The following tables present the key credit quality indicators as of or for the three months ended March 31:
Impaired Card Member loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that we 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 our various Troubled Debt Restructuring (TDR) modification programs.
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, for the three months ended March 31, 2018 and 2017. A Card Member is considered in default of a modification program after one and up to two 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.
Reserves for losses relating to Card Member loans and receivables represent management’s best estimate of the probable inherent losses in our outstanding portfolio of loans and receivables as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments.
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of March 31, 2018 and December 31, 2017:
The gross unrealized losses for available-for-sale debt securities are attributed to wider credit spreads for specific issuers, adverse changes in benchmark interest rates, or a combination thereof, all compared to those prevailing when the investment securities were purchased.
Under the respective terms of the Lending Trust and the Charge 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.
The scheduled maturities of certificates of deposit as of March 31, 2018 were as follows:
Our 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 and a variety of claims (including, but not limited to, common law tort, contract, application of tax laws, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against us 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 us 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 us to estimate an amount of loss or a range of possible loss, while other matters have progressed sufficiently such that we are able to estimate an amount of loss or a range of possible loss.
We have recorded reserves for certain of our 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. We evaluate, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable.
For those disclosed material legal proceedings and VAT matters where a loss is reasonably possible in future periods, whether in excess of a related reserve for legal or tax contingencies or where there is no such reserve, and for which we are able to estimate a range of possible loss, the current estimated range is zero to $420 million in excess of any reserves related to those matters. This range represents management’s estimate based on currently available information and does not represent our maximum loss exposure; actual results may vary significantly. As such legal proceedings evolve, we may need to increase our range of possible loss or reserves.
Based on our current knowledge, and taking into consideration our litigation-related liabilities, we believe we are not a party to, nor are any of our properties the subject of, any legal proceeding that would have a material adverse effect on our consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims, could have a material impact on our results of operations.
A majority of our derivative assets and liabilities as of March 31, 2018 and December 31, 2017 are subject to master netting agreements with our derivative counterparties. We have no derivative amounts subject to enforceable master netting arrangements that are not offset on the Consolidated Balance Sheets.
We are exposed to interest rate risk associated with our fixed-rate long-term debt obligations. At the time of issuance, certain fixed-rate debt obligations are designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest rate. We have $23.4 billion and $23.8 billion of fixed-rate debt obligations designated in fair value hedging relationships as of March 31, 2018 and December 31, 2017, respectively.
We have 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 they are determined to be impaired. During the three months ended March 31, 2018 and the year ended December 31, 2017, we did not have any material assets that were measured at fair value due to impairment. Equity investments previously held at cost that are adjusted through earnings for observable price changes are not material.
As of March 31, 2018, the maximum potential undiscounted future payments and related liability resulting from guarantees and indemnifications provided by us in the ordinary course of business were $1 billion and $46 million, respectively, and related primarily to our real estate and business dispositions. As of December 31, 2017, the maximum potential undiscounted future payments and related liability were $1 billion and $52 million, respectively.
The following is a detail of Other revenues for the three months ended March 31:
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Business Introduction
When we use the terms “American Express,” “we,” “our” or “us,” we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
We are a global services company with four operating segments used for financial reporting in the first quarter: U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global Merchant Services (GMS). Corporate functions and certain other businesses and operations are included in Corporate & Other.
During the first quarter of 2018, we announced organizational changes that combined our U.S. and International consumer businesses into a global consumer services organization, and combined our merchant and network-related businesses, among other changes. Our financial disclosures will reflect these organizational changes starting in the second quarter of 2018, which is consistent with when our executives will begin to review financial information aligned to the new segments. Our reportable operating segments will be as follows:
•
|
Global Consumer Services Group, including our U.S. and International Consumer Card Services businesses;
|
•
|
Global Merchant and Network Services, including our Global Merchant Services business, the Global Network Services business, and our Loyalty Coalition programs; and
|
•
|
Global Commercial Services, including our Global Corporate Payments business and our small business services.
|
We provide our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Our range of products and services includes:
• Charge card, credit card and other payment and financing products
• Merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants
• Other fee services, including fraud prevention services and the design and operation of customer loyalty programs
• Expense management products and services
• Travel-related services
• Stored-value/prepaid products
Our various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including mobile and online applications, direct mail, in-house sales teams, third-party vendors and direct response advertising. Business travel-related services are offered through our non-consolidated joint venture, American Express Global Business Travel (the GBT JV).
We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and ACH), as well as evolving and growing alternative payment and financing providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customer relationships to create payment or financing solutions.
The following types of revenue are generated from our various products and services:
•
|
Discount revenue, our largest revenue source, represents fees generally charged to merchants for accepting our cards as payment for goods or services sold;
|
•
|
Interest on loans, principally represents interest income earned on outstanding balances;
|
•
|
Net card fees, represent revenue earned from annual card membership fees, which varies based on the type of card and the number of cards for each account;
|
•
|
Other fees and commissions, represent Card Member delinquency fees, foreign currency conversion fees charged to Card Members, loyalty coalition-related fees, travel commissions and fees, service fees and fees related to our Membership Rewards program; and
|
•
|
Other revenue, primarily represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees less issuer rate payments), cross-border Card Member spending, insurance premiums earned from Card Members, ancillary merchant-related fees, revenues related to the GBT JV transition services agreement, prepaid card and Travelers Cheque-related revenue and earnings from equity method investments (including the GBT JV).
|
Effective January 1, 2018, we adopted new revenue recognition guidance using the full retrospective method, which applies the new standard to each prior reporting period presented, starting January 1, 2016. The adoption changed the recognition timing and classification of certain revenues and expenses, including changes to the presentation of certain credit and charge card related costs that were previously netted against discount revenue. The adoption did not have a significant impact on our consolidated financial position, net income, equity or cash flows. Refer to Note 1 to the “Consolidated Financial Statements” for additional information. In addition, we reclassified certain business development expenses, from other expenses to marketing and business development, which was not directly attributable to the adoption of the new revenue recognition guidance.
Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the “Cautionary Note Regarding Forward-Looking Statements” section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-Q constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
Bank Holding Company
American Express is a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserve’s regulations, policies and minimum capital standards.
Business Environment
Our results for the first quarter reflect a solid start to the year as we continue to invest across our four key focus areas – strengthening our leadership position with premium consumers, extending our strong position in the commercial payments space, making American Express an essential part of our customers’ digital lives and strengthening our global, integrated network. The increase in earnings per share versus the prior year reflected growth across our businesses as well as a lower tax provision due to the reduction in the U.S. corporate income tax rate resulting from the Tax Cuts and Jobs Act (the Tax Act).
Our worldwide billed business increased 12 percent over the prior year, reflecting growth across all of our customer segments and geographies. Our U.S. and international proprietary consumer card issuing businesses saw a sequential improvement in billings growth. U.S. billings growth benefited from the acquisition from Citibank, N.A. of the portion of the Hilton cobrand portfolio that we did not previously own (the acquired Hilton portfolio), growth from existing customers and strong growth in our Platinum portfolios, which was driven by prior year investments. Commercial billings growth also accelerated driven by growth from large and global commercial customers, as well as middle market and small business customers. As anticipated, Global Network Services billed business grew at a slower rate than our proprietary business due to the impact of the evolving regulatory environment in Europe and Australia.
Revenues net of interest expense grew, reflecting higher Card Member spending, loans and fee income, partially offset by a decline in the average discount rate. We are focused on driving discount revenue growth, not on maximizing the average discount rate, which has led us to selectively adjust such rate in order to drive higher volume growth and overall economics. Our net interest yield increased year-over-year, primarily related to a shift in mix over time towards non-cobrand lending products that generally attract more revolving loan balances, a lower percentage of total loans at introductory interest rates and specific pricing actions. We continue to expect net interest yield to stabilize sequentially.
Card Member loans grew year-over-year as we continued to expand our lending relationships with existing customers and acquired new Card Members, including the previously mentioned acquired Hilton portfolio. Provisions for losses increased as a result of higher Card Member loans and receivables and increases in lending delinquencies and net write-off rates. The increases in the delinquencies and net write-off rates were in line with our expectations and primarily due to the seasoning of recent loan vintages and a shift in mix over time towards non-cobrand lending products, which have higher write-off rates but also drive higher net interest yields. We expect these trends relating to lending write-off rates, delinquencies and provisions for losses to continue.
Spending on customer engagement (the aggregate of rewards, Card Member services and marketing and business development expenses) increased year-over-year, driven in part by growth in rewards, which reflects the growth in billings, and continued higher levels of usage across many of our premium travel services. Marketing and business development expense increased due to partner payments related to our recent cobrand agreements and higher corporate client incentives. We expect marketing and business development expenses to be higher over the balance of the year due to increased investments. Operating expense increased year-over-year, reflecting the impact of foreign currency exchange rate changes and a number of discrete items, including a loss on a transaction related to our prepaid business operations and gains on the re-measurement of certain equity investments previously held at cost.
As previously announced, we have suspended our share buyback program for the first half of 2018 in order to rebuild our capital, and as a result, we saw our capital ratios improve during the first quarter. We continued to return capital to shareholders through our dividend distributions.
While we continue to see some headwinds from a rising interest rate environment, regulation in countries around the world and intense competition, we remain focused on delivering differentiated value to our merchants, customers and business partners, while delivering appropriate returns to our shareholders.
See “Certain legislative, regulatory and other developments” in “Other Matters” for information on certain matters that could have a material adverse effect on our results of operations and financial condition.
American Express Company
Consolidated Results of Operations
Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms and related information appearing within this section.
The discussions in both the Consolidated Results of Operations and Business Segment Results provide commentary on the variances for the three months ended March 31, 2018 compared to same period in the prior year, as presented in the accompanying tables. Effective January 1, 2018, we changed the methodology used to allocate certain corporate overhead costs and interest income and expense to the operating segments. Prior period amounts have been revised to conform to the current period presentation.
Table 1: Summary of Financial Performance
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages and per share amounts)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Total revenues net of interest expense
|
|
$
|
9,718
|
|
|
$
|
8,709
|
|
|
$
|
1,009
|
|
|
|
12
|
%
|
Provisions for losses
|
|
|
775
|
|
|
|
573
|
|
|
|
202
|
|
|
|
35
|
|
Expenses
|
|
|
6,861
|
|
|
|
6,297
|
|
|
|
564
|
|
|
|
9
|
|
Pretax income
|
|
|
2,082
|
|
|
|
1,839
|
|
|
|
243
|
|
|
|
13
|
|
Income tax provision
|
|
|
448
|
|
|
|
588
|
|
|
|
(140
|
)
|
|
|
(24
|
)
|
Net income
|
|
|
1,634
|
|
|
|
1,251
|
|
|
|
383
|
|
|
|
31
|
|
Earnings per common share — diluted
(a)
|
|
$
|
1.86
|
|
|
$
|
1.35
|
|
|
$
|
0.51
|
|
|
|
38
|
%
|
Return on average equity
(b)
|
|
|
15.2
|
%
|
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
21.5
|
%
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
(a)
|
Earnings per common share — diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $13 million and $10 million for the three months ended March 31, 2018 and 2017, respectively, and (ii) dividends on preferred shares of $21 million for both the three months ended March 31, 2018 and 2017.
|
(b)
|
Return on average equity (ROE) is computed by dividing (i) one-year period net income ($3.1 billion and $5.2 billion for March 31, 2018 and 2017, respectively) by (ii) one-year average total shareholders’ equity ($20.5 billion and $20.8 billion for March 31, 2018 and 2017, respectively).
|
Table 2: Total Revenue Net of Interest Expense Summary
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Discount revenue
|
|
$
|
5,889
|
|
|
$
|
5,387
|
|
|
$
|
502
|
|
|
|
9
|
%
|
Net card fees
|
|
|
830
|
|
|
|
748
|
|
|
|
82
|
|
|
|
11
|
|
Other fees and commissions
|
|
|
781
|
|
|
|
711
|
|
|
|
70
|
|
|
|
10
|
|
Other
|
|
|
377
|
|
|
|
361
|
|
|
|
16
|
|
|
|
4
|
|
Total non-interest revenues
|
|
|
7,877
|
|
|
|
7,207
|
|
|
|
670
|
|
|
|
9
|
|
Total interest income
|
|
|
2,462
|
|
|
|
1,945
|
|
|
|
517
|
|
|
|
27
|
|
Total interest expense
|
|
|
621
|
|
|
|
443
|
|
|
|
178
|
|
|
|
40
|
|
Net interest income
|
|
|
1,841
|
|
|
|
1,502
|
|
|
|
339
|
|
|
|
23
|
|
Total revenues net of interest expense
|
|
$
|
9,718
|
|
|
$
|
8,709
|
|
|
$
|
1,009
|
|
|
|
12
|
%
|
Total Revenues Net of Interest Expense
Discount revenue increased, primarily due to growth in billed business, partially offset by a decrease in the average discount rate. Worldwide billed business increased by 12 percent, driven by 10 percent and 17 percent increases in U.S. and non-U.S. billed business, respectively. See Tables 5 and 6 for more details on the average discount rate and billed business performance.
The decrease in the average discount rate primarily reflected rate reductions from merchant negotiations, including those resulting from the recent regulatory changes affecting competitor pricing in certain international markets, the continued growth of the OptBlue program, and changes in industry and geographic mix. We expect the average discount rate will continue to decline over time due to a greater shift of existing merchants into OptBlue, merchant negotiations and competition, volume related pricing discounts, certain pricing initiatives mainly driven by pricing regulation (including regulation of competitors’ interchange rates) and other factors.
Net card fees increased, primarily driven by growth in certain key international countries as well as growth in the Platinum and Delta portfolios.
Other fees and commissions increased, primarily driven by increases in delinquency fees, due to a change in the late fee assessment date for certain U.S. charge cards, foreign exchange conversion revenue and loyalty coalition-related fees.
Other revenues increased, primarily driven by an increase in the profit distribution from the GBT JV.
Interest income increased, primarily reflecting higher average Card Member loans and higher yields. The growth in average Card Member loans was primarily driven by expanding relationships with existing customers, as well as the inclusion of the acquired Hilton portfolio. The increase in yields was primarily driven by a greater percentage of loans at higher rate buckets, specific pricing actions, and a mix shift over time towards non-cobrand lending products, where Card Members tend to revolve more of their loan balances.
Interest expense increased, primarily driven by higher interest rates and higher average deposits and long-term debt, partially offset by fair value hedge ineffectiveness previously reported in Other expense.
Table 3: Provisions for Losses Summary
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Change
|
|
(Millions, except percentages)
|
2018
|
|
2017
|
|
2018 vs. 2017
|
|
Charge card
|
|
$
|
242
|
|
|
$
|
213
|
|
|
$
|
29
|
|
|
|
14
|
%
|
Card Member loans
|
|
|
499
|
|
|
|
337
|
|
|
|
162
|
|
|
|
48
|
|
Other
|
|
|
34
|
|
|
|
23
|
|
|
|
11
|
|
|
|
48
|
|
Total provisions for losses
|
|
$
|
775
|
|
|
$
|
573
|
|
|
$
|
202
|
|
|
|
35
|
%
|
Charge card provision for losses increased, primarily driven by growth in receivables due to increased billed business.
Card Member loans provision for losses increased, driven by continued strong loan growth and higher delinquencies and write-offs due to the seasoning of recent loan vintages and a shift in mix over time towards non-cobrand products.
Other provision for losses increased, primarily due to growth in the non-card lending portfolio.
Table 4: Expenses Summary
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Marketing and business development
(a)
|
|
$
|
1,345
|
|
|
$
|
1,285
|
|
|
$
|
60
|
|
|
|
5
|
%
|
Card Member rewards
|
|
|
2,347
|
|
|
|
2,061
|
|
|
|
286
|
|
|
|
14
|
|
Card Member services
|
|
|
409
|
|
|
|
317
|
|
|
|
92
|
|
|
|
29
|
|
Total marketing, business development, rewards, Card Member services
|
|
|
4,101
|
|
|
|
3,663
|
|
|
|
438
|
|
|
|
12
|
|
Salaries and employee benefits
|
|
|
1,326
|
|
|
|
1,264
|
|
|
|
62
|
|
|
|
5
|
|
Other, net
(a)
|
|
|
1,434
|
|
|
|
1,370
|
|
|
|
64
|
|
|
|
5
|
|
Total expenses
|
|
$
|
6,861
|
|
|
$
|
6,297
|
|
|
$
|
564
|
|
|
|
9
|
%
|
(a)
|
Includes reclassification of certain business development expenses from Other expenses to Marketing and business development that are not directly attributable to the adoption of the new revenue recognition guidance. The prior period has been conformed to the current period presentation.
|
Expenses
Marketing and business development expenses increased, primarily due to higher cobrand partner payments as a result of recent cobrand agreements, and increased corporate client incentives driven by higher volumes, partially offset by lower spending on growth initiatives.
Card Member rewards expenses increased, primarily due to increases in Membership Rewards expense of $141 million and cobrand rewards expense of $127 million, both of which were primarily driven by higher spending volumes.
The Membership Rewards Ultimate Redemption Rate (URR) for current program participants was 95 percent (rounded down) at both March 31, 2018 and 2017.
Card Member services expenses increased, primarily driven by higher usage of travel-related benefits and the enhanced Platinum card benefits.
Salaries and employee benefits expenses increased, primarily driven by increases in payroll costs and incentive compensation.
Other expenses increased, primarily driven by a loss on a transaction involving the operations of our prepaid reloadable and gift card business, partially offset by gains on the re-measurement of certain equity investments previously carried at cost.
Income Taxes
The effective tax rate decreased, primarily reflecting the reduction in the U.S. federal statutory tax rate as a result of the Tax Act.
Table 5: Selected Card-Related Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2018
|
|
|
|
March 31,
|
|
|
vs.
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
Card billed business:
(billions)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
182.5
|
|
|
$
|
165.4
|
|
|
|
10
|
%
|
Outside the United States
|
|
|
101.3
|
|
|
|
86.9
|
|
|
|
17
|
|
Worldwide
|
|
$
|
283.8
|
|
|
$
|
252.3
|
|
|
|
12
|
|
Proprietary
|
|
$
|
236.9
|
|
|
$
|
208.9
|
|
|
|
13
|
|
Global Network Services
|
|
|
46.9
|
|
|
|
43.4
|
|
|
|
8
|
|
Worldwide
|
|
$
|
283.8
|
|
|
$
|
252.3
|
|
|
|
12
|
|
Total cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
51.3
|
|
|
|
48.2
|
|
|
|
6
|
|
Outside the United States
|
|
|
62.9
|
|
|
|
63.0
|
|
|
|
―
|
|
Worldwide
|
|
|
114.2
|
|
|
|
111.2
|
|
|
|
3
|
|
Proprietary
|
|
|
66.4
|
|
|
|
62.2
|
|
|
|
7
|
|
Global Network Services
|
|
|
47.8
|
|
|
|
49.0
|
|
|
|
(2
|
)
|
Worldwide
|
|
|
114.2
|
|
|
|
111.2
|
|
|
|
3
|
|
Basic cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
40.4
|
|
|
|
38.1
|
|
|
|
6
|
|
Outside the United States
|
|
|
52.4
|
|
|
|
52.2
|
|
|
|
―
|
|
Worldwide
|
|
|
92.8
|
|
|
|
90.3
|
|
|
|
3
|
|
Average basic Card Member spending:
(dollars)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,015
|
|
|
$
|
4,859
|
|
|
|
3
|
|
Outside the United States
|
|
|
3,869
|
|
|
|
3,283
|
|
|
|
18
|
|
Worldwide Average
|
|
$
|
4,677
|
|
|
$
|
4,387
|
|
|
|
7
|
|
Card Member loans:
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
63.9
|
|
|
$
|
56.6
|
|
|
|
13
|
|
Outside the United States
|
|
|
8.9
|
|
|
|
7.0
|
|
|
|
27
|
|
Worldwide
|
|
$
|
72.8
|
|
|
$
|
63.6
|
|
|
|
14
|
|
Average discount rate
(b)
|
|
|
2.37
|
%
|
|
|
2.43
|
%
|
|
|
|
|
Average fee per card
(dollars)
(a)
|
|
$
|
51
|
|
|
$
|
48
|
|
|
|
6
|
%
|
(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.
|
(b)
|
Effective January 1, 2018, we began including billings volumes related to certain business-to-business products in the calculation of the average discount rate to reflect our expanding business to business product offerings. Prior period rates have been revised to conform to the current period presentation.
|
Table 6: Billed Business Growth
|
|
Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
Percentage Increase
|
|
|
|
Percentage
|
|
|
(Decrease) Assuming
|
|
|
|
Increase
|
|
|
No Changes in
|
|
|
|
(Decrease)
|
|
|
FX Rates
(a)
|
|
Worldwide
(b)
|
|
|
|
|
|
|
Total billed business
|
|
|
12
|
%
|
|
|
10
|
%
|
Proprietary billed business
|
|
|
13
|
|
|
|
11
|
|
GNS billed business
(c)
|
|
|
8
|
|
|
|
3
|
|
Airline-related volume (9% of worldwide billed business)
|
|
|
10
|
|
|
|
6
|
|
United States
(b)
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
10
|
|
|
|
|
|
Proprietary consumer card billed business
(d)
|
|
|
11
|
|
|
|
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
10
|
|
|
|
|
|
T&E-related volume (27% of U.S. billed business)
|
|
|
8
|
|
|
|
|
|
Non-T&E-related volume (73% of U.S. billed business)
|
|
|
11
|
|
|
|
|
|
Airline-related volume (8% of U.S. billed business)
|
|
|
7
|
|
|
|
|
|
Outside the United States
(b)
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
17
|
|
|
|
9
|
|
Japan, Asia Pacific & Australia (JAPA) billed business
|
|
|
16
|
|
|
|
10
|
|
Latin America & Canada (LACC) billed business
|
|
|
12
|
|
|
|
11
|
|
Europe, the Middle East & Africa (EMEA) billed business
|
|
|
20
|
|
|
|
7
|
|
Proprietary consumer card billed business
(c)
|
|
|
25
|
|
|
|
16
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
23
|
%
|
|
|
14
|
%
|
(a)
|
The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current period apply to the corresponding prior year period against which such results are being compared).
|
(b)
|
Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data.
|
(c)
|
Included in the ICNS segment.
|
(d)
|
Included in the USCS segment.
|
(e)
|
Included in the GCS segment.
|
Table 7: Selected Credit-Related Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2018
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
Worldwide Card Member loans:
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
72.8
|
|
|
$
|
63.6
|
|
|
|
14
|
%
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,706
|
|
|
$
|
1,223
|
|
|
|
39
|
|
Provisions
(a)
|
|
|
499
|
|
|
|
337
|
|
|
|
48
|
|
Net write-offs — principal only
(b)
|
|
|
(358
|
)
|
|
|
(272
|
)
|
|
|
32
|
|
Net write-offs — interest and fees
(b)
|
|
|
(71
|
)
|
|
|
(51
|
)
|
|
|
39
|
|
Other
|
|
|
10
|
|
|
|
11
|
|
|
|
(9
|
)
|
Ending balance
|
|
$
|
1,786
|
|
|
$
|
1,248
|
|
|
|
43
|
|
Ending reserves — principal
|
|
$
|
1,691
|
|
|
$
|
1,179
|
|
|
|
43
|
|
Ending reserves — interest and fees
|
|
$
|
95
|
|
|
$
|
69
|
|
|
|
38
|
|
% of loans
|
|
|
2.5
|
%
|
|
|
2.0
|
%
|
|
|
|
|
% of past due
|
|
|
174
|
%
|
|
|
158
|
%
|
|
|
|
|
Average loans
(billions)
|
|
$
|
72.7
|
|
|
$
|
63.9
|
|
|
|
14
|
|
Net write-off rate — principal only
(c)
|
|
|
2.0
|
%
|
|
|
1.7
|
%
|
|
|
|
|
Net write-off rate — principal, interest and fees
(c)
|
|
|
2.4
|
%
|
|
|
2.0
|
%
|
|
|
|
|
30+ days past due as a % of total
(c)
|
|
|
1.4
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Card Member receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
54.2
|
|
|
$
|
47.6
|
|
|
|
14
|
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
521
|
|
|
$
|
467
|
|
|
|
12
|
|
Provisions
(a)
|
|
|
242
|
|
|
|
213
|
|
|
|
14
|
|
Net write-offs
(b)
|
|
|
(199
|
)
|
|
|
(194
|
)
|
|
|
3
|
|
Other
|
|
|
1
|
|
|
|
5
|
|
|
|
(80
|
)
|
Ending balance
|
|
$
|
565
|
|
|
$
|
491
|
|
|
|
15
|
%
|
% of receivables
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
|
|
Net write-off rate — principal only
(c)
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
|
|
|
|
Net write-off rate — principal and fees
(c)
|
|
|
1.8
|
%
|
|
|
2.0
|
%
|
|
|
|
|
30+ days past due as a % of total
(c)
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
|
|
Net loss ratio as a % of charge volume — GCP
|
|
|
0.10
|
%
|
|
|
0.11
|
%
|
|
|
|
|
90+ days past billing as a % of total — GCP
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
(a)
|
Reflects provisions for principal, interest and/or fees on Card Member loans and receivables.
|
(b)
|
Write-offs, less recoveries.
|
(c)
|
We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The net write-off rates and 30+ days past due as a percentage of total for Card Member receivables relate to USCS, ICNS and Global Small Business Services (GSBS) Card Member receivables.
|
Table 8: Net Interest Yield on Average Card Member Loans
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Millions, except percentages and where indicated)
|
|
2018
|
|
|
2017
|
|
Net interest income
|
|
$
|
1,841
|
|
|
$
|
1,502
|
|
Exclude:
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
(a)
|
|
|
302
|
|
|
|
247
|
|
Interest income not attributable to our Card Member loan portfolio
(b)
|
|
|
(213
|
)
|
|
|
(130
|
)
|
Adjusted net interest income
(c)
|
|
$
|
1,930
|
|
|
$
|
1,619
|
|
Average Card Member loans
(billions)
|
|
$
|
72.7
|
|
|
$
|
63.9
|
|
Net interest income divided by average Card Member loans
(c)
|
|
|
10.1
|
%
|
|
|
9.4
|
%
|
Net interest yield on average Card Member loans
(c)
|
|
|
10.8
|
%
|
|
|
10.3
|
%
|
(a)
|
Primarily represents interest expense attributable to maintaining our corporate liquidity pool and funding Card Member receivables.
|
(b)
|
Primarily represents interest income attributable to Other loans, interest-bearing deposits and our Travelers Cheque and other stored-value investment portfolio.
|
(c)
|
Adjusted net interest income and net interest yield on average 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 represents the interest expense and interest income attributable to our Card Member loan portfolio and is a component of net interest yield on average Card Member loans, which provides a measure of profitability of our Card Member loan portfolio. Net interest yield on average Card Member loans reflects adjusted net interest income divided by average Card Member loans, computed on an annualized basis. Net interest income divided by average Card Member loans, computed on an annualized basis, a GAAP measure, includes elements of total interest income and total interest expense that are not attributable to the Card Member loan portfolio, and thus is not representative of net interest yield on average Card Member loans.
|
Business Segment Results
Table 9: USCS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,294
|
|
|
$
|
2,118
|
|
|
$
|
176
|
|
|
|
8
|
%
|
Interest income
|
|
|
1,656
|
|
|
|
1,310
|
|
|
|
346
|
|
|
|
26
|
|
Interest expense
|
|
|
253
|
|
|
|
161
|
|
|
|
92
|
|
|
|
57
|
|
Net interest income
|
|
|
1,403
|
|
|
|
1,149
|
|
|
|
254
|
|
|
|
22
|
|
Total revenues net of interest expense
|
|
|
3,697
|
|
|
|
3,267
|
|
|
|
430
|
|
|
|
13
|
|
Provisions for losses
|
|
|
423
|
|
|
|
294
|
|
|
|
129
|
|
|
|
44
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
3,274
|
|
|
|
2,973
|
|
|
|
301
|
|
|
|
10
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, business development, rewards, Card Member services
|
|
|
1,771
|
|
|
|
1,564
|
|
|
|
207
|
|
|
|
13
|
|
Salaries and employee benefits and other operating expenses
|
|
|
690
|
|
|
|
671
|
|
|
|
19
|
|
|
|
3
|
|
Total expenses
|
|
|
2,461
|
|
|
|
2,235
|
|
|
|
226
|
|
|
|
10
|
|
Pretax segment income
|
|
|
813
|
|
|
|
738
|
|
|
|
75
|
|
|
|
10
|
|
Income tax provision
|
|
|
173
|
|
|
|
244
|
|
|
|
(71
|
)
|
|
|
(29
|
)
|
Segment income
|
|
$
|
640
|
|
|
$
|
494
|
|
|
$
|
146
|
|
|
|
30
|
%
|
Effective tax rate
|
|
|
21.3
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including travel services.
Non-interest revenues increased, primarily driven by discount revenue, which increased $142 million, or 9 percent, reflecting an increase in billed business of 11 percent. Net card fees and other fees and commissions increased, driven primarily by growth in the Platinum and Delta portfolios and higher delinquency fees, respectively.
Net interest income increased, primarily driven by growth in average Card Member loans and higher yields, partially offset by higher interest expense, primarily driven by higher cost of funds. The growth in average Card Member loans was primarily driven by expanding relationships with existing customers, as well as the inclusion of the acquired Hilton portfolio. The increase in yields was primarily driven by a greater percentage of loans at higher rate buckets, specific pricing actions, and a mix shift over time towards non-cobrand lending products, where Card Members tend to revolve more of their loan balances.
Provision for losses increased, driven by Card Member loan provision, which increased by $136 million primarily due to strong lending growth and higher delinquencies and write-offs due to continued seasoning of recent loan vintages and a shift in mix over time towards non-cobrand products.
Marketing, business development, rewards, Card Member services expenses increased across all expense categories. Card Member rewards expense increased $132 million, driven by increased spending volumes across both proprietary and cobrand portfolios. Card Member services expenses increased, driven by higher usage of travel-related benefits and enhanced Platinum card benefits. Marketing and business development expenses increased, driven by higher cobrand partner payments, partially offset by lower spending on growth initiatives.
Salaries and employee benefits and other operating expenses increased, primarily driven by higher technology and other servicing-related costs, partially offset by gains on the re-measurement, in the current period, of certain equity investments previously carried at cost and prior period hedge ineffectiveness now included in Interest expense.
The effective tax rate decreased, primarily reflecting the reduction in the U.S. federal statutory tax rate as a result of the Tax Act.
Table 10: USCS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2018
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
Card billed business
(billions)
|
|
$
|
86.0
|
|
|
$
|
77.5
|
|
|
|
11
|
%
|
Total cards-in-force
|
|
|
36.1
|
|
|
|
33.2
|
|
|
|
9
|
|
Basic cards-in-force
|
|
|
25.8
|
|
|
|
23.7
|
|
|
|
9
|
|
Average basic Card Member spending
(dollars)
|
|
$
|
3,371
|
|
|
$
|
3,297
|
|
|
|
2
|
|
Total segment assets
(billions)
|
|
$
|
93.8
|
|
|
$
|
85.3
|
|
|
|
10
|
|
Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
52.7
|
|
|
$
|
46.7
|
|
|
|
13
|
|
Average loans
(billions)
|
|
$
|
52.9
|
|
|
$
|
47.2
|
|
|
|
12
|
|
Net write-off rate – principal only
(a)
|
|
|
2.0
|
%
|
|
|
1.7
|
%
|
|
|
|
|
Net write-off rate – principal, interest and fees
(a)
|
|
|
2.4
|
%
|
|
|
2.0
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.4
|
%
|
|
|
1.2
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Average Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,403
|
|
|
$
|
1,149
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
(b)
|
|
|
37
|
|
|
|
34
|
|
|
|
|
|
Interest income not attributable to our Card Member loan portfolio
(c)
|
|
|
(38
|
)
|
|
|
(18
|
)
|
|
|
|
|
Adjusted net interest income
(d)
|
|
$
|
1,402
|
|
|
$
|
1,165
|
|
|
|
|
|
Average Card Member loans
(billions)
|
|
$
|
52.9
|
|
|
$
|
47.2
|
|
|
|
|
|
Net interest income divided by average Card Member loans
(d)
|
|
|
10.6
|
%
|
|
|
9.7
|
%
|
|
|
|
|
Net interest yield on average Card Member loans
(d)
|
|
|
10.7
|
%
|
|
|
10.0
|
%
|
|
|
|
|
Card Member receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
11.7
|
|
|
$
|
10.9
|
|
|
|
7
|
%
|
Net write-off rate – principal only
(a)
|
|
|
1.3
|
%
|
|
|
1.5
|
%
|
|
|
|
|
Net write-off rate – principal and fees
(a)
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
|
|
30+ days past due as a % of total
|
|
|
1.3
|
%
|
|
|
1.3
|
%
|
|
|
|
|
(a)
|
Refer to Table 7 footnote (c).
|
(b)
|
Refer to Table 8 footnote (a).
|
(c)
|
Refer to Table 8 footnote (b).
|
(d)
|
Refer to Table 8 footnote (c).
|
International Consumer and Network Services
Table 11: ICNS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,551
|
|
|
$
|
1,400
|
|
|
$
|
151
|
|
|
|
11
|
%
|
Interest income
|
|
|
294
|
|
|
|
235
|
|
|
|
59
|
|
|
|
25
|
|
Interest expense
|
|
|
78
|
|
|
|
54
|
|
|
|
24
|
|
|
|
44
|
|
Net interest income
|
|
|
216
|
|
|
|
181
|
|
|
|
35
|
|
|
|
19
|
|
Total revenues net of interest expense
|
|
|
1,767
|
|
|
|
1,581
|
|
|
|
186
|
|
|
|
12
|
|
Provisions for losses
|
|
|
108
|
|
|
|
66
|
|
|
|
42
|
|
|
|
64
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,659
|
|
|
|
1,515
|
|
|
|
144
|
|
|
|
10
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, business development, rewards, Card Member services
|
|
|
857
|
|
|
|
726
|
|
|
|
131
|
|
|
|
18
|
|
Salaries and employee benefits and other operating expenses
|
|
|
432
|
|
|
|
441
|
|
|
|
(9
|
)
|
|
|
(2
|
)
|
Total expenses
|
|
|
1,289
|
|
|
|
1,167
|
|
|
|
122
|
|
|
|
10
|
|
Pretax segment income
|
|
|
370
|
|
|
|
348
|
|
|
|
22
|
|
|
|
6
|
|
Income tax provision
|
|
|
79
|
|
|
|
96
|
|
|
|
(17
|
)
|
|
|
(18
|
)
|
Segment income
|
|
$
|
291
|
|
|
$
|
252
|
|
|
$
|
39
|
|
|
|
15
|
%
|
Effective tax rate
|
|
|
21.4
|
%
|
|
|
27.6
|
%
|
|
|
|
|
|
|
|
|
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 outside the United States.
Non-interest revenues increased, primarily driven by discount revenue, which increased $98 million, due to an increase in proprietary billed business and the impact of changes in the foreign exchange rates. Net card fees and other fees and commissions increased, primarily driven by growth in cards-in-force and higher delinquency fees, respectively. Total billed business increased, reflecting higher proprietary cards-in-force and average spend per card. Refer to Tables 6, 7 and 12 for additional information on billed business.
Net interest income increased for the three month period, primarily driven by higher average loan balances, partially offset by higher cost of funds.
Provisions for losses increased due to strong growth in both Card Member receivables and loans resulting in higher delinquencies and write-offs.
Marketing, business development, rewards, Card Member services expenses increased, primarily driven by Card Member rewards expense, which increased $83 million, due to higher spending volumes, and marketing and business development expense primarily due to increased investment levels in our proprietary business.
Salaries and employee benefits and other operating expenses decreased, primarily driven by lower technology and other servicing-related costs.
The effective tax rate decreased, primarily reflecting the reduction in the U.S. federal statutory tax rate as a result of the Tax Act.
Table 12: ICNS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2018
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
Card billed business
(billions)
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
$
|
33.3
|
|
|
$
|
26.6
|
|
|
|
25
|
%
|
GNS
|
|
|
47.0
|
|
|
|
43.4
|
|
|
|
8
|
|
Total
|
|
$
|
80.3
|
|
|
$
|
70.0
|
|
|
|
15
|
|
Total cards-in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
|
16.2
|
|
|
|
15.3
|
|
|
|
6
|
|
GNS
|
|
|
47.8
|
|
|
|
49.0
|
|
|
|
(2
|
)
|
Total
|
|
|
64.0
|
|
|
|
64.3
|
|
|
|
―
|
|
Proprietary basic cards-in-force
|
|
|
11.3
|
|
|
|
10.5
|
|
|
|
8
|
|
Average proprietary basic Card Member spending
(dollars)
|
|
$
|
3,001
|
|
|
$
|
2,542
|
|
|
|
18
|
|
Total segment assets
(billions)
|
|
$
|
42.0
|
|
|
$
|
36.1
|
|
|
|
16
|
|
Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
8.7
|
|
|
$
|
6.8
|
|
|
|
28
|
|
Average loans
(billions)
|
|
$
|
8.6
|
|
|
$
|
6.9
|
|
|
|
25
|
|
Net write-off rate – principal only
(a)
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
|
|
Net write-off rate – principal, interest and fees
(a)
|
|
|
2.6
|
%
|
|
|
2.5
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Average Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
216
|
|
|
$
|
181
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
(b)
|
|
|
21
|
|
|
|
12
|
|
|
|
|
|
Interest income not attributable to our Card Member loan portfolio
(c)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
Adjusted net interest income
(d)
|
|
$
|
233
|
|
|
$
|
189
|
|
|
|
|
|
Average Card Member loans
(billions)
|
|
$
|
8.6
|
|
|
$
|
6.9
|
|
|
|
|
|
Net interest income divided by average Card Member loans
(d)
|
|
|
10.0
|
%
|
|
|
10.5
|
%
|
|
|
|
|
Net interest yield on average Card Member loans
(d)
|
|
|
10.9
|
%
|
|
|
11.1
|
%
|
|
|
|
|
Card Member receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
7.1
|
|
|
$
|
5.5
|
|
|
|
29
|
%
|
Net write-off rate – principal only
(a)
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
|
|
|
|
Net write-off rate – principal and fees
(a)
|
|
|
2.2
|
%
|
|
|
2.3
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
|
|
(a)
|
Refer to Table 7 footnote (c).
|
(b)
|
Refer to Table 8 footnote (a).
|
(c)
|
Refer to Table 8 footnote (b).
|
(d)
|
Refer to Table 8 footnote (c).
|
Global Commercial Services
Table 13: GCS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,838
|
|
|
$
|
2,603
|
|
|
$
|
235
|
|
|
|
9
|
%
|
Interest income
|
|
|
377
|
|
|
|
319
|
|
|
|
58
|
|
|
|
18
|
|
Interest expense
|
|
|
171
|
|
|
|
123
|
|
|
|
48
|
|
|
|
39
|
|
Net interest income
|
|
|
206
|
|
|
|
196
|
|
|
|
10
|
|
|
|
5
|
|
Total revenues net of interest expense
|
|
|
3,044
|
|
|
|
2,799
|
|
|
|
245
|
|
|
|
9
|
|
Provisions for losses
|
|
|
240
|
|
|
|
208
|
|
|
|
32
|
|
|
|
15
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,804
|
|
|
|
2,591
|
|
|
|
213
|
|
|
|
8
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, business development, rewards, Card Member services
|
|
|
1,373
|
|
|
|
1,290
|
|
|
|
83
|
|
|
|
6
|
|
Salaries and employee benefits and other operating expenses
|
|
|
714
|
|
|
|
684
|
|
|
|
30
|
|
|
|
4
|
|
Total expenses
|
|
|
2,087
|
|
|
|
1,974
|
|
|
|
113
|
|
|
|
6
|
|
Pretax segment income
|
|
|
717
|
|
|
|
617
|
|
|
|
100
|
|
|
|
16
|
|
Income tax provision
|
|
|
165
|
|
|
|
208
|
|
|
|
(43
|
)
|
|
|
(21
|
)
|
Segment income
|
|
$
|
552
|
|
|
$
|
409
|
|
|
$
|
143
|
|
|
|
35
|
%
|
Effective tax rate
|
|
|
23.0
|
%
|
|
|
33.7
|
%
|
|
|
|
|
|
|
|
|
GCS issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products.
Non-interest revenues increased, primarily driven by discount revenue, which increased $203 million, due to growth in billed business. The increase in non-interest revenues was also driven by higher other fees and commissions and higher net card fees, primarily due to higher delinquency fees and growth in the U.S. small business Platinum portfolio, respectively.
Net interest income increased, primarily driven by higher average loan balances, partially offset by higher cost of funds and higher average debt.
Provisions for losses increased, primarily due to the charge portfolio.
Marketing, business development, rewards, Card Member services expenses increased, primarily driven by increases in Card Member rewards expense, due to higher spending volumes.
Salaries and employee benefits and other operating expenses increased, primarily driven by higher technology costs, partially offset by prior-period hedge ineffectiveness now included in interest expense.
The effective tax rate decreased, primarily reflecting the reduction in the U.S. federal statutory tax rate as a result of the Tax Act.
Table 14: GCS Selected Statistical Information
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2018
|
|
|
|
March 31,
|
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
Card billed business
(billions)
|
|
$
|
115.7
|
|
|
$
|
102.8
|
|
|
|
13
|
%
|
Total cards-in-force
|
|
|
14.1
|
|
|
|
13.7
|
|
|
|
3
|
|
Basic cards-in-force
|
|
|
14.1
|
|
|
|
13.7
|
|
|
|
3
|
|
Average basic Card Member spending
(dollars)
|
|
$
|
8,233
|
|
|
$
|
7,533
|
|
|
|
9
|
|
Total segment assets
(billions)
|
|
$
|
57.8
|
|
|
$
|
51.5
|
|
|
|
12
|
|
Card Member loans
(billions)
|
|
$
|
11.5
|
|
|
$
|
10.0
|
|
|
|
15
|
|
Card Member receivables
(billions)
|
|
$
|
35.5
|
|
|
$
|
31.2
|
|
|
|
14
|
|
Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans - GSBS
(billions)
|
|
$
|
11.4
|
|
|
$
|
10.0
|
|
|
|
14
|
|
Average loans - GSBS
(billions)
|
|
$
|
11.1
|
|
|
$
|
9.6
|
|
|
|
16
|
|
Net write-off rate (principal only) - GSBS
(a)
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
|
|
|
|
Net write-off rate (principal, interest and fees) - GSBS
(a)
|
|
|
1.9
|
%
|
|
|
1.8
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.3
|
%
|
|
|
1.2
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Average Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
206
|
|
|
$
|
196
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to our Card Member loan portfolio
(b)
|
|
|
126
|
|
|
|
96
|
|
|
|
|
|
Interest income not attributable to our Card Member loan portfolio
(c)
|
|
|
(36
|
)
|
|
|
(27
|
)
|
|
|
|
|
Adjusted net interest income
(d)
|
|
$
|
296
|
|
|
$
|
265
|
|
|
|
|
|
Average Card Member loans
(billions)
|
|
$
|
11.2
|
|
|
$
|
9.7
|
|
|
|
|
|
Net interest income divided by average Card Member loans
(d)
|
|
|
7.4
|
%
|
|
|
8.1
|
%
|
|
|
|
|
Net interest yield on average Card Member loans
(d)
|
|
|
10.7
|
%
|
|
|
11.1
|
%
|
|
|
|
|
Card Member receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables - GCP
(billions)
|
|
$
|
19.3
|
|
|
$
|
16.6
|
|
|
|
16
|
|
90+ days past billing as a % of total - GCP
(e)
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Net loss ratio (as a % of charge volume) - GCP
|
|
|
0.10
|
%
|
|
|
0.11
|
%
|
|
|
|
|
Total receivables - GSBS
(billions)
|
|
$
|
16.2
|
|
|
$
|
14.6
|
|
|
|
11
|
%
|
Net write-off rate (principal only) - GSBS
(a)
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
|
|
|
|
Net write-off rate (principal and fees) - GSBS
(a)
|
|
|
1.9
|
%
|
|
|
2.0
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
(a)
|
Refer to Table 7 footnote (c).
|
|
(b)
|
Refer to Table 8 footnote (a).
|
|
(c)
|
Refer to Table 8 footnote (b).
|
|
(d)
|
Refer to Table 8 footnote (c).
|
|
(e)
|
For Global Corporate Payments (GCP) Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if we initiate collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
|
Global Merchant Services
Table 15: GMS Selected Income Statement Data
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2018
|
|
|
2017
|
|
|
2018 vs. 2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,110
|
|
|
$
|
1,021
|
|
|
$
|
89
|
|
|
|
9
|
%
|
Interest expense
|
|
|
(63
|
)
|
|
|
(43
|
)
|
|
|
(20
|
)
|
|
|
47
|
|
Net interest income
|
|
|
63
|
|
|
|
43
|
|
|
|
20
|
|
|
|
47
|
|
Total revenues net of interest expense
|
|
|
1,173
|
|
|
|
1,064
|
|
|
|
109
|
|
|
|
10
|
|
Provisions for losses
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
67
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,168
|
|
|
|
1,061
|
|
|
|
107
|
|
|
|
10
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, business development, rewards, Card Member services
|
|
|
74
|
|
|
|
71
|
|
|
|
3
|
|
|
|
4
|
|
Salaries and employee benefits and other operating expenses
|
|
|
440
|
|
|
|
432
|
|
|
|
8
|
|
|
|
2
|
|
Total expenses
|
|
|
514
|
|
|
|
503
|
|
|
|
11
|
|
|
|
2
|
|
Pretax segment income
|
|
|
654
|
|
|
|
558
|
|
|
|
96
|
|
|
|
17
|
|
Income tax provision
|
|
|
182
|
|
|
|
201
|
|
|
|
(19
|
)
|
|
|
(9
|
)
|
Segment income
|
|
$
|
472
|
|
|
$
|
357
|
|
|
$
|
115
|
|
|
|
32
|
%
|
Effective tax rate
|
|
|
27.8
|
%
|
|
|
36.0
|
%
|
|
|
|
|
|
|
|
|
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 analytics, leveraging our global integrated network. GMS also operates loyalty coalition businesses in certain countries around the world.
Non-interest revenues increased, primarily driven by an increase in discount revenue, which reflected growth in billed business, partially offset by a decline in the average discount rate.
Net interest income increased, reflecting a higher interest expense credit relating to internal transfer pricing, which results in a net benefit for GMS due to its merchant payables.
Marketing, business development, rewards, Card Member services expenses increased, reflecting higher levels of spending on growth initiatives, partially offset by a reduction in external sales agent commissions.
Salaries and employee benefits and other operating expenses increased, primarily driven by increased payroll costs.
The effective tax rate decreased, primarily reflecting the reduction in the U.S. federal statutory tax rate as a result of the Tax Act.
Table 16: GMS Selected Statistical Information
|
As of or for the
|
|
Change
|
|
|
Three Months Ended
|
|
2018
|
|
|
March 31,
|
|
vs.
|
|
(Millions, except percentages and where indicated)
|
2018
|
|
2017
|
|
2017
|
|
Loyalty Coalition revenue
|
|
$
|
111
|
|
|
$
|
102
|
|
|
|
9
|
%
|
Average discount rate
(a)
|
|
|
2.37
|
%
|
|
|
2.43
|
%
|
|
|
|
|
Total segment assets
(billions)
|
|
$
|
29.3
|
|
|
$
|
25.9
|
|
|
|
13
|
%
|
(a)
|
Effective January 1, 2018, we changed the methodology used to calculate the average discount rate. Prior period rates have been revised to conform to the current period presentation.
|
Corporate functions and certain other businesses, including our Prepaid Services business, are included in Corporate & Other.
Corporate & Other net expense was $321 million for the three months ended March 31, 2018, compared to $261 million in the same period a year ago. The increase was primarily driven by a loss on a transaction involving the operations of our prepaid reloadable and gift card business, partially offset by gains on the re-measurement of certain equity investments previously carried at cost.
CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY
Our balance sheet management objectives are to maintain:
|
•
|
A solid and flexible equity capital profile;
|
|
•
|
A broad, deep and diverse set of funding sources to finance our assets and meet operating requirements; and
|
|
•
|
Liquidity programs that enable us to continuously meet expected future financing obligations and business requirements for at least a twelve-month period, even in the event we are unable to continue to raise new funds under our traditional funding programs during a substantial weakening in economic conditions.
|
The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank subsidiaries, American Express Centurion Bank and American Express Bank, FSB, as of March 31, 2018. Effective April 1, 2018, American Express Centurion Bank and American Express Bank, FSB were merged to become American Express National Bank.
Table 17: Regulatory Risk-Based Capital and Leverage Ratios
|
|
Basel III
|
|
|
Ratios as of
|
|
|
|
Standards
|
|
|
March 31,
|
|
|
|
2018
(a)
|
|
|
2018
|
|
Risk-Based Capital
|
|
|
|
|
|
|
Common Equity Tier 1
|
|
|
6.4
|
%
|
|
|
|
American Express Company
|
|
|
|
|
|
|
9.4
|
%
|
American Express Centurion Bank
|
|
|
|
|
|
|
14.2
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
12.3
|
|
Tier 1
|
|
|
7.9
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
10.5
|
|
American Express Centurion Bank
|
|
|
|
|
|
|
14.2
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
12.3
|
|
Total
|
|
|
9.9
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
12.2
|
|
American Express Centurion Bank
|
|
|
|
|
|
|
15.4
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
13.6
|
|
Tier 1 Leverage
|
|
|
4.0
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
8.8
|
|
American Express Centurion Bank
|
|
|
|
|
|
|
10.8
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
10.8
|
|
Supplementary Leverage Ratio
(b)
|
|
|
3.0
|
%
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
7.6
|
|
American Express Centurion Bank
|
|
|
|
|
|
|
8.6
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
8.9
|
%
|
(a)
|
Basel III minimum capital requirement and additional transitional capital conservation buffer as defined by the Federal Reserve for calendar year 2018 for advanced approaches institutions.
|
(b)
|
We became subject to the minimum supplementary leverage ratio (SLR) requirement of 3 percent effective January 1, 2018.
|
Table 18: Regulatory Risk-Based Capital Components and Risk Weighted Assets
American Express Company
|
|
March 31,
|
|
($ in Billions)
|
|
2018
|
|
Risk-Based Capital
(a)
|
|
|
|
Common Equity Tier 1
|
|
$
|
13.9
|
|
Tier 1 Capital
|
|
|
15.5
|
|
Tier 2 Capital
(b)
|
|
|
2.4
|
|
Total Capital
|
|
|
17.9
|
|
|
|
|
|
|
Risk-Weighted Assets
|
|
|
147.4
|
|
Average Total Assets to calculate the Tier 1 Leverage Ratio
|
|
|
175.0
|
|
Total Leverage Exposure to calculate supplementary leverage ratio
|
|
$
|
204.4
|
|
(a)
|
Regulatory capital adjustments and deductions have been fully transitioned effective January 1, 2018.
|
(b)
|
Tier 2 capital is the sum of the allowance for loan and receivable losses (limited to 1.25 percent of risk-weighted assets) and $600 million of subordinated notes adjusted for capital held by insurance subsidiaries.
|
We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements and finance such capital in a cost efficient manner; failure to maintain minimum capital levels could affect our status as a financial holding company and cause the regulatory agencies with oversight of American Express and American Express National Bank to take actions that could limit our business operations.
Our primary source of equity capital has been the generation of net income. Capital generated through net income and other sources, such as the exercise of stock options by employees, is used to maintain a strong balance sheet, support asset growth and engage in acquisitions, with excess available for distribution to shareholders through dividends and share repurchases. We currently expect that the portion of generated capital we allocate to support asset growth will be greater going forward than it has been historically due to projected asset growth.
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.
The following are definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance:
Risk-Weighted Assets
— Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. Off-balance sheet exposures comprise a minimal part of the total risk-weighted assets.
Common Equity Tier 1 Risk-Based Capital Ratio
— Calculated as Common Equity Tier 1 capital (CET1), divided by risk-weighted assets. CET1 is the sum of common shareholders’ equity, adjusted for ineligible goodwill and intangible assets, certain deferred tax assets, as well as certain other comprehensive income items as follows: net unrealized gains/losses on securities and derivatives, and net unrealized pension and other postretirement benefit/losses, all net of tax.
Tier 1 Risk-Based Capital Ratio
— Calculated as Tier 1 capital divided by risk-weighted assets. Tier 1 capital is the sum of CET1, our perpetual preferred stock and third-party non-controlling interests in consolidated subsidiaries adjusted for capital held by insurance subsidiaries and deferred tax assets from net operating losses not deducted from CET1. The minimum requirement for the Tier 1 risk-based capital ratio is 1.5 percent higher than the minimum for the CET1 risk-based capital ratio. We have $1.6 billion of preferred shares outstanding to help address a portion of the Tier 1 capital requirements in excess of common equity requirements.
Total Risk-Based Capital Ratio
— Calculated as the sum of Tier 1 capital and Tier 2 capital, divided by risk-weighted assets. Tier 2 capital is the sum of the allowance for loan and receivable losses (limited to 1.25 percent of risk-weighted assets), a portion of the unrealized gains on equity securities and $600 million of subordinated notes, adjusted for capital held by insurance subsidiaries.
Tier 1 Leverage Ratio
— Calculated by dividing Tier 1 capital by our average total consolidated assets for the most recent quarter.
Supplementary Leverage Ratio
— Calculated by dividing Tier 1 capital by total leverage exposure under Basel III. Leverage exposure, which reflects average total consolidated assets with adjustments for Tier 1 capital deductions, average off-balance sheet derivatives exposures, securities purchased under agreements to resell and credit equivalents of undrawn commitments that are both conditionally and unconditionally cancellable.
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.
We decided to suspend our share buyback program for the first half of 2018 in order to rebuild our capital levels and ratios. We intend to continue our quarterly dividends during the first half of 2018 at the current level.
During the three months ended March 31, 2018, we returned $0.3 billion to our shareholders in the form of common stock dividends. These dividends represent approximately 19 percent of total capital generated during the quarter.
Authorization for share repurchases and dividends beginning in the second half of 2018 was submitted as part of our capital plan within the Comprehensive Capital Analysis and Review (CCAR) 2018 process as discussed below.
In addition, during the three months ended March 31, 2018, we had $750 million of non-cumulative perpetual preferred shares (the Series B Preferred Shares) and $850 million of non-cumulative perpetual preferred shares (the Series C Preferred Shares) outstanding. Dividends declared and paid on Series C Preferred Shares during the first quarter of 2018 were $21 million.
Bank holding companies with $50 billion or more in total consolidated assets, including us, are required to develop and maintain a capital plan, and to submit the capital plan to the Federal Reserve for review under its CCAR process. All such bank holding companies were required to submit their capital plans and stress testing results to the Federal Reserve by April 5, 2018. The Federal Reserve is expected to publish the decisions for all the bank holding companies participating in CCAR 2018, including the reasons for any objection to capital plans, by June 30, 2018. In addition, the Federal Reserve will separately publish the results of its supervisory stress test under both the supervisory severely adverse and adverse scenarios. The information to be released will include, among other things, the Federal Reserve’s projection of company-specific information, including post-stress capital ratios and the minimum value of these ratios over the planning horizon.
Funding Strategy
Our principal funding objective is to maintain broad and well-diversified funding sources to allow us to meet our maturing obligations, cost-effectively finance current and future asset growth in our global businesses as well as to maintain a strong liquidity profile.
We meet our funding needs through a variety of sources, including direct and third-party distributed deposits and debt instruments, such as senior unsecured debentures, asset securitizations, borrowings through secured borrowing facilities and a long-term committed bank borrowing facility. While we diversify our funding sources by maintaining scale and relevance in unsecured debentures, asset securitizations and deposits, we currently expect that the Personal Savings High Yield Savings Account direct retail deposit program will become a larger proportion over time.
Summary of Consolidated Debt
We had the following consolidated debt and customer deposits outstanding as of March 31, 2018 and December 31, 2017:
Table 19: Summary of Consolidated Debt and Customer Deposits
(Billions)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Short-term borrowings
|
|
$
|
1.8
|
|
|
$
|
3.3
|
|
Long-term debt
|
|
|
52.5
|
|
|
|
55.8
|
|
Total debt
|
|
|
54.3
|
|
|
|
59.1
|
|
Customer deposits
|
|
|
66.7
|
|
|
|
64.5
|
|
Total debt and customer deposits
|
|
$
|
121.0
|
|
|
$
|
123.6
|
|
During the three months ended March 31, 2018, we issued (i) $2.0 billion of asset-backed securities from the American Express Credit Account Master Trust (the Lending Trust) consisting of $1.0 billion of two year Class A Certificates at a fixed rate of 2.67 percent, $500 million of five year Class A Certificates at a fixed rate of 3.01 percent and $500 million of five year Class A Certificates at a floating rate of 1-month LIBOR plus 32 basis points, and (ii) $2.0 billion of senior unsecured notes from American Express Company consisting of $1.6 billion of five year notes at a fixed rate of 3.40 percent and $400 million of five year notes at a floating rate of 3-month LIBOR plus 65 basis points.
Our equity capital and funding strategies are designed, among other things, to maintain appropriate and stable unsecured debt ratings from the major credit rating agencies: Moody’s Investor Services (Moody’s), Standard & Poor’s (S&P), Fitch Ratings (Fitch) and Dominion Bond Rating Services (DBRS). Such ratings help support our access to cost-effective unsecured funding as part of our overall funding strategy. Our asset securitization activities are rated separately.
Table 20: 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
|
|
Stable
|
Moody’s
|
TRS and rated operating subsidiaries
(a)
|
Prime 1
|
|
|
A2
|
|
Stable
|
Moody's
|
American Express Company
|
Prime 2
|
|
|
A3
|
|
Stable
|
S&P
|
TRS
(a)
|
N/A
|
|
|
A-
|
|
Stable
|
S&P
|
Other rated operating subsidiaries
|
A-2
|
|
|
A-
|
|
Stable
|
S&P
|
American Express Company
|
A-2
|
BBB+
|
|
Stable
|
(a)
|
American Express Travel Related Services Company, Inc.
|
Downgrades in the ratings of our unsecured debt or asset securitization program securities could result in higher funding costs, as well as higher fees related to borrowings under our unused lines of credit. Declines in credit ratings could also reduce our borrowing capacity in the unsecured debt and asset securitization capital markets. We believe our funding mix, including the proportion of U.S. retail deposits insured by the Federal Deposit Insurance Corporation (FDIC), should reduce the impact that credit rating downgrades would have on our funding capacity and costs.
We incur liquidity risk that arises in the course of offering our products and services. Our liquidity objective is to maintain access to a diverse set of on- and off-balance sheet liquidity sources. We seek to maintain liquidity sources, even in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions, in amounts sufficient to meet our expected future financial obligations and business requirements for liquidity for a period of at least twelve months. Our liquidity risk policy sets out our objectives and approach to managing liquidity risk.
The liquidity risks that we are exposed to could arise from a wide variety of scenarios. Our liquidity management strategy thus includes a number of elements, including, but not limited to:
|
•
|
Maintaining diversified funding sources (refer to the “Funding Strategy” section for more details);
|
|
•
|
Maintaining unencumbered liquid assets and off-balance sheet liquidity sources;
|
|
•
|
Projecting cash inflows and outflows under a variety of economic and market scenarios;
|
|
•
|
Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements; and
|
|
•
|
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 and other various regulatory liquidity requirements, such as the Liquidity Coverage Ratio (LCR), as well as additional stress scenarios required under our liquidity risk policy.
The investment income we receive on liquidity resources, such as cash, is less than the interest expense on the sources of funding for these balances. The net interest costs to maintain these resources have been substantial. The level of future net interest costs depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment yields.
Securitized Borrowing Capacity
As of March 31, 2018, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2020, which gives us the right to sell up to $3.0 billion face amount of eligible AAA notes from the American Express Issuance Trust II (the Charge Trust). We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 15, 2020, which gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the Lending Trust. Both facilities are used in the ordinary course of business to fund seasonal working capital needs, as well as to further enhance our contingent funding resources. As of March 31, 2018, no amounts were drawn on the Charge Trust or Lending Trust facilities.
Federal Reserve Discount Window
As an insured depository institution, American Express National Bank may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying collateral that they may pledge. The Federal Reserve has indicated that both credit and charge card receivables are a form of qualifying collateral for secured borrowings made through the discount window. Whether specific assets will be considered qualifying collateral and the amount that may be borrowed against the collateral, remain at the discretion of the Federal Reserve.
We had approximately $70.1 billion as of March 31, 2018 in U.S. credit card loans and charge card receivables that could be sold over time through our securitization trusts or pledged in return for secured borrowings to provide further liquidity, subject in each case to applicable market conditions and eligibility criteria.
Committed Bank Credit Facility
In addition to the secured borrowing facilities described earlier in this section, we maintained a committed syndicated bank credit facility as of March 31, 2018 of $3.5 billion, which expires on October 16, 2020. As of March 31, 2018, no amounts were drawn on this facility.
Unused Credit Outstanding
As of March 31, 2018, we had approximately $289 billion of unused credit outstanding as part of established lending product agreements. Total unused credit does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set limit, and therefore are not reflected in unused credit available to Card Members.
The following table summarizes our cash flow activity for the three months ended March 31:
(Billions)
|
|
2018
|
|
|
2017
|
|
Total cash (used in) provided by:
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2.0
|
|
|
$
|
1.2
|
|
Investing activities
|
|
|
(0.7
|
)
|
|
|
0.7
|
|
Financing activities
|
|
|
(2.9
|
)
|
|
|
2.2
|
|
Effect of foreign currency exchange rates on cash and cash equivalents
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
$
|
(1.8
|
)
|
|
$
|
4.2
|
|
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.
The increase in net cash provided by operating activities in the current period was driven by net income adjusted for non-cash items, including changes in provisions for losses, depreciation and amortization, deferred taxes and stock-based compensation, and changes in operating assets and liabilities, primarily accounts payable and other liabilities as a result of normal business operations.
Cash Flows from Investing Activities
Our cash flows from investing activities primarily include changes in Card Member loans and receivables, as well as changes in our available-for-sale investment securities portfolio.
The increase in net cash used in investing activities was primarily driven by a net increase in the investment securities portfolio.
Cash Flows from Financing Activities
Our cash flows from financing activities primarily include changes in long-term debt, short-term borrowings and customer deposits as well as our regular common share dividend and share repurchase program.
The increase in net cash used in financing activities was primarily driven by a net decrease in long-term debt and short-term borrowings, partially offset by an increase in customer deposits.
OTHER MATTERS
Certain Legislative, Regulatory and Other Developments
We are subject to comprehensive government regulation and supervision in jurisdictions around the world, and the costs of compliance are substantial. In recent years, the financial services industry has been subject to rigorous scrutiny, high regulatory expectations, and a stringent and unpredictable regulatory enforcement environment.
Please see the “Supervision and Regulation” and “Risk Factors” sections of the Annual Report on Form 10-K for the year ended December 31, 2017 (the 2017 Form 10-K) for further information.
Payments Regulation
Legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust actions, legislation and regulations to change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, to establish broad and ongoing regulatory oversight regimes for payment systems.
The European Union, Australia and other jurisdictions have focused on the fees merchants pay to accept cards, including the way bankcard network members collectively set the “interchange” (that is, the fee paid by the bankcard merchant acquirer to the card issuer in “four party” networks like Visa and MasterCard), as well as the rules, contract terms and practices governing merchant card acceptance. Even where we are not directly regulated, regulation of bankcard fees can significantly negatively impact the discount revenue derived from our business, including as a result of downward pressure on our discount rate from decreases in competitor pricing in connection with caps on interchange fees. In some cases, such regulation extends to certain aspects of our business. For more information on the European Union and Australian payments regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2017 Form 10-K.
Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to localize aspects of their operations, such as processing infrastructure, which could increase our costs and diminish the value of our closed loop. The development and enforcement of payment system regulatory regimes generally continue to grow and may adversely affect our ability to compete effectively and maintain and extend our global network.
Surcharging
In certain countries, such as certain Member States in the European Union and Australia, merchants are permitted by law to surcharge card purchases. While surcharging continues to be actively considered in certain jurisdictions, the benefits to customers have not been apparent in countries that have allowed it, and in some cases regulators are addressing concerns about excessive surcharging by merchants. For example, the Reserve Bank of Australia amended its rules to limit surcharging in Australia to the actual cost of card acceptance paid to the merchant acquirer.
Surcharging, particularly where it disproportionately impacts American Express Card Members, which is known as differential surcharging, as well as other steering practices that are permitted by regulation in some countries, could have a material adverse effect on us if it becomes widespread. As revisions to the Payment Services Directive in the European Union are transposed into national law by each Member State, there may be increased instances of differential surcharging of our cards, customer and merchant confusion as to which transactions may be surcharged and Card Member dissatisfaction. In addition, the laws of a number of states in the United States that prohibit surcharging are being challenged in litigation brought by merchant groups.
For more information on the potential impacts of surcharging and other actions that could impair the Card Member experience, please see the “Risk Factors” section of the 2017 Form 10-K.
Consumer Financial Products Regulation
In the United States, our marketing, sale and servicing of consumer financial products and our compliance with certain federal consumer financial laws are supervised and examined by the Consumer Financial Protection Bureau (CFPB), which has broad rulemaking and enforcement authority over providers of credit, savings and payment services and products and authority to prevent “unfair, deceptive or abusive” acts or practices. In addition, a number of U.S. states have significant consumer credit protection, disclosure and other laws (in certain cases more stringent than U.S. federal laws). U.S. federal law also regulates abusive debt collection practices, which along with bankruptcy and debtor relief laws, can affect our ability to collect amounts owed to us or subject us to regulatory scrutiny.
Internal and regulatory reviews to assess compliance with such laws and regulations have resulted in, and are likely to continue to result in, changes to our practices, products and procedures, substantial restitution to our Card Members and increased costs related to regulatory oversight, supervision and examination. Such reviews may also result in additional regulatory actions, including civil money penalties. These types of reviews will be a continuing focus for the CFPB and regulators more broadly, as well as for the Company itself.
For more information on consumer financial products regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2017 Form 10-K.
Antitrust Litigation
The U.S. Department of Justice (DOJ) and certain states’ attorneys general brought an action against us in 2010 alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from engaging in various actions to discriminate against our card products violate the U.S. antitrust laws. We continue to vigorously defend this and similar antitrust claims initiated by merchants in other court and arbitration proceedings. See Part II, Item 1. “Legal Proceedings” below and the “Legal Proceedings” section in our 2017 Form 10-K for descriptions of the DOJ and related cases. It is possible that significantly increased merchant steering or other actions impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a material adverse effect on our business. For more information on the potential impacts of an adverse decision in the merchant litigations on our business, please see the “Risk Factors” section of the 2017 Form 10-K.
Privacy, Data Protection, Information and Cyber Security
Regulatory and legislative activity in the areas of privacy, data protection and information and cyber security continues to increase worldwide. We have established and continue to maintain policies that provide a framework for compliance with applicable laws, meet evolving customer expectations and support and enable business innovation and growth. Global financial institutions like us have experienced a significant increase in information and cyber security risk in recent years and will likely continue to be the target of increasingly sophisticated cyber attacks, including computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing and impersonation), hacking, denial-of-service attacks and other attacks and similar disruptions from the unauthorized use of or access to computer systems. For more information on privacy, data protection and information and cyber security regulation and the potential impacts of a major information or cyber security incident on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2017 Form 10-K.
Recently Issued Accounting Standards
Refer to the Recently Issued Accounting Standards section of Note 1 to the “Consolidated Financial Statements.”
Glossary of Selected Terminology
Adjusted net interest income
— A non-GAAP measure that represents net interest income attributable to our Card Member loans (which includes, on a GAAP basis, interest that is deemed uncollectible), excluding the impact of interest expense and interest income not attributable to our Card Member loans. We believe adjusted net interest income is useful to investors because it represents the interest expense and interest income attributable to our Card Member loan portfolio and it is a component of net interest yield on average Card Member loans.
Asset securitizations
— Asset securitization involves the transfer and sale of loans or receivables to a special-purpose entity created for the securitization activity, typically a trust. The trust, in turn, issues securities, commonly referred to as asset-backed securities that are secured by the transferred loans and receivables. The trust uses the proceeds from the sale of such securities to pay the purchase price for the underlying loans or receivables. The loans and receivables of our Lending Trust and Charge Trust (collectively, the Trusts) 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 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 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, other than revolving balances on certain American Express charge cards with Pay Over Time features. Such revolving balances are included within Card Member loans.
Charge cards
— Represents cards that generally carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge Card Members generally must pay the full amount billed each month. No finance charges are assessed on charge cards. Each charge card transaction is authorized based on its likely economics reflecting a Card Member’s most recent credit information and spend patterns. Some charge card accounts have additional Pay Over Time feature(s) that allow revolving of certain charges.
Cobrand cards
— Cards issued under cobrand agreements with selected commercial firms. Pursuant to the cobrand agreements, we make payments to our cobrand partners, which can be significant, based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. In some cases, the partner is liable for providing rewards to the Card Member under the cobrand partner’s own loyalty program.
Credit cards
— Represents cards that have a range of revolving payment terms, grace periods, and rate and fee structures.
Discount revenue
— Represents revenue earned from fees generally charged to merchants who have entered into a card acceptance agreement. The discount fee generally is deducted from our payment for Card Member purchases.
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. Unless the loan is classified as non-accrual, interest is recognized based upon the principal amount outstanding in accordance with the terms of the applicable account agreement until the outstanding balance is paid or written off.
Interest and dividends on investment securities
— Primarily relates to our performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so a constant rate of return is recognized on the outstanding balance of the related investment security throughout its term. Amounts are recognized until securities are in default or when it is likely that future interest payments will not be made as scheduled.
Interest income on deposits with banks and other
— Recognized as earned, and primarily relates to the placement of cash in excess of near-term funding requirements in interest-bearing time deposits, overnight sweep accounts, and other interest-bearing demand and call accounts.
Liquidity Coverage Ratio
—
Represents the minimum standards established by regulatory agencies as a measure to determine whether the regulated entity has sufficient liquidity to meet liquidity needs in periods of financial and economic stress.
Merchant acquisition
— Represents our process of entering into agreements with merchants to accept American Express-branded cards.
Net card fees
— Represents the card membership fees earned during the period. These fees are recognized as revenue over the covered card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation and deferred acquisition costs.
Net interest yield on average Card Member loans —
A non-GAAP measure that is computed by dividing adjusted net interest income by average Card Member loans, computed on an annualized basis. Reserves and net write-offs related to uncollectible interest are recorded through provisions for losses, and are thus not included in the net interest yield calculation. We believe net interest yield on average Card Member loans is useful to investors because it provides a measure of profitability of our Card Member loan portfolio.
Net loss ratio
— Represents the ratio of GCP charge card write-offs, consisting of principal (resulting from authorized transactions) and fee components, less recoveries, on Card Member receivables expressed as a percentage of gross amounts billed to corporate Card Members.
Net write-off rate
—
principal only
— Represents the amount of proprietary consumer or small business Card Member loans or receivables written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage of the average loan or receivables balance during the period.
Net write-off rate
—
principal, interest and fees
— Includes, in the calculation of the net write-off rate, amounts for interest and fees in addition to principal for Card Member loans and fees in addition to principal for Card Member receivables.
Operating expenses
— Represents salaries and employee benefits, professional services, occupancy and equipment, and other expenses.
Return on average equity
— Calculated by dividing one-year period net income by one-year average total shareholders’ equity.
Total cards-in-force —
Represents the total number of charge and credit cards that are issued and outstanding and accepted on our network. Non-proprietary cards-in-force includes all charge and credit cards that are issued and outstanding under network partnership agreements, except for retail cobrand Card Member accounts which have no out-of-store spending activity during the prior twelve-month period.