
|
$
|
2.92
|
|
Diluted EPS
|
|
$
|
2.10
|
|
|
$
|
1.42
|
|
|
$
|
3.54
|
|
|
$
|
2.90
|
|
|
|
|
(a)
|
The Companys unvested restricted stock awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered participating securities. Calculations of EPS under the two-class
method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the
denominator.
|
|
(b)
|
The dilutive effect of unexercised stock options excludes from the computation of EPS 2.5 million and 0.6 million of options for the three months ended June 30, 2016 and 2015, respectively, and 1.7 million and 0.5
million of options for the six months ended June 30, 2016 and 2015, respectively, because inclusion of the options would have been anti-dilutive.
|
31
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three and six months ended June 30, 2016 and 2015, the Company met specified
performance measures related to the $750 million of Subordinated Debentures issued in 2006, and maturing in 2036. If the performance measures were not achieved in any given quarter, the Company would be required to issue common shares and apply the
proceeds to make interest payments.
16. Reportable Operating Segments
The Company is a global services company that is principally engaged in businesses comprising four reportable operating segments:
USCS, ICNS, GCS and GMS. Corporate functions and certain other businesses and operations are included in Corporate & Other.
The
following table presents certain selected financial information for the Companys reportable operating segments and Corporate & Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
(Millions, except where indicated)
|
|
USCS
|
|
|
ICNS
|
|
|
GCS
|
|
|
GMS
|
|
|
Corporate
& Other
(a)
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,069
|
|
|
$
|
1,242
|
|
|
$
|
2,280
|
|
|
$
|
1,087
|
|
|
$
|
108
|
|
|
$
|
6,786
|
|
Interest income
|
|
|
1,278
|
|
|
|
234
|
|
|
|
310
|
|
|
|
1
|
|
|
|
62
|
|
|
|
1,885
|
|
Interest expense
|
|
|
139
|
|
|
|
58
|
|
|
|
104
|
|
|
|
(61)
|
|
|
|
196
|
|
|
|
436
|
|
Total revenues net of interest expense
|
|
|
3,208
|
|
|
|
1,418
|
|
|
|
2,486
|
|
|
|
1,149
|
|
|
|
(26)
|
|
|
|
8,235
|
|
Net income (loss)
|
|
|
1,067
|
|
|
|
228
|
|
|
|
576
|
|
|
|
373
|
|
|
|
(229)
|
|
|
|
2,015
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
|
81
|
|
|
|
35
|
|
|
|
46
|
|
|
|
24
|
|
|
|
(26)
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
(Millions, except where indicated)
|
|
USCS
|
|
|
ICNS
|
|
|
GCS
|
|
|
GMS
|
|
|
Corporate
& Other
(a)
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
4,098
|
|
|
$
|
2,382
|
|
|
$
|
4,470
|
|
|
$
|
2,128
|
|
|
$
|
216
|
|
|
$
|
13,294
|
|
Interest income
|
|
|
2,669
|
|
|
|
461
|
|
|
|
631
|
|
|
|
1
|
|
|
|
128
|
|
|
|
3,890
|
|
Interest expense
|
|
|
279
|
|
|
|
112
|
|
|
|
199
|
|
|
|
(120)
|
|
|
|
391
|
|
|
|
861
|
|
Total revenues net of interest expense
|
|
|
6,488
|
|
|
|
2,731
|
|
|
|
4,902
|
|
|
|
2,249
|
|
|
|
(47)
|
|
|
|
16,323
|
|
Net income (loss)
|
|
|
1,761
|
|
|
|
416
|
|
|
|
1,061
|
|
|
|
730
|
|
|
|
(527)
|
|
|
|
3,441
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
|
81
|
|
|
|
35
|
|
|
|
46
|
|
|
|
24
|
|
|
|
(26)
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
(Millions, except where indicated)
|
|
USCS
|
|
|
ICNS
|
|
|
GCS
|
|
|
GMS
|
|
|
Corporate
& Other
(a)
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,176
|
|
|
$
|
1,163
|
|
|
$
|
2,285
|
|
|
$
|
1,130
|
|
|
$
|
107
|
|
|
$
|
6,861
|
|
Interest income
|
|
|
1,252
|
|
|
|
237
|
|
|
|
289
|
|
|
|
1
|
|
|
|
58
|
|
|
|
1,837
|
|
Interest expense
|
|
|
121
|
|
|
|
58
|
|
|
|
91
|
|
|
|
(49)
|
|
|
|
193
|
|
|
|
414
|
|
Total revenues net of interest expense
|
|
|
3,307
|
|
|
|
1,342
|
|
|
|
2,483
|
|
|
|
1,180
|
|
|
|
(28)
|
|
|
|
8,284
|
|
Net income (loss)
|
|
|
613
|
|
|
|
193
|
|
|
|
550
|
|
|
|
369
|
|
|
|
(252)
|
|
|
|
1,473
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
|
84
|
|
|
|
29
|
|
|
|
46
|
|
|
|
17
|
|
|
|
(19)
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
(Millions, except where indicated)
|
|
USCS
|
|
|
ICNS
|
|
|
GCS
|
|
|
GMS
|
|
|
Corporate
& Other
(a)
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
4,207
|
|
|
$
|
2,308
|
|
|
$
|
4,460
|
|
|
$
|
2,200
|
|
|
$
|
189
|
|
|
$
|
13,364
|
|
Interest income
|
|
|
2,525
|
|
|
|
482
|
|
|
|
567
|
|
|
|
1
|
|
|
|
119
|
|
|
|
3,694
|
|
Interest expense
|
|
|
235
|
|
|
|
121
|
|
|
|
180
|
|
|
|
(108)
|
|
|
|
396
|
|
|
|
824
|
|
Total revenues net of interest expense
|
|
|
6,497
|
|
|
|
2,669
|
|
|
|
4,847
|
|
|
|
2,309
|
|
|
|
(88)
|
|
|
|
16,234
|
|
Net income (loss)
|
|
|
1,272
|
|
|
|
390
|
|
|
|
1,067
|
|
|
|
738
|
|
|
|
(469)
|
|
|
|
2,998
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
|
84
|
|
|
|
29
|
|
|
|
46
|
|
|
|
17
|
|
|
|
(19)
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Corporate & Other includes adjustments and eliminations for intersegment activity.
|
32
|
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Business Introduction
When we use the terms American Express, the Company, we, our or us, we mean
American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
We are a global
services company that provides our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit payment card products and travel-related services
offered to consumers and businesses around the world. Business travel-related services are offered through our non-consolidated joint venture, American Express Global Business Travel (GBT JV). Our range of products and services includes:
|
|
|
Charge and credit card products
|
|
|
|
Merchant acquisition and processing, servicing and settlement, marketing and information products and services for merchants
|
|
|
|
Fee services, including fraud prevention services and the design and operation of customer loyalty and rewards programs
|
|
|
|
Expense management products and services
|
|
|
|
Other lending products, including merchant financing
|
|
|
|
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 direct mail, online applications, in-house and third-party sales forces and
direct response advertising.
We compete in the global payments industry with charge, credit and debit card networks, issuers and
acquirers, as well as evolving and growing alternative payment providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customers existing accounts
and relationships to create payment or other fee-based solutions.
Our products and services generate the following types of revenue for
the Company:
|
|
|
Discount revenue, our largest revenue source, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services at merchants on our network;
|
|
|
|
Interest on loans, which principally represents interest income earned on outstanding balances;
|
|
|
|
Net card fees, which represent revenue earned from annual card membership fees;
|
|
|
|
Other fees and commissions, which are earned on card-related fees (such as late fees and assessments), foreign exchange conversions, loyalty coalition-related fees, travel commissions and fees and other service fees;
and
|
|
|
|
Other revenue, which represents revenues arising from contracts with partners of our Global Network Services
(GNS) business (including commissions and signing fees), insurance premiums earned from Card Member travel and other insurance programs, prepaid card-related revenues, revenues related to the
|
33
|
GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.
|
Effective for the first quarter of 2016, we realigned our segment presentation to reflect the organizational changes announced during the
fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments, which are: U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global
Merchant Services (GMS), with corporate functions and certain other businesses and operations included in Corporate & Other. Refer to Note 1 to the Consolidated Financial Statements for additional information.
Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Refer to the Cautionary Note Regarding Forward-Looking Statements section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP).
However, certain information included within this Form 10-Q constitute non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
Bank Holding Company
American Express Company is a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve
System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserves regulations, policies and minimum capital standards.
Business Environment
For the quarter ended June 30, 2016, earnings included a gain of $1.1 billion ($677 million after-tax) from the previously announced sale of
our Costco Wholesale Corporation (Costco) U.S. cobrand card portfolio, a $232 million ($151 million after-tax) restructuring charge related to our on-going cost reduction efforts, together with a continued elevated level of spending on growth
initiatives. During the quarter, we continued to make progress on our key initiatives to accelerate growth, including driving new card acquisitions across our global consumer and commercial portfolios, expanding merchant coverage and driving strong
momentum across our lending growth initiatives. In addition, we used our capital strength to repurchase $1.7 billion of outstanding shares.
The year-over-year growth in worldwide billings for the second quarter, adjusted for foreign currency exchange rates, slowed versus the first
quarter as a result of a continued slowdown in Costco-related volumes leading up to the date of the portfolio sale. International volumes continued to be strong and performance remained relatively consistent sequentially across most regions.
Revenues net of interest expense decreased modestly as compared to the prior year. Similar to last quarter, we experienced a year-over-year
decline in the discount rate from the continued expansion of OptBlue and merchant negotiations, including those resulting from the regulatory changes in the EU that went into effect late last year. Discount revenue growth was also impacted by an
increase in contra-discount revenues as compared to the prior year, primarily related to cash rebate rewards. In addition, in the prior year both the discount rate and discount revenue benefited from certain merchant rebate accruals.
Net interest income grew, as compared to the prior year, although growth slowed sequentially due primarily to the sales of the Costco and
JetBlue cobrand card portfolios as well as the continued decline in Costco loans prior to the portfolio sale in June. Card member loans were down in the second quarter of 2016 compared to the prior year, reflecting the sales of the two cobrand card
portfolios in the first half of this year. Excluding the Card Member loans related to the Costco and JetBlue portfolios from the prior year,
34
worldwide loan growth during the quarter was sequentially consistent, with a portion of the growth coming from increased usage of other American Express cards by former Costco cobrand Card
Members. We continue to believe there are opportunities to increase our share of lending from both existing customers and high quality prospects without significantly changing our overall credit risk profile.
Provision expenses were down modestly and credit quality remained strong during the quarter. The prior period included credit costs
associated with the Costco and JetBlue cobrand card portfolios subsequently classified as held for sale; the credit costs associated with the Costco portfolio for the current quarter were reported in Other expense. We expect some modest upward
pressure on our write-off rates, due primarily to the seasoning of loans related to new Card Members.
Total expenses decreased
significantly as compared to the prior year, reflecting the Costco cobrand portfolio sale gain, which was classified as an expense reduction in Other expense. Excluding the Costco portfolio sale gain and the restructuring charge during the current
quarter, total expenses grew modestly and reflect a continued elevated level of investment spending on growth initiatives. We expect our investment spending during 2016, including marketing and promotion, will be at a higher level than 2015. Rewards
expense declined in the second quarter driven by a shift in volumes to cash rebate products for which the rewards costs are classified as contra-discount revenue.
Relative to the first half of the year, we continue to anticipate earnings will be lower during the second half of the year due to the end of
our relationship with Costco in the U.S. and our higher level of spending on growth initiatives. Overall, we remain focused on accelerating revenue growth, optimizing investments and resetting our cost base.
See Certain legislative, regulatory and other developments in Other Matters for information on the potential impacts
of an adverse decision in the Department of Justice (DOJ) case and related merchant litigations on our business, as well as other legislative and regulatory changes that could have a material adverse effect on our results of operations and financial
condition.
35
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
JetBlue and Costco in the United States (the HFS portfolios) to Card Member loans and receivables HFS (included in the USCS and GCS segments) on the Consolidated Balance Sheets, the sales of which were completed on March 18, 2016 and June 17, 2016,
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. Refer to Note 2 to the Consolidated Financial Statements for additional information.
The relative strengthening of the U.S. dollar over the periods of comparison has had an impact on our results of operations. Where meaningful
in describing our performance, foreign currency-adjusted amounts, which exclude the impact of changes in the foreign exchange (FX) rates, have been provided.
Table 1: Summary of Financial Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
(Millions, except percentages and
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Total revenues net of interest expense
|
|
$
|
8,235
|
|
|
$
|
8,284
|
|
|
$
|
(49)
|
|
|
|
(1)
|
%
|
|
$
|
16,323
|
|
|
$
|
16,234
|
|
|
$
|
89
|
|
|
|
1
|
%
|
Provisions for losses
|
|
|
463
|
|
|
|
467
|
|
|
|
(4)
|
|
|
|
(1)
|
|
|
|
897
|
|
|
|
887
|
|
|
|
10
|
|
|
|
1
|
|
Expenses
|
|
|
4,756
|
|
|
|
5,587
|
|
|
|
(831)
|
|
|
|
(15)
|
|
|
|
10,226
|
|
|
|
10,801
|
|
|
|
(575)
|
|
|
|
(5)
|
|
Net income
|
|
|
2,015
|
|
|
|
1,473
|
|
|
|
542
|
|
|
|
37
|
|
|
|
3,441
|
|
|
|
2,998
|
|
|
|
443
|
|
|
|
15
|
|
Earnings per common share
diluted
(a)
|
|
$
|
2.10
|
|
|
$
|
1.42
|
|
|
$
|
0.68
|
|
|
|
48
|
%
|
|
$
|
3.54
|
|
|
$
|
2.90
|
|
|
$
|
0.64
|
|
|
|
22
|
%
|
Return on average equity
(b)
|
|
|
26.4
|
%
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
26.4
|
%
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
Return on average tangible common equity
(c)
|
|
|
34.5
|
%
|
|
|
35.4
|
%
|
|
|
|
|
|
|
|
|
|
|
34.5
|
%
|
|
|
35.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings per common share diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $17 million and $11 million for the three months ended June 30, 2016 and
2015, respectively, and $28 million and $22 million for the six months ended June 30, 2016 and 2015, respectively, and (ii) dividends on preferred shares of $19 million and $20 million for the three months ended June 30, 2016 and 2015, respectively,
and $40 million and $20 million for the six months ended June 30, 2016 and 2015, respectively.
|
|
(b)
|
Return on average equity (ROE) is computed by dividing (i) one-year period net income ($5.6 billion and $5.9 billion for June 30, 2016 and 2015, respectively) by (ii) one-year average total shareholders
equity ($21.2 billion and $21.1 billion for June 30, 2016 and 2015, respectively).
|
|
(c)
|
Return on average tangible common equity (ROTCE), a non-GAAP measure, is computed in the same manner as ROE except the computation of average tangible common equity, a non-GAAP measure, excludes from average total
shareholders equity, average goodwill and other intangibles of $3.7 billion and $3.8 billion as of June 30, 2016 and 2015, respectively, and average preferred shares of $1.6 billion and $0.7 billion as of June 30, 2016 and 2015, respectively.
We believe ROTCE is a useful measure of the profitability of our business.
|
36
Table 2: Total Revenue Net of Interest Expense Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Discount revenue
|
|
$
|
4,824
|
|
|
$
|
4,946
|
|
|
$
|
(122)
|
|
|
|
(2)
|
%
|
|
$
|
9,467
|
|
|
$
|
9,606
|
|
|
$
|
(139)
|
|
|
|
(1)
|
%
|
Net card fees
|
|
|
715
|
|
|
|
667
|
|
|
|
48
|
|
|
|
7
|
|
|
|
1,414
|
|
|
|
1,334
|
|
|
|
80
|
|
|
|
6
|
|
Other fees and commissions
|
|
|
702
|
|
|
|
727
|
|
|
|
(25)
|
|
|
|
(3)
|
|
|
|
1,382
|
|
|
|
1,435
|
|
|
|
(53)
|
|
|
|
(4)
|
|
Other
|
|
|
545
|
|
|
|
521
|
|
|
|
24
|
|
|
|
5
|
|
|
|
1,031
|
|
|
|
989
|
|
|
|
42
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
6,786
|
|
|
|
6,861
|
|
|
|
(75)
|
|
|
|
(1)
|
|
|
|
13,294
|
|
|
|
13,364
|
|
|
|
(70)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,885
|
|
|
|
1,837
|
|
|
|
48
|
|
|
|
3
|
|
|
|
3,890
|
|
|
|
3,694
|
|
|
|
196
|
|
|
|
5
|
|
Total interest expense
|
|
|
436
|
|
|
|
414
|
|
|
|
22
|
|
|
|
5
|
|
|
|
861
|
|
|
|
824
|
|
|
|
37
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,449
|
|
|
|
1,423
|
|
|
|
26
|
|
|
|
2
|
|
|
|
3,029
|
|
|
|
2,870
|
|
|
|
159
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
8,235
|
|
|
$
|
8,284
|
|
|
$
|
(49)
|
|
|
|
(1)
|
%
|
|
$
|
16,323
|
|
|
$
|
16,234
|
|
|
$
|
89
|
|
|
|
1
|
%
|
|
|
Total Revenues Net of Interest Expense
Discount revenue decreased $122 million or 2 percent and $139 million or 1 percent for the three and six months ended June 30, 2016, compared
to the same periods in the prior year. The decreases were primarily driven by a decrease in the average discount rate and increases in contra discount revenues, including higher cash rebate rewards due to new Card Member acquisition offers,
partially offset by growth in billed business. Billed business increased 3 percent for both the three and six months ended June 30, 2016, compared to the same periods in the prior year. U.S. billed business increased 2 percent and 3 percent for
the three and six months ended June 30, 2016, respectively, with a decline in Costco cobrand card volumes and the sale of the Costco cobrand card portfolio in the current year negatively impacting billed business growth in both periods. Non-U.S.
billed business increased 5 percent and 3 percent in the same respective periods (10 percent and 9 percent on an FX-adjusted basis).
1
The average discount rate was 2.43 percent for both the three and six months ended June 30, 2016 and 2.49 percent for both the three and six
months ended June 30, 2015. The decrease was driven in part by a prior-year benefit related to certain merchant rebate accruals, growth of the OptBlue program, and merchant negotiations, including those resulting from the recent European regulatory
changes. We expect the average discount rate will likely decline by a greater amount during 2016 than 2015 due to the further expansion of OptBlue, a greater impact from international regulatory changes and continued competitive pressures. More
broadly, overall changes in the mix of spending by location and industry, merchant incentives and concessions, volume related pricing discounts, strategic investments, certain pricing initiatives, competition, pricing regulation (including
regulation of competitors interchange rates) and other factors will likely result in continued erosion of our discount rate over time. See Tables 5, 6 and 7 for more details on billed business performance and the average discount rate.
Net card fees increased $48 million or 7 percent and $80 million or 6 percent for the three and six months ended June 30, 2016, respectively,
compared to the same periods in the prior year, primarily driven by growth in the Platinum, Gold and Delta portfolios.
Other fees and
commissions decreased $25 million or 3 percent and $53 million or 4 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, and remained relatively flat on an FX-adjusted basis for both
periods.
1
Other revenues increased $24 million or 5 percent and $42 million or 4
percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by a contractual payment from a GNS partner in the second quarter of 2016, as well as higher revenues from our
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.
37
Prepaid Services business, partially offset by lower revenues earned related to the GBT JV transition services agreement.
Interest income increased $48 million or 3 percent and $196 million or 5 percent for the three and six months ended June 30, 2016, compared to
the same periods in the prior year, primarily reflecting a modestly higher yield and an increase in average Card Member loans (including Card Member loans HFS), in the six month period, partially offset by the impact from the sales of the HFS
portfolio.
Interest expense increased $22 million or 5 percent and $37 million or 4 percent for the three and six months ended June 30,
2016, respectively, compared to the same periods in the prior year, primarily driven by higher average customer deposit balances, partially offset by lower average long-term debt.
Table 3: Provisions for Losses Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Charge card
|
|
$
|
153
|
|
|
$
|
165
|
|
|
$
|
(12)
|
|
|
|
(7)
|
%
|
|
$
|
322
|
|
|
$
|
339
|
|
|
$
|
(17)
|
|
|
|
(5)
|
%
|
Card Member loans
|
|
|
285
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
520
|
|
|
|
(8)
|
|
|
|
(2)
|
|
Other
|
|
|
25
|
|
|
|
17
|
|
|
|
8
|
|
|
|
47
|
|
|
|
63
|
|
|
|
28
|
|
|
|
35
|
|
|
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provisions for
losses
(a)
|
|
$
|
463
|
|
|
$
|
467
|
|
|
$
|
(4)
|
|
|
|
(1)
|
%
|
|
$
|
897
|
|
|
$
|
887
|
|
|
$
|
10
|
|
|
|
1
|
%
|
|
|
# Denotes a variance greater than 100 percent.
|
(a)
|
For the three and six months ended June 30, 2016, provisions for losses does not reflect the HFS portfolios.
|
Provisions for Losses
Charge card provision for losses decreased $12 million or 7 percent and $17 million or 5 percent for the three and six months ended June 30,
2016, respectively, compared to the same periods in the prior year, primarily driven by a higher reserve release in the current year.
Card Member loans provision for losses remained flat and decreased $8 million or 2 percent for the three and six months ended June 30, 2016,
respectively, compared to the same periods in the prior year, as the current year periods do not reflect the HFS portfolios as related credit costs were reported in Other expenses through a valuation allowance adjustment, the decrease from which was
offset by strong momentum in our lending growth initiatives.
Other provision for losses increased $8 million and $35 million for the
three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher net write-offs in merchant financing loans as a result of growth in the portfolio.
Table 4: Expenses Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Marketing and promotion
|
|
$
|
788
|
|
|
$
|
761
|
|
|
$
|
27
|
|
|
|
4
|
%
|
|
$
|
1,515
|
|
|
$
|
1,370
|
|
|
$
|
145
|
|
|
|
11
|
%
|
Card Member rewards
|
|
|
1,766
|
|
|
|
1,799
|
|
|
|
(33)
|
|
|
|
(2)
|
|
|
|
3,469
|
|
|
|
3,439
|
|
|
|
30
|
|
|
|
1
|
|
Card Member services and other
|
|
|
281
|
|
|
|
242
|
|
|
|
39
|
|
|
|
16
|
|
|
|
563
|
|
|
|
503
|
|
|
|
60
|
|
|
|
12
|
|
Total marketing, promotion, rewards,
Card Member
services and other
|
|
|
2,835
|
|
|
|
2,802
|
|
|
|
33
|
|
|
|
1
|
|
|
|
5,547
|
|
|
|
5,312
|
|
|
|
235
|
|
|
|
4
|
|
Salaries and employee benefits
|
|
|
1,451
|
|
|
|
1,250
|
|
|
|
201
|
|
|
|
16
|
|
|
|
2,789
|
|
|
|
2,555
|
|
|
|
234
|
|
|
|
9
|
|
Other, net
(a)
|
|
|
470
|
|
|
|
1,535
|
|
|
|
(1,065)
|
|
|
|
(69)
|
|
|
|
1,890
|
|
|
|
2,934
|
|
|
|
(1,044)
|
|
|
|
(36)
|
|
Total expenses
|
|
$
|
4,756
|
|
|
$
|
5,587
|
|
|
$
|
(831)
|
|
|
|
(15)
|
%
|
|
$
|
10,226
|
|
|
$
|
10,801
|
|
|
$
|
(575)
|
|
|
|
(5)
|
%
|
|
|
|
(a)
|
Effective December 1, 2015, Other, net included the valuation allowance adjustment associated with the HFS portfolios.
|
Expenses
Marketing and promotion expenses increased $27 million or 4 percent and $145 million or 11 percent for the three and six months ended June 30,
2016, respectively, compared to the same periods in the prior year,
38
driven by elevated levels of spending on growth initiatives, predominantly within the USCS and ICNS segments.
Card Member rewards expenses decreased $33 million or 2 percent and increased $30 million or 1 percent for the three and six months ended June
30, 2016, respectively, compared to the same periods in the prior year.
The decrease for the three-month period was primarily driven by
lower cobrand rewards expense of $67 million, reflecting the decline in spending on Costco cobrand cards, as well as a shift in volumes to cash rebate products for which the rewards costs are classified as contra-discount revenue, partially offset
by increased spending volumes across other cobrand card products. The lower cobrand rewards expense was partially offset by higher Membership Rewards expense of $34 million, primarily driven by an increase in new points earned as a result of
higher spending volumes and growth in the Ultimate Redemption Rate (URR).
The increase for the six months ended was primarily driven by
higher Membership Rewards expense of $83 million, primarily driven by an increase in new points earned as a result of higher spending volumes, partially offset by lower cobrand rewards expense of $53 million as a result of the above mentioned
decline in spending on Costco cobrand cards and the shift in volumes to cash rebate products.
The Membership Rewards URR for current
program participants was 95 percent
(rounded down)
at June 30, 2016, compared to
95 percent
(rounded up)
at June 30, 2015.
Card Member services and other expenses increased $39 million or 16 percent and $60 million or 12 percent for the three and six months ended
June 30, 2016, respectively, compared to the same periods in the prior year, driven by increased usage of travel-related benefits.
Salaries and employee benefits expenses increased $201 million or 16 percent and $234 million or 9 percent for the three and six months ended
June 30, 2016, respectively, compared to the same periods in the prior year, driven by restructuring in the current year.
Other expenses
decreased $1.1 billion or 69 percent and $1.0 billion or 36 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year. The decreases in both periods were driven by the gain on the sale of
the Costco Card Member loans and receivables HFS portfolio and lower fraud expenses, partially offset by the impact of the transfer of the HFS portfolios to Card Member loans and receivables HFS effective December 2015, as related credit costs were
reported in Other expenses through a valuation allowance adjustment. The decrease in the six-month period also includes the gain on the sale of the JetBlue Card Member loans HFS portfolio, partially offset by the benefit in the prior year from both
the reassessment of the functional currency of certain UK legal entities and other FX-related activity.
Income Taxes
The effective tax rate was 33.2 percent and 33.8 percent for the three and six months ended June 30, 2016, respectively, and 33.9 percent and
34.0 percent for the three and six months ended June 30, 2015, respectively. The tax rates in all periods primarily reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business.
Additionally, the effective tax rate in the current-year periods reflected the resolution of certain prior years tax items.
39
Table 5: Selected Card-Related Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
June 30,
|
|
|
Change
2016
vs.
|
|
|
As of or for the
Six Months Ended
June 30,
|
|
|
Change
2016
vs.
|
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Card billed business:
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
185.1
|
|
|
$
|
181.8
|
|
|
|
2 %
|
|
|
$
|
361.4
|
|
|
$
|
351.2
|
|
|
|
3 %
|
|
Outside the United States
|
|
|
84.2
|
|
|
|
80.2
|
|
|
|
5
|
|
|
|
161.7
|
|
|
|
156.4
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
269.3
|
|
|
$
|
262.0
|
|
|
|
3
|
|
|
$
|
523.1
|
|
|
$
|
507.6
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
47.0
|
|
|
|
55.3
|
|
|
|
(15)
|
|
|
|
47.0
|
|
|
|
55.3
|
|
|
|
(15)
|
|
Outside the United States
|
|
|
61.2
|
|
|
|
58.5
|
|
|
|
5
|
|
|
|
61.2
|
|
|
|
58.5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
|
108.2
|
|
|
|
113.8
|
|
|
|
(5)
|
|
|
|
108.2
|
|
|
|
113.8
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
37.0
|
|
|
|
42.8
|
|
|
|
(14)
|
|
|
|
37.0
|
|
|
|
42.8
|
|
|
|
(14)
|
|
Outside the United States
|
|
|
50.5
|
|
|
|
48.2
|
|
|
|
5
|
|
|
|
50.5
|
|
|
|
48.2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
|
87.5
|
|
|
|
91.0
|
|
|
|
(4)
|
|
|
|
87.5
|
|
|
|
91.0
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic Card Member spending:
(dollars)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,672
|
|
|
$
|
4,616
|
|
|
|
1
|
|
|
$
|
8,941
|
|
|
$
|
8,936
|
|
|
|
|
|
Outside the United States
|
|
|
3,319
|
|
|
|
3,297
|
|
|
|
1
|
|
|
|
6,404
|
|
|
|
6,426
|
|
|
|
|
|
Worldwide Average
|
|
|
4,313
|
|
|
|
4,272
|
|
|
|
1
|
|
|
|
8,280
|
|
|
|
8,277
|
|
|
|
|
|
Card Member loans:
(billions)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
53.2
|
|
|
|
61.8
|
|
|
|
(14)
|
|
|
|
53.2
|
|
|
|
61.8
|
|
|
|
(14)
|
|
Outside the United States
|
|
|
6.7
|
|
|
|
7.2
|
|
|
|
(8)
|
|
|
|
6.7
|
|
|
|
7.2
|
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
59.9
|
|
|
$
|
69.0
|
|
|
|
(13)
|
|
|
$
|
59.9
|
|
|
$
|
69.0
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average discount rate
|
|
|
2.43
|
%
|
|
|
2.49
|
%
|
|
|
(2)
|
|
|
|
2.43
|
%
|
|
|
2.49
|
%
|
|
|
(2)
|
|
Average fee per card
(dollars)
(a)
|
|
$
|
42
|
|
|
$
|
39
|
|
|
|
8
|
|
|
$
|
41
|
|
|
$
|
39
|
|
|
|
5
|
|
Average fee per card adjusted
(dollars)
(a)
|
|
$
|
46
|
|
|
$
|
43
|
|
|
|
7 %
|
|
|
$
|
45
|
|
|
$
|
44
|
|
|
|
2 %
|
|
|
|
|
(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. The average fee per card adjusted, which is a non-GAAP measure, is computed in the same manner, but excludes deferred direct acquisition costs. The amount of deferred costs recognized was $74 million and $61 million for the three
months ended June 30, 2016 and 2015, respectively, and $142 million and $145 million for the six months ended June 30, 2016 and 2015, respectively. We present the average fee per card adjusted because we believe this metric presents a useful
indicator of card fee pricing across a range of our proprietary card products.
|
|
|
(b)
|
Effective December 1, 2015, does not reflect the HFS portfolios.
|
40
Table 6: Billed Business Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
Percentage
Increase
(Decrease)
|
|
|
|
Percentage Increase
(Decrease) Assuming
No Changes in
FX Rates
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
(b)
|
|
|
|
|
|
|
|
|
|
|
Total billed business
|
|
|
|
|
3
|
%
|
|
|
4
|
%
|
Proprietary billed business
|
|
|
|
|
2
|
|
|
|
3
|
|
GNS billed business
(c)
|
|
|
|
|
5
|
|
|
|
11
|
|
Airline-related volume (8% of worldwide billed business)
|
|
|
|
|
(4)
|
|
|
|
(3)
|
|
United States
(b)
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
|
|
2
|
|
|
|
|
|
Proprietary consumer card billed
business
(d)
|
|
|
|
|
|
|
|
|
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
|
|
4
|
|
|
|
|
|
T&E-related volume (26% of U.S. billed business)
|
|
|
|
|
(1)
|
|
|
|
|
|
Non-T&E-related volume
|
|
|
|
|
3
|
|
|
|
|
|
Airline-related volume (7% of U.S. billed business)
|
|
|
|
|
(8)
|
|
|
|
|
|
Outside the United States
(b)
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
|
|
5
|
|
|
|
10
|
|
Japan, Asia Pacific & Australia billed business
|
|
|
|
|
12
|
|
|
|
13
|
|
Latin America & Canada billed business
|
|
|
|
|
(9)
|
|
|
|
6
|
|
Europe, the Middle East & Africa billed business
|
|
|
|
|
3
|
|
|
|
6
|
|
Proprietary consumer card billed
business
(c)
|
|
|
|
|
4
|
|
|
|
8
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
|
(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 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.
|
41
Table 7: Billed Business Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
Percentage
Increase
(Decrease)
|
|
|
|
Percentage Increase
(Decrease) Assuming
No Changes in
FX Rates
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
(b)
|
|
|
|
|
|
|
|
|
|
|
Total billed business
|
|
|
|
|
3
|
%
|
|
|
5
|
%
|
Proprietary billed business
|
|
|
|
|
3
|
|
|
|
4
|
|
GNS billed business
(c)
|
|
|
|
|
5
|
|
|
|
12
|
|
Airline-related volume (8% of worldwide billed business)
|
|
|
|
|
(4)
|
|
|
|
(2)
|
|
United States
(b)
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
|
|
3
|
|
|
|
|
|
Proprietary consumer card billed
business
(d)
|
|
|
|
|
2
|
|
|
|
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
|
|
4
|
|
|
|
|
|
T&E-related volume (26% of U.S. billed business)
|
|
|
|
|
|
|
|
|
|
|
Non-T&E-related volume
|
|
|
|
|
4
|
|
|
|
|
|
Airline-related volume (7% of U.S. billed business)
|
|
|
|
|
(6)
|
|
|
|
|
|
Outside the United States
(b)
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
|
|
3
|
|
|
|
9
|
|
Japan, Asia Pacific & Australia billed business
|
|
|
|
|
10
|
|
|
|
13
|
|
Latin America & Canada billed business
|
|
|
|
|
(11)
|
|
|
|
5
|
|
Europe, the Middle East & Africa billed business
|
|
|
|
|
3
|
|
|
|
7
|
|
Proprietary consumer card billed
business
(c)
|
|
|
|
|
3
|
|
|
|
8
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
|
|
|
%
|
|
|
5
|
%
|
|
|
|
(a)
|
Refer to Note (a) in Table 6.
|
|
(b)
|
Captions in the table above not designated as proprietary or GNS include both proprietary and GNS data.
|
|
(c)
|
Included in the ICNS segment.
|
|
(d)
|
Included in the USCS segment.
|
|
(e)
|
Included in the GCS segment.
|
42
Table 8: Selected Credit-Related Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
June 30,
|
|
|
Change
2016
vs.
|
|
|
|
|
|
As of or for the
Six Months Ended
June 30,
|
|
|
Change
2016
vs.
|
|
|
|
|
(Millions, except percentages and where indicated)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2015
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Card Member receivables:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
45.2
|
|
|
$
|
44.9
|
|
|
|
1
|
%
|
|
|
|
|
|
$
|
45.2
|
|
|
$
|
44.9
|
|
|
|
1
|
%
|
|
|
|
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
446
|
|
|
$
|
429
|
|
|
|
4
|
|
|
|
|
|
|
$
|
462
|
|
|
$
|
465
|
|
|
|
(1)
|
|
|
|
|
|
Provisions
(b)
|
|
|
153
|
|
|
|
165
|
|
|
|
(7)
|
|
|
|
|
|
|
|
322
|
|
|
|
339
|
|
|
|
(5)
|
|
|
|
|
|
Net write-offs
(c)
|
|
|
(173)
|
|
|
|
(171)
|
|
|
|
1
|
|
|
|
|
|
|
|
(359)
|
|
|
|
(370)
|
|
|
|
(3)
|
|
|
|
|
|
Other
|
|
|
(3)
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
(14)
|
|
|
|
(86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
423
|
|
|
$
|
420
|
|
|
|
1
|
|
|
|
|
|
|
$
|
423
|
|
|
$
|
420
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of receivables
|
|
|
0.9
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
0.9
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
Net write-off rate principal only
(d)
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
1.7
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
Net write-off rate principal and fees
(d)
|
|
|
1.8
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
30+ days past due as a % of total
(d)
|
|
|
1.3
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
1.3
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
Net loss ratio as a % of charge volume GCP
|
|
|
0.09
|
%
|
|
|
0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
0.09
|
%
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
90+ days past billing as a % of total GCP
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Card Member loans:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
59.9
|
|
|
$
|
69.0
|
|
|
|
(13)
|
|
|
|
|
|
|
$
|
59.9
|
|
|
$
|
69.0
|
|
|
|
(13)
|
|
|
|
|
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,012
|
|
|
$
|
1,130
|
|
|
|
(10)
|
|
|
|
|
|
|
$
|
1,028
|
|
|
$
|
1,201
|
|
|
|
(14)
|
|
|
|
|
|
Provisions
(b)
|
|
|
285
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
520
|
|
|
|
(2)
|
|
|
|
|
|
Net write-offs principal only
(c)
|
|
|
(223)
|
|
|
|
(243)
|
|
|
|
(8)
|
|
|
|
|
|
|
|
(437)
|
|
|
|
(502)
|
|
|
|
(13)
|
|
|
|
|
|
Net write-offs interest and fees
(c)
|
|
|
(40)
|
|
|
|
(42)
|
|
|
|
(5)
|
|
|
|
|
|
|
|
(80)
|
|
|
|
(85)
|
|
|
|
(6)
|
|
|
|
|
|
Other
(e)
|
|
|
57
|
|
|
|
2
|
|
|
|
#
|
|
|
|
|
|
|
|
68
|
|
|
|
(2)
|
|
|
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,091
|
|
|
$
|
1,132
|
|
|
|
(4)
|
|
|
|
|
|
|
$
|
1,091
|
|
|
$
|
1,132
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending reserves principal
|
|
$
|
1,037
|
|
|
$
|
1,076
|
|
|
|
(4)
|
|
|
|
|
|
|
$
|
1,037
|
|
|
$
|
1,076
|
|
|
|
(4)
|
|
|
|
|
|
Ending reserves interest and fees
|
|
$
|
54
|
|
|
$
|
56
|
|
|
|
(4)
|
|
|
|
|
|
|
$
|
54
|
|
|
$
|
56
|
|
|
|
(4)
|
|
|
|
|
|
% of loans
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
% of past due
|
|
|
160
|
%
|
|
|
171
|
%
|
|
|
|
|
|
|
|
|
|
|
160
|
%
|
|
|
171
|
%
|
|
|
|
|
|
|
|
|
Average loans
(billions)
(a)
|
|
$
|
58.8
|
|
|
$
|
68.0
|
|
|
|
(13)
|
%
|
|
|
|
|
|
$
|
58.2
|
|
|
$
|
68.0
|
|
|
|
(14)
|
%
|
|
|
|
|
Net write-off rate principal only
(d)
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
Net write-off rate principal, interest and fees
(d)
|
|
|
1.8
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
1.8
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
30+ days past due as a % of total
(d)
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
#
|
Denotes a variance greater than 100 percent.
|
|
(a)
|
Refer to Table 5 footnote (b).
|
|
(b)
|
Provisions on principal and fee reserve components on Card Member receivables and provisions for principal, interest and/or fees on Card Member loans. Refer to Table 3 footnote (a).
|
|
(c)
|
Write-offs, less recoveries.
|
|
(d)
|
We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our
reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The net write-off rates and 30+ days past due as a percentage of total relate to USCS, ICNS and Global Small Business Services (GSBS) Card
Member receivables.
|
|
(e)
|
Includes reserves associated with Card Member loans reclassified from HFS to held for investment. Refer to Changes in Card Member loans reserve for losses under Note 4 to our Consolidated Financial Statements for
additional information.
|
43
Table 9: Net Interest Yield on Card Member Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net interest income
|
|
$
|
1,449
|
|
|
$
|
1,423
|
|
|
$
|
3,029
|
|
|
$
|
2,870
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
247
|
|
|
|
248
|
|
|
|
485
|
|
|
|
494
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
(102)
|
|
|
|
(91)
|
|
|
|
(205)
|
|
|
|
(177)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(a)
|
|
$
|
1,594
|
|
|
$
|
1,580
|
|
|
$
|
3,309
|
|
|
$
|
3,187
|
|
Average loans including HFS loan portfolios
(billions)
|
|
$
|
67.6
|
|
|
$
|
68.0
|
|
|
$
|
69.2
|
|
|
$
|
68.0
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
8.6
|
%
|
|
|
8.4
|
%
|
|
|
8.8
|
%
|
|
|
8.4
|
%
|
Net interest yield on Card Member loans
(a)
|
|
|
9.5
|
%
|
|
|
9.3
|
%
|
|
|
9.6
|
%
|
|
|
9.5
|
%
|
|
(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.
|
44
Business Segment Results
U.S. Consumer Services
Table 10: USCS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,069
|
|
|
$
|
2,176
|
|
|
$
|
(107)
|
|
|
|
(5)
|
%
|
|
$
|
4,098
|
|
|
$
|
4,207
|
|
|
$
|
(109)
|
|
|
|
(3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,278
|
|
|
|
1,252
|
|
|
|
26
|
|
|
|
2
|
|
|
|
2,669
|
|
|
|
2,525
|
|
|
|
144
|
|
|
|
6
|
|
Interest expense
|
|
|
139
|
|
|
|
121
|
|
|
|
18
|
|
|
|
15
|
|
|
|
279
|
|
|
|
235
|
|
|
|
44
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,139
|
|
|
|
1,131
|
|
|
|
8
|
|
|
|
1
|
|
|
|
2,390
|
|
|
|
2,290
|
|
|
|
100
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
3,208
|
|
|
|
3,307
|
|
|
|
(99)
|
|
|
|
(3)
|
|
|
|
6,488
|
|
|
|
6,497
|
|
|
|
(9)
|
|
|
|
|
|
Provisions for losses
|
|
|
237
|
|
|
|
243
|
|
|
|
(6)
|
|
|
|
(2)
|
|
|
|
427
|
|
|
|
436
|
|
|
|
(9)
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,971
|
|
|
|
3,064
|
|
|
|
(93)
|
|
|
|
(3)
|
|
|
|
6,061
|
|
|
|
6,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
1,369
|
|
|
|
1,366
|
|
|
|
3
|
|
|
|
|
|
|
|
2,717
|
|
|
|
2,576
|
|
|
|
141
|
|
|
|
5
|
|
Salaries and employee benefits and other operating expenses
|
|
|
(96)
|
|
|
|
759
|
|
|
|
(855)
|
|
|
|
#
|
|
|
|
559
|
|
|
|
1,505
|
|
|
|
(946)
|
|
|
|
(63)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,273
|
|
|
|
2,125
|
|
|
|
(852)
|
|
|
|
(40)
|
|
|
|
3,276
|
|
|
|
4,081
|
|
|
|
(805)
|
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
1,698
|
|
|
|
939
|
|
|
|
759
|
|
|
|
81
|
|
|
|
2,785
|
|
|
|
1,980
|
|
|
|
805
|
|
|
|
41
|
|
Income tax provision
|
|
|
631
|
|
|
|
326
|
|
|
|
305
|
|
|
|
94
|
|
|
|
1,024
|
|
|
|
708
|
|
|
|
316
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
1,067
|
|
|
$
|
613
|
|
|
$
|
454
|
|
|
|
74
|
%
|
|
$
|
1,761
|
|
|
$
|
1,272
|
|
|
$
|
489
|
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37.2
|
%
|
|
|
34.7
|
%
|
|
|
|
|
|
|
|
|
|
|
36.8
|
%
|
|
|
35.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
#
|
Denotes a variance greater than 100 percent.
|
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 $107
million or 5 percent and $109 million or 3 percent for the three and six months ended June 30, 2016, compared to the same periods in the prior year, primarily driven by lower discount revenue as a result of higher cash rebate rewards due to new Card
Member acquisition offers, and a decline in the discount rate, which was partially offset by growth in billed business of 2 percent for the six months ended June 30, 2016. Billed business was relatively flat for the three months ended June 30, 2016,
compared to the same period in the prior year, with a decline in Costco cobrand card volumes and the sale of the Costco cobrand card portfolio in the current year negatively impacting billed business growth for both the three and six months ended
June 30, 2016. 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.
Net interest income increased $8 million or 1 percent and $100 million or 4 percent for the three and six months ended June 30, 2016,
respectively, compared to the same periods in the prior year, primarily reflecting a modestly higher yield and an increase in average Card Member loans (including Card Member loans HFS), in the six month period, partially offset by the impact from
the sales of the HFS portfolios and higher interest expense.
Overall, provisions for losses decreased $6 million or 2 percent and $9
million or 2 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, as the current year periods do not reflect provisions for the HFS portfolios as related credit costs were reported
in Other expenses through a valuation allowance adjustment, the decrease from which was partially offset by strong momentum in our lending growth initiatives and higher net write-offs.
45
Marketing, promotion, rewards, Card Member services and other expenses were relatively flat and
increased $141 million or 5 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year. In the three-month period, increases in marketing and promotion expense and Card Member services and
other expenses of $22 million and $19 million, respectively, were offset by a $38 million decrease in rewards expense. The increase for the six-month period was primarily driven by a $103 million increase in marketing and promotion expense,
reflecting elevated levels of spending on growth initiatives, and a $40 million increase in Card Member services expense, driven by increased usage of new benefits.
Salaries and employee benefits and other operating expenses decreased $855 million and $946 million for the three and six months ended June
30, 2016, respectively, compared to the same periods in the prior year, primarily driven by the gain on the sale of the Costco Card Member loans and receivables HFS portfolio, partially offset by restructuring in the current year. The decrease in
the six-month period also includes the gain on the sale of the JetBlue Card Member loans HFS portfolio.
46
Table 11: USCS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
|
Change
|
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2016
|
|
|
Six Months Ended
|
|
|
2016
|
|
|
|
June 30,
|
|
|
vs.
|
|
|
June 30,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Card billed business
(billions)
|
|
$
|
93.4
|
|
|
$
|
93.6
|
|
|
|
|
%
|
|
$
|
182.4
|
|
|
$
|
179.3
|
|
|
|
2
|
%
|
Total cards-in-force
|
|
|
31.8
|
|
|
|
39.1
|
|
|
|
(19)
|
|
|
|
31.8
|
|
|
|
39.1
|
|
|
|
(19)
|
|
Basic cards-in-force
|
|
|
22.6
|
|
|
|
27.3
|
|
|
|
(17)
|
|
|
|
22.6
|
|
|
|
27.3
|
|
|
|
(17)
|
|
Average basic Card Member spending
(dollars)
|
|
$
|
3,417
|
|
|
$
|
3,472
|
|
|
|
(2)
|
|
|
$
|
6,523
|
|
|
$
|
6,635
|
|
|
|
(2)
|
|
Total segment assets
(billions)
(a)
|
|
$
|
81.3
|
|
|
$
|
84.4
|
|
|
|
(4)
|
|
|
$
|
81.3
|
|
|
$
|
84.4
|
|
|
|
(4)
|
|
Segment capital
(billions)
|
|
$
|
6.8
|
|
|
$
|
7.9
|
|
|
|
(13)
|
|
|
$
|
6.8
|
|
|
$
|
7.9
|
|
|
|
(13)
|
|
Return on average segment capital
(b)
|
|
|
38.9
|
%
|
|
|
31.2
|
%
|
|
|
|
|
|
|
38.9
|
%
|
|
|
31.2
|
%
|
|
|
|
|
Return on average tangible segment capital
(b)
|
|
|
40.7
|
%
|
|
|
32.4
|
%
|
|
|
|
|
|
|
40.7
|
%
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
10.6
|
|
|
$
|
10.8
|
|
|
|
(2)
|
|
|
$
|
10.6
|
|
|
$
|
10.8
|
|
|
|
(2)
|
|
Net write-off rate principal only
(d)
|
|
|
1.3
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
|
|
Net write-off rate principal and fees
(d)
|
|
|
1.6
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
1.8
|
%
|
|
|
1.9
|
%
|
|
|
|
|
30+ days past due as a % of total
|
|
|
1.2
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
1.2
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
44.6
|
|
|
$
|
51.8
|
|
|
|
(14)
|
%
|
|
$
|
44.6
|
|
|
$
|
51.8
|
|
|
|
(14)
|
%
|
Average loans
(billions)
|
|
$
|
43.5
|
|
|
$
|
51.1
|
|
|
|
(15)
|
%
|
|
$
|
43.1
|
|
|
$
|
51.1
|
|
|
|
(16)
|
%
|
Net write-off rate principal only
(d)
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
|
|
Net write-off rate principal, interest and fees
(d)
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.7
|
%
|
|
|
1.7
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
|
|
|
|
Calculation of Net Interest Yield on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,139
|
|
|
$
|
1,131
|
|
|
|
|
|
|
$
|
2,390
|
|
|
$
|
2,290
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
|
|
39
|
|
|
|
35
|
|
|
|
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
(5)
|
|
|
|
(3)
|
|
|
|
|
|
|
|
(10)
|
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(e)
|
|
$
|
1,154
|
|
|
$
|
1,146
|
|
|
|
|
|
|
$
|
2,419
|
|
|
$
|
2,318
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans including HFS loan portfolios
(billions)
|
|
$
|
50.8
|
|
|
$
|
51.1
|
|
|
|
|
|
|
$
|
52.3
|
|
|
$
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
9.0
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
9.1
|
%
|
|
|
9.0
|
%
|
|
|
|
|
Net interest yield on Card Member
loans
(e)
|
|
|
9.1
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
9.3
|
%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
|
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($2.8 billion and $2.4 billion for the twelve months ended June 30, 2016 and 2015, respectively) by
(ii) one-year average segment capital ($7.3 billion and $7.6 billion for the twelve months ended June 30, 2016 and 2015, respectively). Return on average tangible segment capital, a non-GAAP measure, is computed in the same manner as
return on average segment capital except the computation excludes from average segment capital average goodwill and other intangibles of $339 million and $280 million as of June 30, 2016 and 2015, respectively. We believe the return on average
tangible segment capital is a useful measure of the profitability of our business.
|
|
|
(c)
|
Refer to Table 5 footnote (b).
|
|
|
(d)
|
Refer to Table 8 footnote (d).
|
|
|
(e)
|
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.
|
|
47
International Consumer and Network Services
Table 12: ICNS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,242
|
|
|
$
|
1,163
|
|
|
$
|
79
|
|
|
|
7
|
%
|
|
$
|
2,382
|
|
|
$
|
2,308
|
|
|
$
|
74
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
234
|
|
|
|
237
|
|
|
|
(3)
|
|
|
|
(1)
|
|
|
|
461
|
|
|
|
482
|
|
|
|
(21)
|
|
|
|
(4)
|
|
Interest expense
|
|
|
58
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
121
|
|
|
|
(9)
|
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
176
|
|
|
|
179
|
|
|
|
(3)
|
|
|
|
(2)
|
|
|
|
349
|
|
|
|
361
|
|
|
|
(12)
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
1,418
|
|
|
|
1,342
|
|
|
|
76
|
|
|
|
6
|
|
|
|
2,731
|
|
|
|
2,669
|
|
|
|
62
|
|
|
|
2
|
|
Provisions for losses
|
|
|
78
|
|
|
|
76
|
|
|
|
2
|
|
|
|
3
|
|
|
|
149
|
|
|
|
146
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,340
|
|
|
|
1,266
|
|
|
|
74
|
|
|
|
6
|
|
|
|
2,582
|
|
|
|
2,523
|
|
|
|
59
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
500
|
|
|
|
482
|
|
|
|
18
|
|
|
|
4
|
|
|
|
981
|
|
|
|
929
|
|
|
|
52
|
|
|
|
6
|
|
Salaries and employee benefits and other operating expenses
|
|
|
567
|
|
|
|
546
|
|
|
|
21
|
|
|
|
4
|
|
|
|
1,073
|
|
|
|
1,076
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,067
|
|
|
|
1,028
|
|
|
|
39
|
|
|
|
4
|
|
|
|
2,054
|
|
|
|
2,005
|
|
|
|
49
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
273
|
|
|
|
238
|
|
|
|
35
|
|
|
|
15
|
|
|
|
528
|
|
|
|
518
|
|
|
|
10
|
|
|
|
2
|
|
Income tax provision
|
|
|
45
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
128
|
|
|
|
(16)
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
228
|
|
|
$
|
193
|
|
|
$
|
35
|
|
|
|
18
|
%
|
|
$
|
416
|
|
|
$
|
390
|
|
|
$
|
26
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
16.5
|
%
|
|
|
18.9
|
%
|
|
|
|
|
|
|
|
|
|
|
21.2
|
%
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
|
|
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 $79 million or 7 percent and $74 million or 3 percent, for the three and six months ended
June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher discount revenue, due to an increase in both proprietary and non-proprietary (i.e., GNS) billed business, higher net card fees and a
contractual payment from a GNS partner in the second quarter of 2016. Total billed business increased 5 percent and 4 percent for the three and six months ended June 30, 2016, respectively (10 percent for both periods on an FX-adjusted basis),
compared to the same periods in the prior year, primarily due to increased proprietary and GNS cards-in-force, with a relatively consistent level of average spend per card.
2
Refer to Tables 6 and
7 for additional information on billed business by region.
Interest income decreased $3 million or 1 percent and $21 million or 4 percent for the three and six months ended
June 30, 2016, respectively, compared to the same periods in the prior year, reflecting the impact of changes in FX rates year-over-year. FX-adjusted interest income increased 9 percent and 7 percent, respectively, primarily driven by higher
average FX-adjusted loan balances.
2
Interest expense was
relatively flat and decreased $9 million or 7 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, reflecting the impact of changes in FX rates year-over-year. FX-adjusted
interest expense increased 9 percent and 6 percent, respectively, driven by higher funding costs.
2
2
Refer to footnote 1 on page 37 for details regarding foreign currency adjusted information.
48
Provisions for losses increased $2 million or 3 percent and $3 million or 2
percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, driven by higher net write-offs.
Marketing, promotion, rewards, Card Member services and other expenses increased $18 million or 4 percent and $52 million or
6 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by elevated levels of spending on growth initiatives.
Salaries and employee benefits and other operating expenses increased $21 million or 4 percent and was relatively flat (and
increased 7 percent and 3 percent on an FX-adjusted basis) for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by restructuring in the current year.
3
The effective tax rate in all periods reflects the recurring permanent
tax benefit related to the segments ongoing funding activities outside the United States, which is allocated to ICNS under the Companys internal tax allocation process. The effective tax rate for 2016 also reflects the allocated share of
tax benefits related to the resolution of certain prior years items. In addition, the effective tax rate in each of the periods reflects the impact of recurring permanent tax benefits on varying levels of pretax income.
3
Refer to footnote 1 on page 37 for details regarding foreign currency adjusted
information.
49
Table 13: ICNS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
|
Change
|
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2016
|
|
|
Six Months Ended
|
|
|
2016
|
|
|
|
June 30,
|
|
|
vs.
|
|
|
June 30,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Card billed business
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
$
|
26.5
|
|
|
$
|
25.5
|
|
|
|
4
|
%
|
|
$
|
51.2
|
|
|
$
|
49.9
|
|
|
|
3
|
%
|
GNS
|
|
|
43.8
|
|
|
|
41.5
|
|
|
|
5
|
|
|
|
84.3
|
|
|
|
80.1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70.3
|
|
|
$
|
67.0
|
|
|
|
5
|
|
|
$
|
135.5
|
|
|
$
|
130.1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cards-in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
|
15.0
|
|
|
|
14.5
|
|
|
|
3
|
|
|
|
15.0
|
|
|
|
14.5
|
|
|
|
3
|
|
GNS
|
|
|
48.0
|
|
|
|
45.5
|
|
|
|
5
|
|
|
|
48.0
|
|
|
|
45.5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
63.0
|
|
|
|
60.0
|
|
|
|
5
|
|
|
|
63.0
|
|
|
|
60.0
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary basic cards-in-force
|
|
|
10.3
|
|
|
|
9.9
|
|
|
|
4
|
|
|
|
10.3
|
|
|
|
9.9
|
|
|
|
4
|
|
Average proprietary basic Card Member spending
(dollars)
|
|
$
|
2,609
|
|
|
$
|
2,600
|
|
|
|
|
|
|
$
|
5,066
|
|
|
$
|
5,047
|
|
|
|
|
|
Total segment assets
(billions)
(a)
|
|
$
|
35.0
|
|
|
$
|
28.9
|
|
|
|
21
|
|
|
$
|
35.0
|
|
|
$
|
28.9
|
|
|
|
21
|
|
Segment capital
(billions)
|
|
$
|
2.6
|
|
|
$
|
3.1
|
|
|
|
(16)
|
|
|
$
|
2.6
|
|
|
$
|
3.1
|
|
|
|
(16)
|
|
Return on average segment capital
(b)
|
|
|
25.5
|
%
|
|
|
24.8
|
%
|
|
|
|
|
|
|
25.5
|
%
|
|
|
24.8
|
%
|
|
|
|
|
Return on average tangible segment capital
(b)
|
|
|
34.3
|
%
|
|
|
34.1
|
%
|
|
|
|
|
|
|
34.3
|
%
|
|
|
34.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
5.6
|
|
|
$
|
5.5
|
|
|
|
1
|
|
|
$
|
5.6
|
|
|
$
|
5.5
|
|
|
|
1
|
|
Net write-off rate principal only
(d)
|
|
|
2.2
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
2.2
|
%
|
|
|
2.0
|
%
|
|
|
|
|
Net write-off rate principal and
fees
(d)
|
|
|
2.3
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
2.4
|
%
|
|
|
2.2
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.4
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
6.6
|
|
|
$
|
7.2
|
|
|
|
(8)
|
|
|
$
|
6.6
|
|
|
$
|
7.2
|
|
|
|
(8)
|
|
Average loans
(billions)
|
|
$
|
6.8
|
|
|
$
|
7.0
|
|
|
|
(4)
|
%
|
|
$
|
6.8
|
|
|
$
|
7.1
|
|
|
|
(5)
|
%
|
Net write-off rate principal only
(d)
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
|
|
Net write-off rate principal, interest and fees
(d)
|
|
|
2.5
|
%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
2.4
|
%
|
|
|
2.5
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
176
|
|
|
$
|
179
|
|
|
|
|
|
|
$
|
349
|
|
|
$
|
361
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
10
|
|
|
|
14
|
|
|
|
|
|
|
|
21
|
|
|
|
28
|
|
|
|
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
(4)
|
|
|
|
(6)
|
|
|
|
|
|
|
|
(7)
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(e)
|
|
$
|
182
|
|
|
$
|
187
|
|
|
|
|
|
|
$
|
363
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans
(billions)
|
|
$
|
6.8
|
|
|
$
|
7.0
|
|
|
|
|
|
|
$
|
6.8
|
|
|
$
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
10.4
|
%
|
|
|
10.2
|
%
|
|
|
|
|
|
|
10.3
|
%
|
|
|
10.1
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(e)
|
|
|
10.8
|
%
|
|
|
10.7
|
%
|
|
|
|
|
|
|
10.8
|
%
|
|
|
10.7
|
%
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
|
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($711 million and $688 million for the twelve months ended June 30, 2016 and 2015, respectively) by (ii) one-year average
segment capital ($2.8 billion for both the twelve months ended June 30, 2016 and 2015). Return on average tangible segment capital, a non-GAAP measure, is computed in the same manner as return on average segment capital except the computation
excludes from average segment capital average goodwill and other intangibles of $0.7 billion and $0.8 billion as of June 30, 2016 and 2015, respectively. We believe return on average tangible segment capital is a useful measure of the profitability
of our business.
|
|
|
(c)
|
Refer to Table 5 footnote (b).
|
|
|
(d)
|
Refer to Table 8 footnote (d).
|
|
|
(e)
|
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.
|
|
50
Global Commercial Services
Table 14: GCS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,280
|
|
|
$
|
2,285
|
|
|
$
|
(5)
|
|
|
|
|
%
|
|
$
|
4,470
|
|
|
$
|
4,460
|
|
|
$
|
10
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
310
|
|
|
|
289
|
|
|
|
21
|
|
|
|
7
|
|
|
|
631
|
|
|
|
567
|
|
|
|
64
|
|
|
|
11
|
|
Interest expense
|
|
|
104
|
|
|
|
91
|
|
|
|
13
|
|
|
|
14
|
|
|
|
199
|
|
|
|
180
|
|
|
|
19
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
206
|
|
|
|
198
|
|
|
|
8
|
|
|
|
4
|
|
|
|
432
|
|
|
|
387
|
|
|
|
45
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
2,486
|
|
|
|
2,483
|
|
|
|
3
|
|
|
|
|
|
|
|
4,902
|
|
|
|
4,847
|
|
|
|
55
|
|
|
|
1
|
|
Provisions for losses
|
|
|
139
|
|
|
|
136
|
|
|
|
3
|
|
|
|
2
|
|
|
|
299
|
|
|
|
287
|
|
|
|
12
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,347
|
|
|
|
2,347
|
|
|
|
|
|
|
|
|
|
|
|
4,603
|
|
|
|
4,560
|
|
|
|
43
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
841
|
|
|
|
809
|
|
|
|
32
|
|
|
|
4
|
|
|
|
1,607
|
|
|
|
1,532
|
|
|
|
75
|
|
|
|
5
|
|
Salaries and employee benefits and other operating expenses
|
|
|
596
|
|
|
|
689
|
|
|
|
(93)
|
|
|
|
(13)
|
|
|
|
1,325
|
|
|
|
1,362
|
|
|
|
(37)
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,437
|
|
|
|
1,498
|
|
|
|
(61)
|
|
|
|
(4)
|
|
|
|
2,932
|
|
|
|
2,894
|
|
|
|
38
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
910
|
|
|
|
849
|
|
|
|
61
|
|
|
|
7
|
|
|
|
1,671
|
|
|
|
1,666
|
|
|
|
5
|
|
|
|
|
|
Income tax provision
|
|
|
334
|
|
|
|
299
|
|
|
|
35
|
|
|
|
12
|
|
|
|
610
|
|
|
|
599
|
|
|
|
11
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
576
|
|
|
$
|
550
|
|
|
$
|
26
|
|
|
|
5
|
%
|
|
$
|
1,061
|
|
|
$
|
1,067
|
|
|
$
|
(6)
|
|
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.7
|
%
|
|
|
35.2
|
%
|
|
|
|
|
|
|
|
|
|
|
36.5
|
%
|
|
|
36.0
|
%
|
|
|
|
|
|
|
|
|
|
|
GCS issues a wide range of proprietary corporate and small business cards and provides payment
and expense management services globally. In addition, GCS provides financing products for qualified merchants.
Non-interest revenues were relatively flat for both the three and six months ended June 30, 2016, compared to the same
periods in the prior year. Billed business increased 4 percent for both the three and six months ended June 30, 2016, compared to the same periods in the prior year. These increases in billed business were offset by higher contra revenues,
primarily due to higher cash rebate rewards, as well as the benefit related to certain merchant rebate accruals in the prior year.
Net interest income increased $8 million or 4 percent and $45 million or 12 percent for the three and six months ended
June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher average loan balances, including HFS, partially offset by higher interest expense.
Provisions for losses increased $3 million or 2 percent and $12 million or 4 percent for the three and six months ended
June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher net write-offs in the merchant financing loan portfolio, partially offset by lower net write-offs in the Card Member receivables portfolio.
Marketing, promotion, rewards, Card Member services and other expenses increased $32 million or 4 percent and
$75 million or 5 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher Card Member rewards expense, due to higher spending volumes, and increased
marketing and promotion expense.
Salaries and employee benefits and other operating expenses decreased $93 million or 13
percent and $37 million or 3 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily due to the gain on the sale of the Costco Card Member loans and receivables HFS
portfolio, partially offset by a restructuring charge in the current year, and higher operating expenses, including technology development and professional fees.
51
Table 15: GCS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
|
Change
|
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2016
|
|
|
Six Months Ended
|
|
|
2016
|
|
|
|
June 30,
|
|
|
vs.
|
|
|
June 30,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Card billed business
(billions)
|
|
$
|
104.3
|
|
|
$
|
100.4
|
|
|
|
4
|
%
|
|
$
|
202.8
|
|
|
$
|
195.9
|
|
|
|
4
|
%
|
Total cards-in-force
|
|
|
13.4
|
|
|
|
14.7
|
|
|
|
(9)
|
|
|
|
13.4
|
|
|
|
14.7
|
|
|
|
(9)
|
|
Basic cards-in-force
|
|
|
13.4
|
|
|
|
14.7
|
|
|
|
(9)
|
|
|
|
13.4
|
|
|
|
14.7
|
|
|
|
(9)
|
|
Average basic Card Member spending
(dollars)
|
|
$
|
7,060
|
|
|
$
|
6,811
|
|
|
|
4
|
|
|
$
|
13,592
|
|
|
$
|
13,299
|
|
|
|
2
|
|
Total segment assets
(billions)
(a)
|
|
$
|
46.2
|
|
|
$
|
45.9
|
|
|
|
1
|
|
|
$
|
46.2
|
|
|
$
|
45.9
|
|
|
|
1
|
|
Segment capital
(billions)
|
|
$
|
7.7
|
|
|
$
|
7.1
|
|
|
|
8
|
|
|
$
|
7.7
|
|
|
$
|
7.1
|
|
|
|
8
|
|
Return on average segment capital
(b)
|
|
|
28.1
|
%
|
|
|
35.2
|
%
|
|
|
|
|
|
|
28.1
|
%
|
|
|
35.2
|
%
|
|
|
|
|
Return on average tangible segment capital
(b)
|
|
|
38.9
|
%
|
|
|
49.2
|
%
|
|
|
|
|
|
|
38.9
|
%
|
|
|
49.2
|
%
|
|
|
|
|
Card Member receivables
(billions)
(c)
|
|
$
|
29.1
|
|
|
$
|
28.6
|
|
|
|
2
|
|
|
$
|
29.1
|
|
|
$
|
28.6
|
|
|
|
2
|
|
Card Member loans
(billions)
(c)
|
|
$
|
8.7
|
|
|
$
|
10.0
|
|
|
|
(13)
|
|
|
$
|
8.7
|
|
|
$
|
10.0
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables - GCP
(billions)
|
|
$
|
15.3
|
|
|
$
|
15.9
|
|
|
|
(3)
|
|
|
$
|
15.3
|
|
|
$
|
15.9
|
|
|
|
(3)
|
|
90+ days past billing as a % of total - GCP
(d)
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Net loss ratio (as a % of charge volume) - GCP
|
|
|
0.09
|
%
|
|
|
0.09
|
%
|
|
|
|
|
|
|
0.09
|
%
|
|
|
0.10
|
%
|
|
|
|
|
Total receivables - GSBS
(billions)
(c)
|
|
$
|
13.7
|
|
|
$
|
12.8
|
|
|
|
7
|
|
|
$
|
13.7
|
|
|
$
|
12.8
|
|
|
|
7
|
|
Net write-off rate (principal only) - GSBS
(e)
|
|
|
1.6
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
|
|
Net write-off rate (principal and fees) - GSBS
(e)
|
|
|
1.9
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
2.0
|
%
|
|
|
2.3
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans - GSBS
(billions)
|
|
$
|
8.6
|
|
|
$
|
9.9
|
|
|
|
(13)
|
|
|
$
|
8.6
|
|
|
$
|
9.9
|
|
|
|
(13)
|
|
Average loans - GSBS
(billions)
|
|
$
|
8.5
|
|
|
$
|
9.8
|
|
|
|
(14)
|
%
|
|
$
|
8.3
|
|
|
$
|
9.7
|
|
|
|
(15)
|
%
|
Net write-off rate (principal only) - GSBS
(e)
|
|
|
1.3
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.3
|
%
|
|
|
1.3
|
%
|
|
|
|
|
Net write-off rate (principal, interest and fees) - GSBS
(e)
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
206
|
|
|
$
|
198
|
|
|
|
|
|
|
$
|
432
|
|
|
$
|
387
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
80
|
|
|
|
72
|
|
|
|
|
|
|
|
152
|
|
|
|
143
|
|
|
|
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
(29)
|
|
|
|
(22)
|
|
|
|
|
|
|
|
(57)
|
|
|
|
(42)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(f)
|
|
$
|
257
|
|
|
$
|
248
|
|
|
|
|
|
|
$
|
527
|
|
|
$
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans including HFS loan portfolios
(billions)
|
|
$
|
10.0
|
|
|
$
|
9.9
|
|
|
|
|
|
|
$
|
10.1
|
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
8.2
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
8.5
|
%
|
|
|
8.0
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(f)
|
|
|
10.3
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
10.5
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($2.0 billion and $2.4 billion for the twelve months ended June 30, 2016 and 2015, respectively) by (ii) one-year
average segment capital ($7.2 billion and $6.9 billion for the twelve months ended June 30, 2016 and 2015, respectively). Return on average tangible segment capital, a non-GAAP measure, is computed in the same manner as return on average segment
capital except the computation excludes from average segment capital average goodwill and other intangibles of $2.0 billion as of both June 30, 2016 and 2015. We believe return on average tangible segment capital is a useful measure of the
profitability of our business.
|
|
(c)
|
Refer to Table 5 footnote (b).
|
|
(d)
|
For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within
90 days of the Card Members billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90
days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
|
|
(e)
|
Refer to Table 8 footnote (d).
|
|
(f)
|
Adjusted net interest income and 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.
|
52
Global Merchant Services
Table 16: GMS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,087
|
|
|
$
|
1,130
|
|
|
$
|
(43)
|
|
|
|
(4)
|
%
|
|
$
|
2,128
|
|
|
$
|
2,200
|
|
|
$
|
(72)
|
|
|
|
(3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(61)
|
|
|
|
(49)
|
|
|
|
(12)
|
|
|
|
24
|
|
|
|
(120)
|
|
|
|
(108)
|
|
|
|
(12)
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
62
|
|
|
|
50
|
|
|
|
12
|
|
|
|
24
|
|
|
|
121
|
|
|
|
109
|
|
|
|
12
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
1,149
|
|
|
|
1,180
|
|
|
|
(31)
|
|
|
|
(3)
|
|
|
|
2,249
|
|
|
|
2,309
|
|
|
|
(60)
|
|
|
|
(3)
|
|
Provisions for losses
|
|
|
5
|
|
|
|
8
|
|
|
|
(3)
|
|
|
|
(38)
|
|
|
|
13
|
|
|
|
14
|
|
|
|
(1)
|
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,144
|
|
|
|
1,172
|
|
|
|
(28)
|
|
|
|
(2)
|
|
|
|
2,236
|
|
|
|
2,295
|
|
|
|
(59)
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
58
|
|
|
|
76
|
|
|
|
(18)
|
|
|
|
(24)
|
|
|
|
116
|
|
|
|
132
|
|
|
|
(16)
|
|
|
|
(12)
|
|
Salaries and employee benefits and other operating expenses
|
|
|
489
|
|
|
|
510
|
|
|
|
(21)
|
|
|
|
(4)
|
|
|
|
952
|
|
|
|
991
|
|
|
|
(39)
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
547
|
|
|
|
586
|
|
|
|
(39)
|
|
|
|
(7)
|
|
|
|
1,068
|
|
|
|
1,123
|
|
|
|
(55)
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
597
|
|
|
|
586
|
|
|
|
11
|
|
|
|
2
|
|
|
|
1,168
|
|
|
|
1,172
|
|
|
|
(4)
|
|
|
|
|
|
Income tax provision
|
|
|
224
|
|
|
|
217
|
|
|
|
7
|
|
|
|
3
|
|
|
|
438
|
|
|
|
434
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
373
|
|
|
$
|
369
|
|
|
$
|
4
|
|
|
|
1
|
%
|
|
$
|
730
|
|
|
$
|
738
|
|
|
$
|
(8)
|
|
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37.5
|
%
|
|
|
37.0
|
%
|
|
|
|
|
|
|
|
|
|
|
37.5
|
%
|
|
|
37.0
|
%
|
|
|
|
|
|
|
|
|
|
|
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, leveraging the Companys global closed-loop network. GMS also operates loyalty coalition businesses in
certain countries around the world.
Non-interest revenues decreased $43 million or 4 percent and $72 million or 3
percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher contra revenues, as well as a decrease in the discount rate, partially offset by a 3 percent increase
in global billed business for both periods.
Net interest income increased $12 million or 24 percent and $12 million or
11 percent for the three and six months ended June 30, 2016, compared to the same periods in the prior year, reflecting a higher interest expense credit relating to internal transfer pricing and funding rates, which resulted in a net benefit for GMS
due to its merchant payables.
Marketing, promotion, rewards, Card Member services and other expenses decreased $18
million or 24 percent and $16 million or 12 percent for the three months and six months ended June 30, 2016, compared to the same periods in the prior year, primarily driven by higher marketing and promotion expenses related to our loyalty coalition
business in the prior year.
Salaries and employee benefits and other operating expenses decreased $21 million or 4
percent and $39 million or 4 percent for the three and six months ended June 30, 2016, respectively, compared to the same periods in the prior year, primarily due to the growth of the OptBlue program, which does not entail merchant acquirer
payments.
53
Table 17: GMS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
June 30,
|
|
|
Change
2016
vs.
|
|
|
As of or for the
Six Months Ended
June 30,
|
|
|
Change
2016
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyalty Coalition revenue
|
|
$
|
104
|
|
|
$
|
88
|
|
|
|
18
|
%
|
|
$
|
198
|
|
|
$
|
179
|
|
|
|
11
|
%
|
Average discount rate
|
|
|
2.43
|
%
|
|
|
2.49
|
%
|
|
|
|
|
|
|
2.43
|
%
|
|
|
2.49
|
%
|
|
|
|
|
Total segment
assets
(a)
(billions)
|
|
$
|
24.1
|
|
|
$
|
17.4
|
|
|
|
39
|
%
|
|
$
|
24.1
|
|
|
$
|
17.4
|
|
|
|
39
|
%
|
Segment capital
(billions)
|
|
$
|
2.4
|
|
|
$
|
2.3
|
|
|
|
5
|
%
|
|
$
|
2.4
|
|
|
$
|
2.3
|
|
|
|
5
|
%
|
Return on average segment capital
(b)
|
|
|
61.9
|
%
|
|
|
68.0
|
%
|
|
|
|
|
|
|
61.9
|
%
|
|
|
68.0
|
%
|
|
|
|
|
Return on average tangible segment
capital
(b)
|
|
|
77.9
|
%
|
|
|
89.5
|
%
|
|
|
|
|
|
|
77.9
|
%
|
|
|
89.5
|
%
|
|
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.5 billion for both the twelve months ended June 30, 2016 and 2015) by (ii) one-year average segment capital
($2.4 billion and $2.2 billion for the twelve months ended June 30, 2016 and 2015, respectively). Return on average tangible segment capital, a non-GAAP measure, is computed in the same manner as return on average segment capital except the
computation excludes from average segment capital average goodwill and other intangibles of $495 million and $521 million as of June 30, 2016 and 2015, respectively. We believe return on average tangible segment capital is a useful measure of the
profitability of our business.
|
Corporate & Other
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 $229 million for the three months ended June 30, 2016, compared to $252
million for the three months ended June 30, 2015 and increased to $527 million for the six months ended June 30, 2016, compared to $469 million for the six months ended June 30, 2015. The increase for the six-month period was primarily driven by the
benefit in the first quarter of the prior year from both the reassessment of the functional currency of certain UK legal entities and other FX-related activity, as well as restructuring in the current year, partially offset by higher income from our
Prepaid Services business.
Results for both periods disclosed included net interest expense related to maintaining the liquidity pool
discussed in Consolidated Capital Resources and Liquidity Liquidity Management, as well as interest expense related to other corporate indebtedness.
54
Consolidated Capital Resources and Liquidity
Our balance sheet management objectives are to maintain:
|
|
|
A solid and flexible equity capital profile;
|
|
|
|
A broad, deep and diverse set of funding sources to finance our assets and meet operating requirements; and
|
|
|
|
Liquidity programs that enable us to continuously meet expected future financing obligations and business requirements for at least a 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.
|
Transitional Basel III
The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank
subsidiaries, American Express Centurion Bank (AECB) and American Express Bank, FSB (FSB), as well as additional ratios widely utilized in the marketplace, as of June 30, 2016.
Table 18: Regulatory Risk-Based Capital and Leverage Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Basel
III
Standards
2016
(a)
|
|
|
Ratios as of
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Capital
|
|
|
|
|
|
|
|
|
Common Equity Tier 1
|
|
|
5.1
|
%
|
|
|
|
|
American Express
|
|
|
|
|
|
|
13.5
|
%
|
AECB
|
|
|
|
|
|
|
17.1
|
|
FSB
|
|
|
|
|
|
|
20.2
|
|
Tier 1
|
|
|
6.6
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
14.7
|
|
AECB
|
|
|
|
|
|
|
17.1
|
|
FSB
|
|
|
|
|
|
|
20.2
|
|
Total
|
|
|
8.6
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
16.4
|
|
AECB
|
|
|
|
|
|
|
18.4
|
|
FSB
|
|
|
|
|
|
|
22.2
|
|
Tier 1 Leverage
|
|
|
4.0
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
11.5
|
|
AECB
|
|
|
|
|
|
|
17.4
|
|
FSB
|
|
|
|
|
|
|
14.3
|
|
Supplementary Leverage Ratio
(b)
|
|
|
3.0
|
%
|
|
|
|
|
American Express
|
|
|
|
|
|
|
9.7
|
|
AECB
|
|
|
|
|
|
|
13.6
|
|
FSB
|
|
|
|
|
|
|
11.2
|
|
Common Equity to Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
15.6
|
|
Tangible Common Equity to Risk-Weighted
Assets
(c)
|
|
|
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
12.7
|
%
|
|
|
|
(a)
|
Transitional Basel III minimum and conservation buffer as defined by the Federal Reserve for calendar year 2016 for Advanced Approaches institutions.
|
|
(b)
|
The minimum supplementary leverage ratio (SLR) requirement of 3 percent is effective January 1, 2018.
|
|
(c)
|
Tangible Common Equity to Risk-Weighted Assets, a non-GAAP measure, is calculated by dividing shareholders equity of $20.7 billion as of June 30, 2016, less preferred shares of $1.6 billion and goodwill and other
intangibles of $3.6 billion, by risk-weighted assets of $122.5 billion. We believe presenting the ratio of Tangible Common Equity to Risk-Weighted Assets is a useful measure of evaluating the strength of our capital position. Tangible Common Equity
to Risk-Weighted Assets ratio is widely used in the marketplace, although it may be calculated differently by different companies.
|
55
Table 19: Regulatory Risk-Based Capital Components and Risk Weighted Assets
|
|
|
|
|
|
|
($ in Billions)
|
|
June 30,
2016
|
|
|
|
Risk-Based Capital
|
|
|
|
|
Common Equity Tier 1
|
|
$
|
16.5
|
|
Tier 1 Capital
|
|
|
18.0
|
|
Tier 2 Capital
(a)
|
|
|
2.1
|
|
Total Capital
|
|
|
20.1
|
|
|
|
Risk Weighted Assets
|
|
|
122.5
|
|
Average Total Assets to calculate the Tier 1 Leverage Ratio
|
|
|
156.6
|
|
Total Leverage Exposure to calculate SLR
|
|
$
|
186.0
|
|
|
|
|
(a)
|
Tier 2 capital is the sum of the allowance for receivable and loan 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, AECB and FSB to take actions that could limit our
business operations.
Our primary source of equity capital has been the generation of net income. Historically, capital generated through
net income and other sources, such as the exercise of stock options by employees, has exceeded the annual growth in our capital requirements. To the extent capital has exceeded business, regulatory and rating agency requirements, we have
historically returned excess capital to shareholders through our regular common share dividend and share repurchase program.
We maintain
certain flexibility to shift capital across our businesses as appropriate. For example, we may infuse additional capital into subsidiaries to maintain capital at targeted levels in consideration of debt ratings and regulatory requirements. These
infused amounts can affect the capital profile and liquidity levels at the American Express parent company level. We do not currently intend or foresee a need to shift capital from non-U.S. subsidiaries with permanently reinvested earnings to a U.S.
parent company.
The following are definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as
per standard regulatory guidance:
Risk-Weighted Assets
Assets are weighted for risk according to a formula used by the
Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a
risk-adjusted weight. The off-balance sheet items comprise a minimal part of the overall calculation.
Common Equity Tier 1 Risk-Based
Capital Ratio
Calculated as Common Equity Tier 1 capital, divided by risk-weighted assets. Common Equity Tier 1 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 Common Equity Tier 1 capital, 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 Common Equity Tier 1 capital.
56
Total Risk-Based Capital Ratio
Calculated as the sum of Tier 1 capital and Tier 2
capital, divided by risk-weighted assets. Tier 2 capital is the sum of the allowance for receivable and loan losses (limited to 1.25 percent of risk-weighted assets) and $600 million of subordinated notes adjusted for capital held by insurance
subsidiaries.
Tier 1 Leverage Ratio
The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by our average total
consolidated assets for the most recent quarter. Average total consolidated assets as of June 30, 2016 were $156.6 billion.
Supplementary Leverage Ratio
The supplementary leverage ratio is calculated by dividing Tier 1 capital by total leverage
exposure under Basel III. Leverage exposure, which reflects average total consolidated assets with adjustments for Tier 1 capital deductions, average off-balance sheet derivatives exposures, securities purchased under agreements to resell and credit
equivalents of undrawn commitments that are both conditionally and unconditionally cancellable. Total leverage exposure for supplementary leverage ratio purposes as of June 30, 2016 was $186.0 billion.
The following is a definition for Tangible Common Equity to Risk-Weighted Assets ratio, which is widely used in the marketplace, although it
may be calculated differently by different companies:
Common Equity and Tangible Common Equity to Risk-Weighted Assets Ratios
Common equity equals our shareholders equity of $20.7 billion as of June 30, 2016, less preferred shares of $1.6 billion. Tangible common equity, a non-GAAP measure, equals common equity less goodwill and other intangibles of $3.6
billion as of June 30, 2016. We believe presenting the ratio of tangible common equity to risk-weighted assets is a useful measure of evaluating the strength of our capital position.
Fully Phased-in Basel III
Basel III, when fully phased-in, will require bank holding companies and their bank subsidiaries to maintain more capital than prior
requirements, with a greater emphasis on common equity. The following table presents our estimates for our regulatory risk-based capital ratios and leverage ratios had Basel III been fully phased-in as of June 30, 2016. These ratios are
calculated using the Standardized Approach for determining risk-weighted assets. As noted previously, we are currently taking steps toward Basel III Advanced Approaches implementation in the United States. We believe the presentation of these ratios
is helpful to investors by showing the impact of future regulatory capital standards on our capital and leverage ratios.
57
Table 20: Estimated Fully Phased-in Basel III Capital and Leverage Ratios
|
|
|
|
|
|
|
($ in Billions)
|
|
June 30,
2016
|
|
|
|
Estimated Common Equity Tier 1 Ratio under Fully Phased-In Basel III
(a)
|
|
|
12.9%
|
|
Estimated Tier 1 Capital Ratio under Fully Phased-In Basel III
(a)
|
|
|
14.2
|
|
|
|
Estimated Tier 1 Leverage Ratio under Fully Phased-In Basel III
(b)
|
|
|
11.2
|
|
Estimated Supplementary Leverage Ratio under Fully Phased-In Basel III
|
|
|
9.4%
|
|
|
|
Estimated Risk-Weighted Assets under Fully Phased-In Basel III
(c)
|
|
$
|
123.7
|
|
Estimated Average Total Assets to calculate the Tier 1 Leverage Ratio
(b)
|
|
|
156.3
|
|
Estimated Total Leverage Exposure to calculate SLR under Fully Phased-In Basel III
(d)
|
|
$
|
185.7
|
|
|
|
|
(a)
|
The Fully Phased-in Basel III Common Equity Tier 1 and Tier 1 risk-based capital ratios, non-GAAP measures, are calculated as Common Equity Tier 1 or Tier 1 capital under Fully Phased-in Basel III rules, as
applicable, divided by risk-weighted assets under Fully Phased-in Basel III rules. Refer to Table 21 for a reconciliation of Common Equity Tier 1 and Tier 1 capital under Fully Phased-in Basel III rules to Common Equity Tier 1 and Tier 1 capital
under Transitional Basel III rules.
|
|
(b)
|
The Fully Phased-in Basel III Tier 1 and supplementary leverage ratios, non-GAAP measures, are calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total assets and Fully Phased-in
total leverage exposure for supplementary leverage ratio purposes under Fully Phased-in Basel III, respectively.
|
|
(c)
|
Estimated Fully Phased-in Basel III risk-weighted assets, a non-GAAP measure, reflect our Basel 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
Basel capital standards establish minimum requirements for the Tier 1 risk-based capital ratios that are 1.5 percent higher than the minimum requirements for Common Equity Tier 1 risk-based capital ratios. This difference between Tier 1
capital, which includes common equity and qualifying preferred securities, and Common Equity Tier 1 is also present in the minimum capital requirements within Comprehensive Capital Analysis and Review (CCAR). We issued $1.6 billion of
preferred shares to help finance a portion of the Tier 1 capital requirements in excess of common equity requirements.
Our $750 million
of subordinated debentures, which prior to 2014, were fully included in Tier 2 capital (but not in Tier 1 capital), do not meet the requirements of Tier 2 capital under Basel III. The phase-out of the subordinated debentures from Tier 2 capital
began in the first quarter of 2014 and was fully phased out on January 1, 2016. At our option, the subordinated debentures are redeemable for cash on or after September 1, 2016 at 100 percent of the principal amount plus any accrued but unpaid
interest. We currently intend to exercise this redemption option, subject to business and market conditions. As previously mentioned, we issued $600 million of subordinated notes, which qualify as Tier 2 capital under Basel rules.
The following table presents a comparison of our Common Equity Tier 1 and Tier 1 risk-based capital under Transitional Basel III rules to
our estimated Common Equity Tier 1 and Tier 1 risk-based capital under Fully Phased-in Basel III rules as of June 30, 2016.
58
Table 21: Transitional Basel III versus Fully Phased-in Basel III
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
CET 1
|
|
|
Tier 1
|
|
Risk-Based Capital under Transitional Basel III
|
|
$
|
16.5
|
|
|
$
|
18.0
|
|
Adjustments related to:
|
|
|
|
|
|
|
|
|
AOCI
|
|
|
(0.2)
|
|
|
|
(0.2)
|
|
Transition provisions for intangible assets
|
|
|
(0.3)
|
|
|
|
(0.3)
|
|
Other
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Common Equity Tier 1 (CET1) and Tier 1 Risk-Based Capital under Fully Phased-in Basel
III
|
|
$
|
15.9
|
|
|
$
|
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 and six months ended June 30, 2016,
we returned $2.0 billion and $3.4 billion, respectively, to our shareholders in the form of common stock dividends ($0.3 billion and $0.6 billion, respectively) and share repurchases ($1.7 billion and $2.8 billion, respectively). We repurchased 27
million common shares at an average price of $64.05 in the second quarter of 2016. These dividend and share repurchase amounts represent approximately 96 percent and 97 percent of total capital generated during the three and six-month periods,
respectively.
In addition, during the three months ended June 30, 2016, 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 B Preferred Shares during the second
quarter of 2016 were $19 million.
On June 29, 2016, we were informed that the Federal Reserve did not object to our capital plan to return
capital to shareholders through share repurchases of up to $3.3 billion during the period beginning with the third quarter of 2016 through and including the second quarter of 2017, as well as an increase in our quarterly dividend to $0.32 per share,
from $0.29 per share, beginning with the third quarter 2016 dividend declaration, subject to approval by our Board of Directors. The timing and amount of common shares purchased under our authorized capital plan will depend on various factors,
including our business plans, financial performance and market conditions. To facilitate repurchases, we may, from time to time, make purchases pursuant to one or more trading plans under
Rule 10b5-1
under the Securities Exchange Act of 1934, as amended, which allows us to repurchase common shares during periods when we might otherwise be prevented from doing so under applicable law or because of self-imposed trading blackout periods.
59
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.
During the three months ended June 30, 2016, we issued $1.75 billion of senior unsecured notes from American Express Credit Corporation with a
maturity of five years and a coupon of 2.25 percent.
Summary of Consolidated Debt
We had the following consolidated debt and customer deposits outstanding as of June 30, 2016, and December 31, 2015:
Table 22: Consolidated Debt
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Short-term borrowings
|
|
$
|
2.3
|
|
|
$
|
4.8
|
|
Long-term debt
|
|
|
50.6
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
52.9
|
|
|
|
52.9
|
|
Customer deposits
|
|
|
54.4
|
|
|
|
55.0
|
|
|
|
|
|
|
|
|
|
|
Total debt and customer deposits
|
|
$
|
107.3
|
|
|
$
|
107.9
|
|
|
|
Management does not currently expect to make any significant changes to our funding programs in order to
satisfy Basel IIIs 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.
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: Moodys Investor Services (Moodys), Standard & Poors (S&P), Fitch Ratings (Fitch) and Dominion Bond Rating
Services (DBRS). Such ratings help support our access to cost-effective unsecured funding as part of our overall funding strategy. Our asset-backed securitization activities are rated separately.
Table 23: 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
|
Moodys
|
|
TRS and rated operating subsidiaries
(a)
|
|
Prime-1
|
|
A2
|
|
Stable
|
Moodys
|
|
American Express Company
|
|
Prime-2
|
|
A3
|
|
Stable
|
S&P
|
|
TRS and rated operating subsidiaries
(a) (b)
|
|
A-2
|
|
A-
|
|
Stable
|
S&P
|
|
American Express Company
|
|
A-2
|
|
BBB+
|
|
Stable
|
|
|
(a)
|
American Express Travel Related Services Company, Inc.
|
|
(b)
|
S&P does not provide a rating for TRS short-term debt.
|
Downgrades in the ratings of our
unsecured debt or asset securitization program securities could result in higher funding costs, as well as higher fees related to borrowings under our unused lines of credit. Declines in credit ratings could also reduce our borrowing capacity in the
unsecured debt and asset securitization capital markets. We believe our funding mix including the proportion of U.S. retail deposits insured by the
60
Federal Deposit Insurance Corporation (FDIC), should reduce the impact that credit rating downgrades would have on our funding capacity and costs.
Deposit Programs
We held the following deposits as of June 30, 2016 and December 31, 2015:
Table 24: Customer Deposits
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
U.S. retail deposits:
|
|
|
|
|
|
|
|
|
Savings accounts Direct
|
|
$
|
30.2
|
|
|
$
|
29.0
|
|
Certificates of deposit:
(a)
|
|
|
|
|
|
|
|
|
Direct
|
|
|
0.3
|
|
|
|
0.3
|
|
Third-party (brokered)
|
|
|
13.5
|
|
|
|
13.9
|
|
Sweep accounts Third-party (brokered)
|
|
|
9.7
|
|
|
|
10.9
|
|
Other retail deposits:
|
|
|
|
|
|
|
|
|
Non-U.S. deposits and U.S. non-interest bearing
|
|
|
0.1
|
|
|
|
0.2
|
|
Card Member credit balances - U.S. and non-U.S.
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
54.4
|
|
|
$
|
55.0
|
|
|
|
|
(a)
|
The weighted average remaining maturity and weighted average rate at issuance on the total portfolio of U.S. retail CDs, issued through direct and third-party programs, were 25.7 months and 1.91 percent, respectively,
as of June 30, 2016.
|
Asset Securitization Programs
We periodically securitize Card Member loans and receivables arising from our card business, as the securitization market provides us with
cost-effective funding. Securitization of Card Member loans and receivables is accomplished through the transfer of those assets to a trust, which in turn issues securities collateralized by the transferred assets to third-party investors. The
proceeds from issuance are distributed to us, through our wholly owned subsidiaries, as consideration for the transferred assets.
The
loans and receivables being securitized are reported as Card Member loans and receivables on our Consolidated Balance Sheets, and the related securities issued to third-party investors are reported as long-term debt.
Under the respective terms of the securitization trust agreements, the occurrence of certain triggering events associated with the performance
of the assets of each trust could result in payment of trust expenses, establishment of reserve funds, or in a worst-case scenario, early amortization of debt securities. During the three months ended June 30, 2016, no such triggering events
occurred.
As previously disclosed, we completed the sale of substantially all of our outstanding Costco cobrand Card Member loans and
receivables HFS during the three months ended June 30, 2016, resulting in the removal of $3.6 billion of Costco cobrand Card Member loans from the American Express Credit Account Master Trust (the Lending Trust) and the removal of $29
million of Costco cobrand Card Member receivables from the American Express Issuance Trust II (the Charge Trust) on June 17, 2016. In connection with obtaining the necessary affirmations with respect to the removal of the Card Member loans, the
Lending Trust acquired additional accounts and approximately $3.0 billion of related Card Member loans on June 1, 2016. The Lending Trust issued two series of investor certificates on June 7, 2016, structured to provide credit enhancement
to certain outstanding series of Lending Trust investor certificates.
61
Liquidity Management
We incur liquidity risk that arises in the course of offering our products and services. Our liquidity objective is to maintain access to a
diverse set of on- and off-balance sheet liquidity sources. We seek to maintain liquidity sources, 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 our businesses 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 regulatory measures of liquidity, such as the LCR, as well as additional stress scenarios required under our liquidity risk policy. The Company was in compliance
with the liquidity requirements to which it is subject, including the LCR, for the three months ended June 30, 2016.
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 June 30, 2016, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2018, that gives
us the right to sell up to $3.0 billion face amount of eligible AAA notes from the Charge Trust. We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 15, 2017, 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 June 30, 2016, $2.0 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, the Banks may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying
collateral that they may pledge. The Federal Reserve has indicated that both credit and charge card receivables are a form of qualifying collateral for secured borrowings made through the discount window. Whether specific assets will be considered
qualifying collateral and the amount that may be borrowed against the collateral, remain at the discretion of the Federal Reserve.
We had
approximately $53 billion as of June 30, 2016 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.
62
Committed Bank Credit Facilities
In addition to the secured borrowing facilities described earlier in this section, we maintained a committed syndicated bank credit facility as
of June 30, 2016 of $3.0 billion, which expires on December 9, 2018. As of June 30, 2016, no amounts were drawn on this facility.
Certain Other Off-Balance Sheet Arrangements
As of June 30, 2016, we had approximately $231 billion of unused credit available to Card Members as part of established lending product
agreements. Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set limit, and
therefore are not reflected in unused credit available to Card Members.
Cash Flows
The following table summarizes our cash flow activity for the six months ended June 30.
Table 25: Cash Flows
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2016
|
|
|
2015
|
|
Total cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
3.1
|
|
|
$
|
4.2
|
|
Investing activities
|
|
|
12.1
|
|
|
|
(2.9)
|
|
Financing activities
|
|
|
(4.3)
|
|
|
|
(2.4)
|
|
Effect of foreign currency exchange rates on cash and cash equivalents and other
|
|
|
|
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
11.0
|
|
|
$
|
(1.2)
|
|
|
|
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 six months ended June 30, 2016 and 2015, net cash provided by operating activities was $3.1 billion and $4.2 billion, respectively,
driven by net income of $3.4 billion and $3.0 billion, respectively, adjusted for non-cash items including changes in provisions for losses, depreciation and amortization, deferred taxes, and stock-based compensation. The decrease in the current
period, as compared to the six months ended June 30, 2015, primarily resulted from offsetting impacts from movements in Other assets and 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 six months ended June 30, 2016, and 2015, net cash provided by (used in) investing activities was $12.1 billion and ($2.9) billion,
respectively. The increase in the current period, as compared to the six months ended June 30, 2015, was primarily driven by the sales of the JetBlue and Costco HFS portfolios.
Cash Flows from Financing Activities
Our cash flows from financing activities primarily include issuing and repaying debt, changes in customer deposits, issuing and repurchasing
our common shares, and paying dividends.
63
For the six months ended June 30, 2016, and 2015, net cash used in financing activities was $4.3
billion and $2.4 billion, respectively. The increase in the current period, as compared to the six months ended June 30, 2015, primarily resulted from a net decrease in short-term borrowings and customer deposits in the current year period as
compared to the prior year period, as well as higher common share repurchases in the current year period, partially offset by lower net repayments of long-term debt repayments in the current year, as compared to the same period in the prior year.
OTHER MATTERS
Certain Legislative, Regulatory and Other Developments
As a participant in the financial services industry, and as a bank holding company, we are subject to comprehensive examination and supervision
by the Federal Reserve and to a range of laws and regulations that impact our business and operations. In light of the current environment of additional regulation, enhanced supervision efforts and increased regulatory investigations and
enforcement, compliance requirements and expenditures have risen for financial services firms, including us, and we expect compliance requirements and expenditures will continue to rise in the future.
In addition, legislators and regulators in various countries in which we operate have focused on the operation of card networks, including
through antitrust actions, legislation and rules 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.
Regulators and legislators have focused on the fees merchants pay to accept cards, including the way bankcard network members collectively set the interchange (that is, the fee paid by the bankcard merchant acquirer to the card issuer in
payment networks like Visa and MasterCard), as well as the rules, contract terms and practices governing merchant card acceptance. Although, unlike the Visa and MasterCard networks, the American Express network does not have interchange fees or
collectively set fees or rules, antitrust actions and government regulation relating to merchant pricing or terms of merchant rules and contracts could affect all networks directly or indirectly , as well as adversely impact consumers and merchants.
Among other things, lower interchange and/or merchant discount revenue may lead card issuers to look for other sources of revenue from consumers such as higher annual card fees or interest charges, as well as to reduce costs by scaling back or
eliminating rewards, services or benefits to cardholders and merchants. Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to 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.
In certain countries, such as Australia and certain Member States in the EU,
merchants are permitted by law to surcharge card purchases. While surcharging continues to be actively considered in certain jurisdictions, the benefits to customers have not been apparent in countries that have allowed it, and in some cases
regulators are addressing concerns about excessive surcharging by merchants. Surcharging, particularly where it disproportionately impacts American Express Card Members, which is known as differential surcharging, as well as other steering practices
that are permitted by regulation in some countries could have a material adverse effect on us if it becomes widespread. The Reserve Bank of Australia allows us and other networks to limit a merchants right to surcharge to the reasonable
cost of card acceptance. As discussed below, the Reserve Bank of Australia recently amended its rules to limit surcharging in Australia to the merchants actual cost of card acceptance. In the EU, in those Member States that permit
surcharging, the Consumer Rights Directive prohibits merchants from surcharging card purchases more than the cost of acceptance.
On June
23, 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, commonly referred to as Brexit, which has caused and may continue to cause
64
significant volatility in capital and currency markets worldwide. The full impact of Brexit, however, remains uncertain. A process of negotiation, which is likely to take two years or longer,
will determine the future terms of the U.K.s relationship with the European Union. It is unclear at this stage what financial, trade and legal implications the withdrawal of the U.K. from the European Union would have and how such withdrawal
would affect us.
European Union Payments Legislation
In 2015, the European Union adopted legislation in two parts, covering a wide range of topics across the payments industry. The first part was
an EU-wide regulation on interchange fees (the Interchange Fee Regulation); the second consisted of revisions to the Payment Services Directive (the PSD2).
The Interchange Fee Regulation was formally adopted in April 2015. The substantive terms as adopted include the following:
|
●
|
|
Price caps Interchange fees on consumer card transactions in the EU are capped as of December 2015, generally at 20 basis points for debit and prepaid cards and 30 basis points for credit and charge cards, with
the possibility of lower caps in some instances. Although we do not have interchange fees and three party networks such as American Express are exempt from the application of the caps, the regulation provides that three party
networks should be treated as four party networks (such as Visa and MasterCard, which have interchange fees) when they license third-party providers to issue cards and/or acquire merchants or when they issue cards with a cobrand partner
or through an agent. This means, for example, the caps will apply to elements of the financial arrangements agreed to between us and each of our GNS partners in the EU, which may undermine our ability to attract and retain GNS partners. While the
discount rates we agree to with merchants are not capped, the interchange caps have exerted, and will likely continue to exert, downward pressures on merchant fees across the industry, including our discount rates. We have brought a legal challenge
and seek a ruling from the EU Court of Justice to invalidate the application of price caps in circumstances where three party networks issue cards with a cobrand partner or through an agent. The Interchange Fee Regulation excludes commercial card
transactions from the scope of the caps.
|
|
●
|
|
Card acceptance terms Anti-steering and honor-all-cards rules across all card networks, including non-discrimination and honor-all-cards provisions in our card acceptance agreements, are prohibited
with some exceptions. Removal of these provisions creates significant risk of customer confusion and Card Member dissatisfaction, which would result in harm to the American Express brand. The prohibition on anti-steering rules took
effect immediately upon effectiveness of the regulation; the prohibition on honor-all-cards rules took effect in June 2016.
|
|
●
|
|
Network licensing In December 2015, the geographic scope of the network licenses that we agree to with our GNS partners in the EU was amended to cover the entire EU in order to meet the requirements of the
regulation. This allows GNS partners to actively pursue their American Express business throughout the EU, including countries where we or other GNS partners are present, and may undermine the value of licenses granted to some GNS partners to date,
which have been subject to varying levels of exclusivity to incentivize development of the American Express business in relation to a particular country.
|
|
●
|
|
Separation of network processing From June 2016, card networks are required to separate their network processing functions (in which transactions between different issuers and acquirers are processed for
authorization, clearing and settlement). This provision does not generally apply to three party payment networks, such as American Express, but may be deemed applicable, for example, where a different GNS issuer and acquirer is involved
in a transaction, which represent a very small percentage of transactions on our network.
|
65
|
●
|
|
Co-badging of cards From June 2016, a single card may bear the brand of multiple networks and be used to process transactions on any of those networks. Merchants may install automatic mechanisms in point-of-sale
equipment to prioritize selection of a particular network, subject to override by the cardholder. These provisions may harm the American Express brand insofar as GNS issuing partners will be able to offer multiple networks on a single card and
merchants may program their point-of-sale equipment to prioritize selection of another network on such cards.
|
The PSD2 was
adopted on November 25, 2015, and was published in the Official Journal of the European Union on December 23, 2015. Each Member State has until January 2018 to transpose the PSD2 into national law.
Among other terms, the published text of PSD2 includes provisions that will (i) further regulate surcharging so that transactions falling in
scope of the interchange caps could not be surcharged, but transactions falling outside the scope of the caps could be surcharged up to cost, subject potentially to the decision of an individual Member State to prohibit surcharging altogether; and
(ii) require all networks, including three party payment networks that operate with licensing arrangements, such as our GNS business, to establish objective, proportionate and non-discriminatory criteria under which a financial
institution may access the network, for example, as a licensed issuer or acquirer. The potential surcharging regulation may increase instances of differential surcharging of our cards, prompt customer and merchant confusion as to which transactions
may be surcharged and lead to Card Member dissatisfaction. The access requirements will undermine the flexibility and discretion we have had to date in deciding with whom to partner in our GNS business and, together with requirements in the
Interchange Fee Regulation, may undermine the value of our GNS business in Europe.
Australia Payments Regulation
Following a formal review of the regulatory framework for card payments in Australia, the Reserve Bank of Australia adopted new regulations on
May 26, 2016, including the following:
|
●
|
|
Interchange caps as of July 1, 2017, the interchange fee paid on Visa and MasterCard credit transactions must not exceed a weighted-average benchmark of 0.50 percent across all transactions, with a maximum
interchange fee cap of 0.80 percent for each individual credit card transaction.
|
|
●
|
|
The inclusion of our GNS business in Australia under interchange regulation, which subjects GNS payments to bank partners to the same interchange caps and regulations that apply to Visa and MasterCard credit card
transactions in Australia, effective 1 July 2017.
|
|
●
|
|
Broadening the definition of interchange fees to include any fees paid by networks to card-issuing banks as incentives to issue cards, as well as any other net payments made to card issuers.
|
|
●
|
|
Increasing the frequency of periodic weighted-average benchmark calculations from every three years to quarterly to confirm compliance with the interchange caps. In determining compliance, all transactions at Australian
merchants (including commercial card transactions, but excluding those on foreign-issued cards) will be taken into consideration.
|
|
●
|
|
Changing the rules on merchant surcharging to limit surcharging to the actual cost of card acceptance paid to the merchant acquirer, as recorded on the merchant statement issued by the merchant acquirer; the changes
take effect as of September 1, 2016 for large merchants and September 1, 2017 for other merchants.
|
The inclusion of
our GNS business under interchange regulation may undermine our ability to attract and retain GNS partners. While the discount rates we agree to with merchants do not include an interchange
66
component and are therefore not capped, the interchange caps, once effective, will likely exert downward pressure on merchant fees across the industry, including our discount rates.
Dodd-Frank Wall Street Reform and Consumer Protection Act
Dodd-Frank contains a wide array of provisions intended to govern the practices and oversight of financial institutions and other participants
in the financial markets. Among other matters, the law created an independent Consumer Financial Protection Bureau (the CFPB), which has broad rulemaking authority over providers of credit, savings, payment and other consumer financial products and
services with respect to certain federal consumer financial laws. Moreover, the CFPB has examination and enforcement authority with respect to certain federal consumer financial laws for providers of consumer financial products and services,
including certain of our subsidiaries. The CFPB is directed to prohibit unfair, deceptive or abusive acts or practices, and to ensure that all consumers have access to fair, transparent and competitive markets for consumer financial
products and services.
The review of products and practices 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. Internal and regulatory reviews have resulted in, and are likely to continue to result in, changes to our practices, products and procedures. Such reviews are also likely to
continue to result in increased costs related to regulatory oversight, supervision and examination, and additional restitution to our Card Members and may result in additional regulatory actions, including civil money penalties.
On May 5, 2016, the CFPB issued a proposed rule that, if enacted, would, among other changes, require that our consumer arbitration clause not
apply to cases filed in court as class actions, unless and until class certification is denied or the class claims are dismissed. The CFPB has set a 90-day period for comment, with the rule becoming effective 211 days after enactment and applying to
all agreements entered into after that date.
Antitrust Litigation
The U.S. 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 has ruled that the challenged provisions violate U.S. antitrust
laws and issued an injunction, effective July 20, 2015, prohibiting us from enforcing certain elements of such provisions in the United States. We appealed this judgment and on December 18, 2015, the Court of Appeals for the Second Circuit
stayed the trial courts judgment pending the issuance of its appellate decision. We are also vigorously defending similar antitrust claims initiated by merchants in other court and arbitration proceedings. See Part I, Item 3. Legal
Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2015 (the 2015 Form 10-K) for descriptions of the DOJ action and related cases. It is possible that significantly increased merchant steering or other actions
impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a material adverse effect on our business. See Part I, Item 1A, Risk Factors in the 2015 Form 10-K for
information on the potential impacts of an adverse decision in the DOJ case and related merchant litigations on our business.
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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. The Company believes adjusted net interest income is useful
to investors because it is a component of net interest yield on Card Member loans.
Asset securitizations
Asset
securitization involves the transfer and sale of 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 or 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 Charge Trust and Lending Trust
(together, the Trusts) being securitized are reported as assets, and the securities issued by the Trusts are reported as liabilities on our Consolidated Balance Sheets.
Average discount rate
This calculation is generally designed to reflect pricing at merchants accepting general-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 a sale is completed, represents Card
Member loans and receivables related to our cobrand partnerships with Costco in the United States and JetBlue. The JetBlue and Costco portfolio sales were completed on March 18 and June 17, 2016, respectively.
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Card Member receivables
Represents the outstanding amount due from Card Members for
charges made on their American Express charge cards, as well as any card-related fees.
Charge cards
Represents cards that
generally carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge Card Members generally must pay the full amount billed each month. No finance charges are assessed on
charge cards. Each charge card transaction is authorized based on its likely economics reflecting a Card Members most recent credit information and spend patterns. Some charge card accounts have an additional lending-on-charge feature that
allows revolving certain balances.
Credit cards
Represents cards that have a range of revolving payment terms, grace
periods, and rate and fee structures.
Discount revenue
Represents revenue earned from fees generally charged to merchants
who have entered into a card acceptance agreement. The discount fee generally is deducted from our payment for Card Member purchases. Discount revenue is reduced by 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 proposed minimum standards being established by the regulatory agencies as a
measure to determine whether the regulated entity has sufficient liquidity to meet liquidity needs in periods of financial and economic stress.
Merchant acquisition
Represents our process of entering into agreements with merchants to accept American Express-branded cards.
Net card fees
Represents the card membership fees earned during the period. These fees are recognized as revenue over the
covered card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation and deferred acquisition costs.
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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. The Company believes net interest yield on Card Member loans is useful to investors because it provides a measure of profitability of the Companys 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, communications and
other expenses.
Return on average equity
Calculated by dividing one-year period net income by one-year average total
shareholders equity.
Return on average segment capital
Calculated by dividing one-year period segment income by
one-year average segment capital.
Return on average tangible segment capital
Computed in the same manner as the return on
average segment capital, except the computation of average tangible segment capital excludes from average segment capital, average goodwill and other intangibles.
Segment capital
Represents the capital allocated to a segment based upon specific business operational needs, risk measures, and
regulatory capital requirements.
Total cards-in-force
Represents the number of cards that are issued and outstanding.
Non-proprietary cards-in-force includes all cards that are issued and outstanding under network partnership agreements, except for retail cobrand Card Member accounts which have no out-of-store spending activity during the prior twelve-month period.
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