UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2015
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York |
13-4922250 |
|||||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |||||
200 Vesey Street, New York, NY |
10285 |
|||||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (212) 640-2000
None |
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
Accelerated filer ¨ | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
Outstanding at October 23, 2015 | |
Common Shares (par value $0.20 per share) | 984,245,923 shares |
FORM 10-Q
INDEX
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| ||||||
Three Months Ended September 30, (Millions, except per share amounts) | 2015 | 2014 | ||||
|
|
|
| |||
Revenues |
||||||
Non-interest revenues |
||||||
Discount revenue |
$ | 4,778 | $ 4,889 | |||
Net card fees |
679 | 680 | ||||
Travel commissions and fees |
87 | 104 | ||||
Other commissions and fees |
640 | 642 | ||||
Other |
504 | 593 | ||||
|
|
|
| |||
Total non-interest revenues |
6,688 | 6,908 | ||||
|
|
|
| |||
Interest income |
||||||
Interest on loans |
1,847 | 1,753 | ||||
Interest and dividends on investment securities |
38 | 45 | ||||
Deposits with banks and other |
19 | 17 | ||||
|
|
|
| |||
Total interest income |
1,904 | 1,815 | ||||
|
|
|
| |||
Interest expense |
||||||
Deposits |
125 | 91 | ||||
Long-term debt and other |
274 | 329 | ||||
|
|
|
| |||
Total interest expense |
399 | 420 | ||||
|
|
|
| |||
Net interest income |
1,505 | 1,395 | ||||
|
|
|
| |||
Total revenues net of interest expense |
8,193 | 8,303 | ||||
|
|
|
| |||
Provisions for losses |
||||||
Charge card |
203 | 196 | ||||
Card Member loans |
309 | 265 | ||||
Other |
17 | 27 | ||||
|
|
|
| |||
Total provisions for losses |
529 | 488 | ||||
|
|
|
| |||
Total revenues net of interest expense after provisions for losses |
7,664 | 7,815 | ||||
|
|
|
| |||
Expenses |
||||||
Marketing and promotion |
847 | 783 | ||||
Card Member rewards |
1,763 | 1,695 | ||||
Card Member services and other |
269 | 205 | ||||
Salaries and employee benefits |
1,212 | 1,290 | ||||
Other, net |
1,635 | 1,596 | ||||
|
|
|
| |||
Total expenses |
5,726 | 5,569 | ||||
|
|
|
| |||
Pretax income |
1,938 | 2,246 | ||||
Income tax provision |
672 | 769 | ||||
|
|
|
| |||
Net income |
$ | 1,266 | $ 1,477 | |||
|
|
|
| |||
Earnings per Common Share (Note 15): (a) |
||||||
Basic |
$ | 1.24 | $ 1.41 | |||
Diluted |
$ | 1.24 | $ 1.40 | |||
|
|
|
| |||
Average common shares outstanding for earnings per common share: |
||||||
Basic |
994 | 1,041 | ||||
Diluted |
997 | 1,047 | ||||
Cash dividends declared per common share |
$ | 0.29 | $ 0.26 | |||
|
(a) | Represents net income less (i) earnings allocated to participating share awards of $10 million and $11 million for the three months ended September 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $22 million and nil for the three months ended September 30, 2015 and 2014, respectively. |
See Notes to Consolidated Financial Statements.
1
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| ||||||
Nine Months Ended September 30, (Millions, except per share amounts) | 2015 | 2014 | ||||
|
|
|
| |||
Revenues |
||||||
Non-interest revenues |
||||||
Discount revenue |
$ | 14,384 | $ 14,428 | |||
Net card fees |
2,013 | 2,041 | ||||
Travel commissions and fees |
271 | 1,027 | ||||
Other commissions and fees |
1,891 | 1,884 | ||||
Other |
1,493 | 1,679 | ||||
|
|
|
| |||
Total non-interest revenues |
20,052 | 21,059 | ||||
|
|
|
| |||
Interest income |
||||||
Interest on loans |
5,418 | 5,160 | ||||
Interest and dividends on investment securities |
120 | 136 | ||||
Deposits with banks and other |
60 | 54 | ||||
|
|
|
| |||
Total interest income |
5,598 | 5,350 | ||||
|
|
|
| |||
Interest expense |
||||||
Deposits |
337 | 276 | ||||
Long-term debt and other |
886 | 1,026 | ||||
|
|
|
| |||
Total interest expense |
1,223 | 1,302 | ||||
|
|
|
| |||
Net interest income |
4,375 | 4,048 | ||||
|
|
|
| |||
Total revenues net of interest expense |
24,427 | 25,107 | ||||
|
|
|
| |||
Provisions for losses |
||||||
Charge card |
542 | 594 | ||||
Card Member loans |
829 | 797 | ||||
Other |
45 | 71 | ||||
|
|
|
| |||
Total provisions for losses |
1,416 | 1,462 | ||||
|
|
|
| |||
Total revenues net of interest expense after provisions for losses |
23,011 | 23,645 | ||||
|
|
|
| |||
Expenses |
||||||
Marketing and promotion |
2,217 | 2,329 | ||||
Card Member rewards |
5,202 | 5,050 | ||||
Card Member services and other |
772 | 619 | ||||
Salaries and employee benefits |
3,767 | 4,488 | ||||
Other, net |
4,569 | 4,393 | ||||
|
|
|
| |||
Total expenses |
16,527 | 16,879 | ||||
|
|
|
| |||
Pretax income |
6,484 | 6,766 | ||||
Income tax provision |
2,220 | 2,328 | ||||
|
|
|
| |||
Net income |
$ | 4,264 | $ 4,438 | |||
|
|
|
| |||
Earnings per Common Share (Note 15): (a) |
||||||
Basic |
$ | 4.16 | $ 4.19 | |||
Diluted |
$ | 4.15 | $ 4.17 | |||
|
|
|
| |||
Average common shares outstanding for earnings per common share: |
||||||
Basic |
1,007 | 1,051 | ||||
Diluted |
1,011 | 1,057 | ||||
Cash dividends declared per common share |
$ | 0.84 | $ 0.75 | |||
|
(a) | Represents net income less (i) earnings allocated to participating share awards of $32 million and $35 million for the nine months ended September 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $42 million and nil for the nine months ended September 30, 2015 and 2014, respectively. |
See Notes to Consolidated Financial Statements.
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
(Millions) |
2015 | 2014 | 2015 | 2014 | ||||||||||
|
|
|
|
|
|
| ||||||||
Net income |
$ | 1,266 | $ | 1,477 | $ | 4,264 | $ 4,438 | |||||||
Other comprehensive (loss) income: |
||||||||||||||
Net unrealized securities (losses) gains, |
(7) | (11) | (27) | 31 | ||||||||||
Foreign currency translation adjustments, |
(220) | (167) | (464) | (195) | ||||||||||
Net unrealized pension and other postretirement benefit
gains, |
7 | 7 | 36 | 48 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Other comprehensive loss |
(220) | (171) | (455) | (116) | ||||||||||
|
|
|
|
|
|
|
| |||||||
Comprehensive income |
$ | 1,046 | $ | 1,306 | $ | 3,809 | $ 4,322 | |||||||
|
See Notes to Consolidated Financial Statements.
3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| ||||||
September 30, | December 31, | |||||
(Millions, except share data) | 2015 | 2014 | ||||
|
|
|
| |||
Assets |
||||||
Cash and cash equivalents |
||||||
Cash and due from banks |
$ | 2,613 | $ 2,628 | |||
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2015, $222; 2014, $204) |
16,716 | 19,190 | ||||
Short-term investment securities |
609 | 470 | ||||
|
|
|
| |||
Total cash and cash equivalents |
19,938 | 22,288 | ||||
Accounts receivable |
||||||
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2015, $5,959; 2014, $7,025), less reserves: 2015, $441; 2014, $465 |
43,890 | 44,386 | ||||
Other receivables, less reserves: 2015, $61; 2014, $61 |
2,517 | 2,614 | ||||
Loans |
||||||
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest
entity: |
67,731 | 69,184 | ||||
Other loans, less reserves: 2015, $18; 2014, $12 |
1,054 | 920 | ||||
Investment securities |
3,947 | 4,431 | ||||
Premises and equipment, less accumulated depreciation and amortization: 2015, $6,733; 2014, $6,270 |
4,032 | 3,938 | ||||
Other assets (includes restricted cash of consolidated variable interest entities: 2015, $748; 2014, $64) |
11,107 | 11,342 | ||||
|
|
|
| |||
Total assets |
$ | 154,216 | $ 159,103 | |||
|
|
|
| |||
Liabilities and Shareholders Equity |
||||||
Liabilities |
||||||
Customer deposits |
$ | 49,301 | $ 44,171 | |||
Travelers Cheques and other prepaid products |
3,044 | 3,673 | ||||
Accounts payable |
11,340 | 11,300 | ||||
Short-term borrowings |
3,160 | 3,480 | ||||
Long-term debt (includes debt issued by consolidated variable interest entities: 2015, $13,285; 2014, $19,516) |
48,653 | 57,955 | ||||
Other liabilities |
17,383 | 17,851 | ||||
|
|
|
| |||
Total liabilities |
132,881 | 138,430 | ||||
|
|
|
| |||
Contingencies (Note 8) |
||||||
Shareholders Equity |
||||||
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and
outstanding 1,600 shares as of |
| | ||||
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 985 million shares as
of |
197 | 205 | ||||
Additional paid-in capital |
13,487 | 12,874 | ||||
Retained earnings |
10,025 | 9,513 | ||||
Accumulated other comprehensive loss |
||||||
Net unrealized securities gains, net of tax: 2015, $39; 2014, $52 |
69 | 96 | ||||
Foreign currency translation adjustments, net of tax: 2015, $(96); 2014, $(317) |
(1,963) | (1,499) | ||||
Net unrealized pension and other postretirement benefit losses, net of tax: 2015, $(199); 2014, $(223) |
(480) | (516) | ||||
|
|
|
| |||
Total accumulated other comprehensive loss |
(2,374) | (1,919) | ||||
|
|
|
| |||
Total shareholders equity |
21,335 | 20,673 | ||||
|
|
|
| |||
Total liabilities and shareholders equity |
$ | 154,216 | $ 159,103 | |||
|
See Notes to Consolidated Financial Statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| ||||||
Nine Months Ended September 30, (Millions) | 2015 | 2014 | ||||
|
|
|
| |||
Cash Flows from Operating Activities |
||||||
Net income |
$ | 4,264 | $ 4,438 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||
Provisions for losses |
1,416 | 1,462 | ||||
Depreciation and amortization |
780 | 764 | ||||
Deferred taxes and other |
25 | (497) | ||||
Stock-based compensation |
200 | 210 | ||||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
||||||
Other receivables |
(166) | 275 | ||||
Other assets |
1,864 | 850 | ||||
Accounts payable and Other liabilities |
270 | 1,793 | ||||
Travelers Cheques and other prepaid products |
(579) | (709) | ||||
|
|
|
| |||
Net cash provided by operating activities |
8,074 | 8,586 | ||||
|
|
|
| |||
Cash Flows from Investing Activities |
||||||
Sales of available-for-sale investment securities |
12 | 122 | ||||
Maturities and redemptions of available-for-sale investment securities |
1,821 | 966 | ||||
Purchase of investments |
(1,564) | (825) | ||||
Net increase in Card Member receivables/loans |
(1,292) | (2,349) | ||||
Purchase of premises and equipment, net of sales: 2015, $32; 2014, $3 |
(879) | (854) | ||||
Business acquisitions, net of cash acquired |
(122) | (130) | ||||
Net (increase) decrease in restricted cash |
(683) | 90 | ||||
|
|
|
| |||
Net cash used in investing activities |
(2,707) | (2,980) | ||||
|
|
|
| |||
Cash Flows from Financing Activities |
||||||
Net increase in customer deposits |
5,171 | 917 | ||||
Net decrease in short-term borrowings |
(273) | (1,595) | ||||
Issuance of long-term debt |
7,925 | 11,329 | ||||
Principal payments on long-term debt |
(17,110) | (10,659) | ||||
Issuance of American Express preferred shares |
841 | | ||||
Issuance of American Express common shares |
169 | 251 | ||||
Repurchase of American Express common shares |
(3,330) | (3,205) | ||||
Dividends paid |
(868) | (770) | ||||
|
|
|
| |||
Net cash used in financing activities |
(7,475) | (3,732) | ||||
|
|
|
| |||
Effect of foreign currency exchange rates on cash and cash equivalents |
(242) | (96) | ||||
|
|
|
| |||
Net (decrease) increase in Cash and cash equivalents |
(2,350) | 1,778 | ||||
Cash and cash equivalents at beginning of period |
22,288 | 19,486 | ||||
|
|
|
| |||
Cash and cash equivalents at end of period |
$ | 19,938 | $ 21,264 | |||
| ||||||
Supplemental cash flow information |
||||||
Non-cash financing activities |
||||||
Gain on business travel joint venture transaction |
$ | | $ 641 |
See Notes to Consolidated Financial Statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Basis of Presentation |
The Company
American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Companys principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, these business travel operations were wholly owned. The Company also focuses on generating alternative sources of revenue on a global basis in areas such as online and mobile payments, and fee-based services. The Companys various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, targeted direct and third-party sales forces, and direct response advertising.
The accompanying Consolidated Financial Statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Companys Annual Report on Form 10-K for the year ended December 31, 2014 (the Annual Report). If not materially different, certain footnote disclosures included in the Annual Report have been omitted from this Quarterly Report on Form 10-Q.
The interim consolidated financial information in this report has not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial information, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.
In the first quarter of 2015, the Company changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. Prior period amounts have been reclassified to conform to the current period presentation. None of the prior period financial statements were materially misstated from this misclassification.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The guidance establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows. The guidance, as amended, supersedes most of the current revenue recognition requirements, and is effective January 1, 2018, with early adoption as of January 1, 2017, permitted. The Company continues to evaluate the impact this guidance, including the method of implementation, will have on its financial position, results of operations and cash flows, among other items.
6
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2014, the FASB issued new accounting guidance on investments in Qualified Affordable Housing projects. Provided certain conditions are met, this standard permits entities to account for investments in Qualified Affordable Housing projects using the proportional amortization method. The standard also requires new disclosures about all investments in Qualified Affordable Housing projects irrespective of the method used to account for the investments. The Company has adopted this guidance in the first quarter of 2015 and has elected not to use the proportional amortization method, but continues to account for these investments using the equity method of accounting, which has been the Companys historical practice.
During the three and nine months ended September 30, 2015, the Company recognized equity method losses related to Qualified Affordable Housing of $14 million and $34 million, respectively, which were recognized in Other, net expenses; and associated tax credits of $15 million and $39 million, respectively, which were recognized in Income tax provision. Similarly, during the three and nine months ended September 30, 2014, the Company recognized equity method losses of $7 million and $39 million, respectively; and associated tax credits of $12 million and $30 million, respectively. The carrying value of these investments was $605 million and $522 million as of September 30, 2015 and December 31, 2014, respectively. In addition, as of September 30, 2015, the Company is contractually committed to provide additional funding related to certain of these investments, resulting in a liability of $134 million for unfunded commitments reported in Other liabilities, which is expected to be paid between 2015 and 2023.
2. | Divestiture and Portfolio Sale |
On June 30, 2014, the Company completed a transaction to establish a non-consolidated joint venture comprising the former Global Business Travel (GBT) operations of the Company and an external cash investment. As a result of this transaction, the Company deconsolidated the GBT net assets, effective June 30, 2014, and began accounting for the GBT JV as an equity method investment reported in Other assets within the Consolidated Balance Sheets. Prior to the deconsolidation, the carrying amount of GBTs assets and liabilities were not material to the Companys financial position and its operations were reported within the Global Commercial Services (GCS) segment.
On October 26, 2015, the Company reached an agreement to sell the outstanding Card Member loan portfolio related to its co-brand partnership with JetBlue Airways Corporation (JetBlue). The carrying amount of the portfolio of JetBlue Card Member loans is not material to the Companys financial position. The sale is subject to customary closing conditions, and is expected to be consummated in the first quarter of 2016 and is reported within the U.S. Card Services (USCS) segment, at which time the related gain will be recognized.
7
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. | Accounts Receivable and Loans |
The Companys charge and lending payment card products result in the generation of Card Member receivables and Card Member loans, respectively.
Accounts receivable by segment as of September 30, 2015 and December 31, 2014, consisted of:
| ||||||
(Millions) | 2015 | 2014 | ||||
|
|
|
| |||
U.S. Card Services(a) |
$ | 21,965 | $ 22,468 | |||
International Card Services |
6,511 | 7,653 | ||||
Global Commercial Services(b) |
15,748 | 14,583 | ||||
Global Network & Merchant Services(c) |
107 | 147 | ||||
|
|
|
| |||
Card Member receivables(d) |
44,331 | 44,851 | ||||
Less: Reserve for losses |
441 | 465 | ||||
|
|
|
| |||
Card Member receivables, net |
$ | 43,890 | $ 44,386 | |||
|
|
|
| |||
Other receivables, net(e) |
$ | 2,517 | $ 2,614 | |||
|
(a) | Includes $6.0 billion and $7.0 billion of gross Card Member receivables available to settle obligations of a consolidated variable interest entity (VIE) as of September 30, 2015 and December 31, 2014, respectively. |
(b) | Includes $327 million and $636 million due from airlines, of which Delta Air Lines comprises $265 million and $606 million as of September 30, 2015 and December 31, 2014, respectively. |
(c) | Includes receivables primarily related to the Companys International Currency Card portfolios. |
(d) | Includes approximately $12.3 billion and $13.3 billion of Card Member receivables outside the U.S. as of September 30, 2015 and December 31, 2014, respectively. |
(e) | Other receivables primarily represent amounts related to (i) certain merchants for billed discount revenue and (ii) Global Network Services (GNS) partner banks for items such as royalty and franchise fees. Other receivables are presented net of reserves for losses of $61 million as of both September 30, 2015 and December 31, 2014. |
Loans by segment as of September 30, 2015 and December 31, 2014, consisted of:
| ||||||
(Millions) | 2015 | 2014 | ||||
|
|
|
| |||
U.S. Card Services(a) |
$ | 62,133 | $ 62,592 | |||
International Card Services |
6,710 | 7,744 | ||||
Global Commercial Services |
52 | 49 | ||||
|
|
|
| |||
Card Member loans |
68,895 | 70,385 | ||||
Less: Reserve for losses |
1,164 | 1,201 | ||||
|
|
|
| |||
Card Member loans, net |
$ | 67,731 | $ 69,184 | |||
|
|
|
| |||
Other loans, net(b) |
$ | 1,054 | $ 920 | |||
|
(a) | Includes approximately $27.3 billion and $30.1 billion of gross Card Member loans available to settle obligations of a consolidated VIE as of September 30, 2015 and December 31, 2014, respectively. |
(b) | Other loans primarily represent loans to merchants. Other loans are presented net of reserves for losses of $18 million and $12 million as of September 30, 2015 and December 31, 2014, respectively. |
8
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Card Member Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||||
30-59 | 60-89 | 90+ | ||||||||||||||||
Days | Days | Days | ||||||||||||||||
Past | Past | Past | ||||||||||||||||
2015 (Millions) | Current | Due | Due | Due | Total | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: |
||||||||||||||||||
U.S. Card Services |
$ | 61,530 | $ | 191 | $ | 131 | $ | 281 | $ 62,133 | |||||||||
International Card Services |
6,604 | 35 | 22 | 49 | 6,710 | |||||||||||||
Card Member Receivables: |
||||||||||||||||||
U.S. Card Services |
$ | 21,612 | $ | 133 | $ | 73 | $ | 147 | $ 21,965 | |||||||||
International Card Services |
6,412 | 29 | 22 | 48 | 6,511 | |||||||||||||
Global Commercial Services(a) |
(b) | (b) | (b) | 112 | 15,748 | |||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
30-59 | 60-89 | 90+ | ||||||||||||||||
Days | Days | Days | ||||||||||||||||
Past | Past | Past | ||||||||||||||||
2014 (Millions) | Current | Due | Due | Due | Total | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: |
||||||||||||||||||
U.S. Card Services |
$ | 61,995 | $ | 179 | $ | 128 | $ | 290 | $ 62,592 | |||||||||
International Card Services |
7,621 | 39 | 27 | 57 | 7,744 | |||||||||||||
Card Member Receivables: |
||||||||||||||||||
U.S. Card Services |
$ | 22,096 | $ | 129 | $ | 72 | $ | 171 | $ 22,468 | |||||||||
International Card Services |
7,557 | 29 | 20 | 47 | 7,653 | |||||||||||||
Global Commercial Services(a) |
(b) | (b) | (b) | 120 | 14,583 | |||||||||||||
|
(a) | For Card Member receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Members billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. |
(b) | Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances. |
9
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the nine months ended September 30:
| ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Net Write-Off Rate | Net Write-Off Rate | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
30+ Days | 30+ Days | |||||||||||||||||||||||
Principal, | Past Due | Principal, | Past Due | |||||||||||||||||||||
Principal | Interest, & | as a % of | Principal | Interest, & | as a % of | |||||||||||||||||||
Only | (a) | Fees | (a) | Total | Only | (a) | Fees (a) | Total | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Card Member Loans: |
||||||||||||||||||||||||
U.S. Card Services |
1.4 | % | 1.6 | % | 1.0 | % | 1.6 | % | 1.8% | 1.0% | ||||||||||||||
International Card Services |
2.0 | % | 2.4 | % | 1.6 | % | 2.0 | % | 2.4% | 1.6% | ||||||||||||||
Card Member Receivables: |
||||||||||||||||||||||||
U.S. Card Services |
1.8 | % | 2.0 | % | 1.6 | % | 1.7 | % | 1.9% | 1.6% | ||||||||||||||
International Card Services |
2.1 | % | 2.2 | % | 1.5 | % | 2.0 | % | 2.1% | 1.4% | ||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Net Loss | Net Loss | |||||||||||||||||||||||
Ratio as | 90+ Days | Ratio as | 90+ Days | |||||||||||||||||||||
a % of | Past Billing | a % of | Past Billing | |||||||||||||||||||||
Charge | as a % of | Charge | as a % of | |||||||||||||||||||||
Volume | Receivables | Volume | Receivables | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Card Member Receivables: |
|
|||||||||||||||||||||||
Global Commercial Services |
|
0.09 | % | 0.7 | % | 0.09% | 0.8% | |||||||||||||||||
|
(a) | The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The nine months ended September 30, 2015, reflects the impact of a change in the timing of charge-offs for Card Member loans and receivables in certain modification programs from 180 days past due to 120 days past due, which was fully recognized during the three months ended March 31, 2015. |
Impaired Card Member Loans and Receivables
Impaired loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. In certain cases these Card Member loans and receivables are included in one of the Companys various modification programs. Beginning January 1, 2015, on a prospective basis the Company continues to classify Card Member accounts that have exited a modification program as a Troubled Debt Restructuring (TDR), with such accounts identified as Out of Program TDRs.
10
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides additional information with respect to the Companys impaired Card Member loans (which are not significant for GCS) and impaired Card Member receivables (which are not significant for International Card Services (ICS) and GCS) as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||||||||||||
As of September 30, 2015 | ||||||||||||||||||||||||||
Over 90 days | Accounts Classified as a TDR (c) |
|||||||||||||||||||||||||
Past Due & | Total | Unpaid | ||||||||||||||||||||||||
Accruing | Non- | Out of | Impaired | Principal | Allowance | |||||||||||||||||||||
(Millions) | Interest | (a) | Accruals | (b) | In Program | (d) | Program | (e) | Balance | Balance | for TDRs | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Card Member Loans: |
||||||||||||||||||||||||||
U.S. Card Services |
$ | 192 | $ | 175 | $ | 224 | $ | 109 | $ | 700 | $ 649 | $ 66 | ||||||||||||||
International Card Services |
49 | | | | 49 | 49 | | |||||||||||||||||||
Card Member Receivables: |
||||||||||||||||||||||||||
U.S. Card Services |
| | 26 | 4 | 30 | 30 | 18 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total |
$ | 241 | $ | 175 | $ | 250 | $ | 113 | $ | 779 | $728 | $ 84 | ||||||||||||||
| ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||
As of December 31, 2014 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
Over 90 days | ||||||||||||||||||||||||||
Past Due & | Total | Unpaid | ||||||||||||||||||||||||
Accruing | Non- | In Program | Impaired | Principal | Allowance | |||||||||||||||||||||
(Millions) | Interest | (a) | Accruals | (b) | TDRs | (c)(d) | Balance | Balance | for TDRs | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Card Member Loans: |
||||||||||||||||||||||||||
U.S. Card Services |
$ | 161 | $ | 241 | $ | 286 | $ | 688 | $ | 646 | $67 | |||||||||||||||
International Card Services |
57 | | | 57 | 56 | | ||||||||||||||||||||
Card Member Receivables: |
||||||||||||||||||||||||||
U.S. Card Services |
| | 48 | 48 | 48 | 35 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 218 | $ | 241 | $ | 334 | $ | 793 | $ | 750 | $102 | |||||||||||||||
|
(a) | The Companys policy is generally to accrue interest through the date of write-off (generally 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts presented exclude loans classified as a TDR. |
(b) | Non-accrual loans not in modification programs include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest. |
(c) | Accounts classified as a TDR include $19 million and $26 million that are over 90 days past due and accruing interest and $25 million and $34 million that are non-accrual as of September 30, 2015 and December 31, 2014, respectively. |
(d) | In Program TDRs include Card Member accounts that are currently enrolled in a modification program. |
(e) | Out of Program TDRs include $82 million of Card Member accounts that have successfully completed a modification program and $31 million of Card Member accounts that were not in compliance with the terms of the modification programs. |
11
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information with respect to the Companys average balances of, and interest income recognized from, impaired Card Member loans (which are not significant for GCS) and the average balances of impaired Card Member receivables (which are not significant for ICS and GCS) for the three and nine months ended September 30:
| ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2015 | September 30, 2015 | |||||||||||||||
|
|
|
| |||||||||||||
Average | Interest Income | Average | Interest Income | |||||||||||||
2015 (Millions) | Balance | Recognized | Balance | Recognized | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: |
||||||||||||||||
U.S. Card Services |
$ | 693 | $ | 16 | $ | 685 | $ 43 | |||||||||
International Card Services |
53 | 3 | 55 | 10 | ||||||||||||
Card Member Receivables: |
||||||||||||||||
U.S. Card Services |
28 | | 35 | | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total |
$ | 774 | $ | 19 | $ | 775 | $ 53 | |||||||||
| ||||||||||||||||
| ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2014 | September 30, 2014 | |||||||||||||||
|
|
|
| |||||||||||||
Average | Interest Income | Average | Interest Income | |||||||||||||
2014 (Millions) | Balance | Recognized | Balance | Recognized | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Card Member Loans: |
||||||||||||||||
U.S. Card Services |
$ | 675 | $ | 12 | $ | 734 | $ 37 | |||||||||
International Card Services |
63 | 4 | 63 | 12 | ||||||||||||
Card Member Receivables: |
||||||||||||||||
U.S. Card Services |
44 | | 47 | | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total |
$ | 782 | $ | 16 | $ | 844 | $ 49 | |||||||||
|
12
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Receivables Modified as TDRs
The following table provides additional information with respect to the USCS Card Member loans and receivables modified as TDRs for the three and nine months ended September 30, 2015 and 2014. The ICS Card Member loans and receivables modifications were not significant and the Company does not offer modification programs for its GCS Card Member receivables; therefore, these segments are not included in the following TDR disclosures.
| ||||||||||||||||||||||||||||||
Three Months Ended |
Nine Months Ended | |||||||||||||||||||||||||||||
September 30, 2015 |
September 30, 2015 | |||||||||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||||||||
Average | Payment | Average | Payment | |||||||||||||||||||||||||||
Number of | Outstanding | Interest Rate | Term | Number of | Outstanding | Interest Rate | Term | |||||||||||||||||||||||
Accounts | Balances (a) | Reduction | Extension | Accounts | Balances (a) | Reduction | Extension | |||||||||||||||||||||||
(thousands) | (millions) | (% Points) | (Months) | (thousands) | (millions) | (% Points) | (Months) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Troubled Debt Restructurings: |
||||||||||||||||||||||||||||||
Card Member Loans |
10 | $ | 69 | 9 | (b) | 31 | $ | 218 | 10 | (b) | ||||||||||||||||||||
Card Member Receivables |
3 | 37 | (c) | 12 | 9 | 111 | (c) | 12 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total |
13 | $ | 106 | 40 | $ | 329 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Three Months Ended |
Nine Months Ended | |||||||||||||||||||||||||||||
September 30, 2014 |
September 30, 2014 | |||||||||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||||||||
Average | Payment | Average | Payment | |||||||||||||||||||||||||||
Number of | Outstanding | Interest Rate | Term | Number of | Outstanding | Interest Rate | Term | |||||||||||||||||||||||
Accounts | Balances (a) | Reduction | Extension | Accounts | Balances (a) | Reduction | Extension | |||||||||||||||||||||||
(thousands) | (millions) | (% Points) | (Months) | (thousands) | (millions) | (% Points) | (Months) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Troubled Debt Restructurings: |
||||||||||||||||||||||||||||||
Card Member Loans |
11 | $ | 83 | 9 | (b) | 35 | $ | 261 | 11 | (b) | ||||||||||||||||||||
Card Member Receivables |
4 | 41 | (c) | 12 | 11 | 129 | (c) | 12 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total |
15 | $ | 124 | 46 | $ | 390 | ||||||||||||||||||||||||
|
(a) | Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables. Modifications did not reduce the principal balance. |
(b) | For Card Member loans, there have been no payment term extensions. |
(c) | The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing. |
13
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information for the three and nine months ended September 30, 2015 and 2014, with respect to the USCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A Card Member is considered in default of a modification program after one and up to two consecutive missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables.
| ||||||||
Three Months Ended September 30, 2015 |
Nine Months Ended September 30, 2015 | |||||||
|
| |||||||
Number of Accounts (thousands) |
Outstanding Upon Default |
Number of Accounts (thousands) |
Outstanding Upon Default | |||||
|
|
|
|
| ||||
Troubled Debt Restructurings That Subsequently Defaulted: |
||||||||
Card Member Loans |
1 | $ 14 | 6 | $ 39 | ||||
Card Member Receivables |
1 | 1 | 3 | 3 | ||||
|
|
|
|
| ||||
Total |
2 | $ 15 | 9 | $ 42 | ||||
| ||||||||
| ||||||||
Three Months Ended September 30, 2014 |
Nine Months Ended September 30, 2014 | |||||||
|
| |||||||
Number of Accounts (thousands) |
Outstanding Balances Upon Default (millions)(a)(b) |
Number of Accounts (thousands) |
Outstanding Balances Upon Default (millions)(a)(b) | |||||
|
|
|
|
| ||||
Troubled Debt Restructurings That Subsequently Defaulted: |
||||||||
Card Member Loans |
2 | $ 12 | 6 | $ 40 | ||||
Card Member Receivables |
1 | 2 | 2 | 9 | ||||
|
|
|
|
| ||||
Total |
3 | $ 14 | 8 | $ 49 | ||||
|
(a) | The outstanding balances upon default include principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables. |
(b) | The outstanding balances upon default have been revised to reflect the exclusion of written off accounts, which are not material. |
14
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. | Reserves for Losses |
Reserves for losses relating to Card Member receivables and loans represent managements best estimate of the probable inherent losses in the Companys outstanding portfolio of loans and receivables, as of the balance sheet date. Managements evaluation process requires certain estimates and judgments.
Changes in Card Member Receivables Reserve for Losses
The following table presents changes in the Card Member receivables reserve for losses for the nine months ended September 30:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Balance, January 1 |
$ | 465 | $ 386 | |||||
Provisions(a) |
542 | 594 | ||||||
Net write-offs(b) |
(544) | (527) | ||||||
Other(c) |
(22) | (21) | ||||||
|
|
|
| |||||
Balance, September 30 |
$ | 441 | $ 432 | |||||
|
(a) | Provisions for principal and fee reserve components. |
(b) | Consists of principal and fee components, less recoveries of $302 million and $269 million, including net write-offs from TDRs of $49 million and $14 million, for the nine months ended September 30, 2015 and 2014, respectively. |
(c) | For the nine months ended September 30, 2015, includes foreign currency translation adjustments of $(13) million, and other adjustments of $(9) million. For the nine months ended September 30, 2014, includes foreign currency translation adjustments of $(6) million, other adjustments of $(8) million, and an adjustment related to reserves for card-related fraud losses of $(7) million, which were reclassified to Other liabilities in the first quarter of 2014. |
Card Member Receivables Evaluated Individually and Collectively for Impairment
The following table presents Card Member receivables evaluated individually and collectively for impairment, and related reserves, as of September 30, 2015 and December 31, 2014:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Card Member receivables evaluated individually for impairment(a) |
$ | 30 | $ 48 | |||||
Related reserves (a) |
$ | 18 | $ 35 | |||||
| ||||||||
Card Member receivables evaluated collectively for impairment |
$ | 44,301 | $ 44,803 | |||||
Related reserves (b) |
$ | 423 | $ 430 | |||||
|
(a) | Represents receivables modified as a TDR and related reserves. |
(b) | The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are collectively evaluated for impairment. |
15
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes in Card Member Loans Reserve for Losses
The following table presents changes in the Card Member loans reserve for losses for the nine months ended September 30:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Balance, January 1 |
$ | 1,201 | $ 1,261 | |||||
Provisions(a) |
829 | 797 | ||||||
Net write-offs |
||||||||
Principal(b) |
(733) | (786) | ||||||
Interest and fees(b) |
(122) | (124) | ||||||
Other(c) |
(11) | (2) | ||||||
|
|
|
| |||||
Balance, September 30 |
$ | 1,164 | $ 1,146 | |||||
|
(a) | Provisions for principal, interest and fee reserve components. |
(b) | Consists of principal write-offs, less recoveries of $320 million and $324 million, including net write-offs/(recoveries) from TDRs of $30 million and $(5) million, for the nine months ended September 30, 2015 and 2014, respectively. Recoveries of interest and fees were de minimis. |
(c) | For the nine months ended September 30, 2015, includes foreign currency translation adjustments of $(18) million, and other adjustments of $7 million. For the nine months ended September 30, 2014, includes foreign currency translation adjustments of $(7) million, other adjustments of $11 million, and an adjustment related to reserves for card-related fraud losses of $(6) million, which were reclassified to Other liabilities in the first quarter of 2014. |
Card Member Loans Evaluated Individually and Collectively for Impairment
The following table presents Card Member loans evaluated individually and collectively for impairment, and related reserves, as of September 30, 2015 and December 31, 2014:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Card Member loans evaluated individually for impairment(a) |
$ | 333 | $ 286 | |||||
Related reserves (a) |
$ | 66 | $ 67 | |||||
| ||||||||
Card Member loans evaluated collectively for impairment(b) |
$ | 68,562 | $ 70,099 | |||||
Related reserves (b) |
$ | 1,098 | $ 1,134 | |||||
|
(a) | Represents loans modified as a TDR and related reserves. |
(b) | Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are specific to individual pools of loans and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment. |
16
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. | Investment Securities |
Investment securities principally include debt securities that the Company classifies as available-for-sale and carries at fair value on the Consolidated Balance Sheets, with unrealized gains (losses) recorded in Accumulated Other Comprehensive Loss, net of income taxes. Realized gains and losses are recognized on a trade-date basis in results of operations upon disposition of the securities using the specific identification method.
The following is a summary of investment securities as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||||||||||||||||||
2015 |
2014 | |||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Description of Securities (Millions) | Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Value | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
State and municipal obligations |
$ | 2,971 | $ | 97 | $ | (4) | $ | 3,064 | $ | 3,366 | $ | 129 | $ | (2) | $ 3,493 | |||||||||||||||||
U.S. Government agency obligations |
2 | | | 2 | 3 | | | 3 | ||||||||||||||||||||||||
U.S. Government treasury obligations |
297 | 5 | | 302 | 346 | 4 | | 350 | ||||||||||||||||||||||||
Corporate debt securities |
30 | 1 | | 31 | 37 | 3 | | 40 | ||||||||||||||||||||||||
Mortgage-backed securities (a) |
109 | 5 | | 114 | 128 | 8 | | 136 | ||||||||||||||||||||||||
Equity securities |
| 1 | | 1 | | 1 | | 1 | ||||||||||||||||||||||||
Foreign government bonds and obligations |
379 | 6 | (1) | 384 | 350 | 9 | | 359 | ||||||||||||||||||||||||
Other (b) |
50 | | (1) | 49 | 50 | | (1) | 49 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total |
$ | 3,838 | $ | 115 | $ | (6) | $ | 3,947 | $ | 4,280 | $ | 154 | $ | (3) | $ 4,431 | |||||||||||||||||
|
(a) | Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. |
(b) | Other comprises investments in various mutual funds. |
The following table provides information about the Companys investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||||||||||||||||||
2015 |
2014 | |||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Less than 12 months |
12 months or more | Less than 12 months | 12 months or more | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Description of Securities (Millions) | Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
State and municipal obligations |
$ | 59 | $ | (2) | $ | 13 | $ | (2) | $ | | $ | | $ | 72 | $ (2) | |||||||||||||||||
Foreign government bonds and obligations |
31 | (1) | | | | | | | ||||||||||||||||||||||||
Other |
| | 33 | (1) | | | 33 | (1) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total |
$ | 90 | $ | (3) | $ | 46 | $ | (3) | $ | | $ | | $ | 105 | $ (3) | |||||||||||||||||
|
The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||||||||||||||||||||||
Less than 12 months |
12 months or more | Total | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Ratio of Fair Value to Amortized Cost ($ in Millions) |
Number of Securities |
Estimated Fair Value |
Gross Unrealized Losses |
Number of Securities |
Estimated Fair Value |
Gross Unrealized Losses |
Number of Securities |
Estimated Fair Value |
Gross Unrealized Losses | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
2015: |
||||||||||||||||||||||||||||||||||||
90%100% |
35 | $ | 88 | $ | (3) | 12 | $ | 37 | $ | (2) | 47 | $ | 125 | $ (5) | ||||||||||||||||||||||
Less than 90% |
| | | 2 | 9 | (1) | 2 | 9 | (1) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total as of September 30, 2015 |
35 | $ | 88 | $ | (3) | 14 | $ | 46 | $ | (3) | 49 | $ | 134 | $ (6) | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
2014: |
||||||||||||||||||||||||||||||||||||
90%100% |
| $ | | $ | | 15 | $ | 105 | $ | (3) | 15 | $ | 105 | $ (3) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total as of December 31, 2014 |
| $ | | $ | | 15 | $ | 105 | $ | (3) | 15 | $ | 105 | $ (3) | ||||||||||||||||||||||
|
17
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The gross unrealized losses are attributed to overall wider credit spreads for state and municipal securities, wider credit spreads for specific issuers, adverse changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired.
Overall, for the investment securities in gross unrealized loss positions (i) the Company does not intend to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.
Contractual maturities of investment securities with stated maturities as of September 30, 2015, were as follows:
| ||||||||
(Millions) | Cost | Estimated Fair Value | ||||||
|
|
|
| |||||
Due within 1 year |
$ | 459 | $ 459 | |||||
Due after 1 year but within 5 years |
324 | 331 | ||||||
Due after 5 years but within 10 years |
259 | 275 | ||||||
Due after 10 years |
2,746 | 2,832 | ||||||
|
|
|
| |||||
Total (a) |
$ | 3,788 | $ 3,897 | |||||
|
(a) | Balances primarily represent investments in state and municipal obligations, and foreign government bonds and obligations. |
The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.
Supplemental Information
Gross realized gains on the sales of investment securities, included in Other revenues, were $1 million for both the three and nine months ended September 30, 2015, and $20 million and $100 million for the three and nine months ended September 30, 2014, respectively. There were no realized losses during any of these periods.
18
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. | Asset Securitizations |
The Company periodically securitizes Card Member receivables and loans arising from its card business through the transfer of those assets to securitization trusts. The trusts then issue securities to third-party investors, collateralized by the transferred assets.
The following table provides information on the restricted cash held by the American Express Issuance Trust II (the Charge Trust) and the American Express Credit Account Master Trust (the Lending Trust, and collectively, the Trusts) as of September 30, 2015 and December 31, 2014, included in Other assets on the Companys Consolidated Balance Sheets:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
Charge Trust |
$ | 1 | $ 2 | |||||
Lending Trust |
747 | 62 | ||||||
|
|
|
| |||||
Total |
$ | 748 | $ 64 | |||||
|
These amounts relate to collections of Card Member receivables and loans to be used by the Trusts to fund future expenses and obligations, including interest on investor securities, credit losses and upcoming debt maturities.
American Express Travel Related Services Company, Inc. (TRS), which is a consolidated subsidiary of the Company, is the primary beneficiary of both Trusts. Excluding its consolidated subsidiaries, TRS owns approximately $1.0 billion of subordinated securities issued by the Lending Trust as of September 30, 2015.
Under the respective terms of the Charge Trust and Lending Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each trust could result in payment of trust expenses, establishment of reserve funds, or in a worst-case scenario, early amortization of investor securities. During the nine months ended September 30, 2015 and the year ended December 31, 2014, no such triggering events occurred.
19
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. | Customer Deposits |
As of September 30, 2015 and December 31, 2014, customer deposits were categorized as interest bearing or non-interest bearing, as follows:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
U.S.: |
||||||||
Interest bearing |
$ | 48,513 | $ 43,279 | |||||
Non-interest bearing (includes Card Member credit balances of: |
||||||||
2015, $312; 2014, $372) |
356 | 418 | ||||||
Non-U.S.: |
||||||||
Interest bearing |
106 | 115 | ||||||
Non-interest bearing (includes Card Member credit balances of: |
||||||||
2015, $314; 2014, $347) |
326 | 359 | ||||||
|
|
|
| |||||
Total customer deposits |
$ | 49,301 | $ 44,171 | |||||
|
Customer deposits by deposit type as of September 30, 2015 and December 31, 2014, were as follows:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
U.S. retail deposits: |
||||||||
Savings accounts Direct |
$ | 28,229 | $ 26,159 | |||||
Certificates of deposit: |
||||||||
Direct |
291 | 333 | ||||||
Third-party |
11,053 | 7,838 | ||||||
Sweep accounts Third-party |
8,940 | 8,949 | ||||||
Other retail deposits: |
||||||||
Non-U.S. deposits and U.S. non-interest bearing deposits |
162 | 173 | ||||||
Card Member credit balances U.S. and non-U.S. |
626 | 719 | ||||||
|
|
|
| |||||
Total customer deposits |
$ | 49,301 | $ 44,171 | |||||
|
The scheduled maturities of certificates of deposit as of September 30, 2015, were as follows:
| ||||||||||||
(Millions) | U.S. | Non-U.S. | Total | |||||||||
|
|
|
|
|
| |||||||
2015 |
$ | 398 | $ | 18 | $ 416 | |||||||
2016 |
2,411 | 5 | 2,416 | |||||||||
2017 |
2,730 | | 2,730 | |||||||||
2018 |
2,527 | | 2,527 | |||||||||
2019 |
1,846 | | 1,846 | |||||||||
After 5 years |
1,432 | | 1,432 | |||||||||
|
|
|
|
|
| |||||||
Total |
$ | 11,344 | $ | 23 | $ 11,367 | |||||||
|
As of September 30, 2015 and December 31, 2014, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:
| ||||||||
(Millions) | 2015 | 2014 | ||||||
|
|
|
| |||||
U.S. |
$ | 106 | $ 111 | |||||
Non-U.S. |
17 | 17 | ||||||
|
|
|
| |||||
Total |
$ | 123 | $ 128 | |||||
|
20
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. | Contingencies |
In the ordinary course of business, the Company and its subsidiaries are subject to various claims, investigations, examinations, pending and potential legal actions, and other matters relating to compliance with laws and regulations (collectively, legal proceedings). The Company discloses its material legal proceedings under Part II, Item 1. Legal Proceedings in this Quarterly Report on Form 10-Q and Part I, Item 3. Legal Proceedings in the Annual Report.
The Company has recorded reserves for certain of its outstanding legal proceedings. A reserve is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the recorded reserve. The Company evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable.
The Companys legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members. These legal proceedings involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff or class, many seek an unspecified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss.
Other matters have progressed sufficiently through discovery and/or development of important factual information and legal issues so that the Company is able to estimate an amount of loss or a range of possible loss. Accordingly, for those disclosed material legal proceedings where a loss is reasonably possible in future periods, whether in excess of a related reserve for legal contingencies or where there is no such liability, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $370 million in excess of any reserves related to these matters. This range represents managements estimate based on currently available information and does not represent the Companys maximum loss exposure; actual results may vary significantly. As such proceedings evolve, including the merchant claims described under Part II, Item 1. Legal Proceedings in this Quarterly Report on Form 10-Q, we may need to increase our range of possible loss or reserves for legal contingencies.
Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes it is not a party to, nor are any of its properties the subject of, any legal proceeding that would have a material adverse effect on the Companys consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims, could have a material impact on the Companys results of operations.
21
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. | Derivatives and Hedging Activities |
The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rate, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Companys market risk management. The Company does not transact in derivatives for trading purposes.
In relation to the Companys credit risk, under the terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on the assessment of credit risk of the Companys derivative counterparties as of September 30, 2015 and December 31, 2014, the Company does not have derivative positions that warrant credit valuation adjustments.
The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||
Other Assets Fair Value |
Other Liabilities Fair Value | |||||||||||||||
|
|
|
| |||||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||
Interest rate contracts |
||||||||||||||||
Fair value hedges |
$ | 391 | $ | 314 | $ | | $ 4 | |||||||||
Foreign exchange contracts |
||||||||||||||||
Net investment hedges |
385 | 492 | 102 | 46 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total derivatives designated as hedging instruments |
776 | 806 | 102 | 50 | ||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Foreign exchange contracts, including certain embedded derivatives(a) |
146 | 185 | 116 | 114 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total derivatives, gross |
922 | 991 | 218 | 164 | ||||||||||||
Less: Cash collateral netting(b) |
(307) | (158) | | (4) | ||||||||||||
Derivative asset and derivative liability netting(c) |
(130) | (122) | (130) | (122) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total derivatives, net(d) |
$ | 485 | $ | 711 | $ | 88 | $ 38 | |||||||||
|
(a) | Includes foreign currency derivatives embedded in certain operating agreements. |
(b) | Represents the offsetting of derivative instruments and the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) executed with the same counterparty under an enforceable master netting arrangement. From time to time, the Company also receives non-cash collateral from counterparties in the form of security interests in U.S. Treasury securities, which reduces the Companys risk exposure, but does not reduce the net exposure on the Companys Consolidated Balance Sheets. The Company had such non-cash collateral as of December 31, 2014 with a fair value of $91 million, none of which was sold or repledged. The Company did not have any such non-cash collateral as of September 30, 2015. Additionally, the Company posted $155 million and $114 million as of September 30, 2015 and December 31, 2014, respectively, as initial margin on its centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Companys Consolidated Balance Sheets and are not netted against the derivative balances. |
(c) | Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement. |
(d) | The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and derivative liabilities are presented within Other assets and Other liabilities on the Companys Consolidated Balance Sheets. |
A majority of the Companys derivative assets and liabilities as of September 30, 2015 and December 31, 2014 are subject to master netting agreements with its derivative counterparties. In addition, the Company has no derivative amounts subject to enforceable master netting arrangements that are not offset on the Companys Consolidated Balance Sheets.
22
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value Hedges
Interest Rate Contracts
The Company is exposed to interest rate risk associated with its fixed-rate long-term debt. The Company uses interest rate swaps to economically convert certain fixed-rate debt obligations to floating-rate obligations at the time of issuance. As of September 30, 2015 and December 31, 2014, the Company hedged $18.5 billion and $17.6 billion, respectively, of its fixed-rate debt to floating-rate debt using interest rate swaps.
Total Return Contract
The Company hedged its exposure to changes in the fair value of its equity investment in Industrial and Commercial Bank of China (ICBC) in local currency. The Company used a total return contract (TRC) to transfer its exposure to its derivative counterparty. On July 18, 2014, the Company sold its remaining shares in ICBC and terminated the TRC.
The following table summarizes the impact on the Consolidated Statements of Income associated with the Companys fair value hedges for the three and nine months ended September 30:
| ||||||||||||||||||||||||||
Three Months Ended September 30: (Millions) | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Gains (losses) recognized in income | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Derivative contract | Hedged item | Net hedge | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
Amount | Amount | ineffectiveness | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
Derivative relationship |
Income Statement Line Item | 2015 | 2014 | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Interest rate contracts |
Other expenses | $ | 108 | $ | (109) | Other expenses | $ | (114) | $ | 112 | $ | (6) | $ 3 | |||||||||||||
| ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Nine Months Ended September 30: (Millions) | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Gains (losses) recognized in income | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Derivative contract | Hedged item | Net hedge | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
Amount | Amount | ineffectiveness | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
Derivative relationship |
Income Statement Line Item | 2015 | 2014 | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Interest rate contracts |
Other expenses | $ | 82 | $ | (170) | Other expenses | $ | (85) | $ | 176 | $ | (3) | $ 6 | |||||||||||||
Total return contract |
Other non-interest revenues | | 11 | Other non-interest revenues | | (11) | | | ||||||||||||||||||
|
The Company also recognized a net reduction in interest expense on long-term debt of $73 million and $74 million for the three months ended September 30, 2015 and 2014, respectively, and $214 million and $217 million for the nine months ended September 30, 2015 and 2014, respectively, primarily related to the net settlements (interest accruals) on the Companys interest rate derivatives designated as fair value hedges.
Net Investment Hedges
The effective portion of the gain on net investment hedges, net of taxes, recorded in Accumulated Other Comprehensive Loss as part of the cumulative translation adjustment was $384 million and $246 million for the three months ended September 30, 2015 and 2014, respectively, and $545 million and $113 million for the nine months ended September 30, 2015 and 2014, respectively, with any ineffective portion recognized in Other expenses during the period of change. During the three months ended September 30, 2015 and 2014, the Company reclassified nil and $(1) million, respectively, and $1 million and $9 million for the nine months ended September 30, 2015 and 2014, respectively, from Accumulated Other Comprehensive Loss to earnings as a component of Other expenses, including ineffectiveness associated with net investment hedges of nil and $1 million for the three and nine months ended September 30, 2015, respectively.
23
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the impact on the Consolidated Statements of Income associated with the Companys derivatives not designated as hedges:
| ||||||||||||||||||||
Pretax (losses) gains | ||||||||||||||||||||
|
| |||||||||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||
|
|
|
| |||||||||||||||||
Amount | Amount | |||||||||||||||||||
|
|
|
| |||||||||||||||||
Description (Millions) | Income Statement Line Item | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Foreign exchange contracts (a) |
Other expenses | $ | (19) | $ | 2 | $ | 15 | $ 84 | ||||||||||||
Cost of Card Member services | 4 | | (2) | 4 | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Total |
$ | (15) | $ | 2 | $ | 13 | $ 88 | |||||||||||||
|
(a) | Foreign exchange contracts include forwards and embedded foreign currency derivatives. |
10. | Fair Values |
Financial Assets and Financial Liabilities Carried at Fair Value
The following table summarizes the Companys financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAPs valuation hierarchy, as of September 30, 2015 and December 31, 2014:
| ||||||||||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
(Millions) | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||
Investment securities:(a) |
||||||||||||||||||||||||||||||||
Equity securities |
$ | 1 | $ | 1 | $ | | $ | | $ | 1 | $ | 1 | $ | | $ | |||||||||||||||||
Debt securities and other |
3,946 | 302 | 3,644 | | 4,430 | 350 | 4,080 | | ||||||||||||||||||||||||
Derivatives(a) |
922 | | 922 | | 991 | | 991 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total assets |
4,869 | 303 | 4,566 | | 5,422 | 351 | 5,071 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||
Derivatives(a) |
218 | | 218 | | 164 | | 164 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total liabilities |
$ | 218 | $ | | $ | 218 | $ | | $ | 164 | $ | | $ | 164 | $ | |||||||||||||||||
|
(a) | Refer to Note 5 for the fair values of investment securities and to Note 9 for the fair values of derivative assets and liabilities, on a further disaggregated basis. |
24
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the estimated fair values of the Companys financial assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of September 30, 2015 and December 31, 2014. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of September 30, 2015 and December 31, 2014, and require management judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented.
| ||||||||||||||||||||
Carrying | Corresponding Fair Value Amount | |||||||||||||||||||
|
| |||||||||||||||||||
2015 (Billions) | Value | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial Assets: |
||||||||||||||||||||
Financial assets for which carrying values equal or approximate fair value |
||||||||||||||||||||
Cash and cash equivalents |
$ | 20 | $ | 20 | $ | 19 | $ | 1 | (a) | $ | ||||||||||
Other financial assets(b) |
48 | 48 | | 48 | | |||||||||||||||
Financial assets carried at other than fair value |
||||||||||||||||||||
Loans, net |
69 | 69 | (c) | | | 69 | ||||||||||||||
Financial Liabilities: |
||||||||||||||||||||
Financial liabilities for which carrying values equal or approximate fair value |
62 | 62 | | 62 | | |||||||||||||||
Financial liabilities carried at other than fair value |
||||||||||||||||||||
Certificates of deposit(d) |
11 | 11 | | 11 | | |||||||||||||||
Long-term debt |
$ | 49 | $ | 50 | (c) | $ | | $ | 50 | $ | ||||||||||
| ||||||||||||||||||||
|
||||||||||||||||||||
| ||||||||||||||||||||
Carrying | Corresponding Fair Value Amount | |||||||||||||||||||
|
| |||||||||||||||||||
2014 (Billions) | Value | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial Assets: |
||||||||||||||||||||
Financial assets for which carrying values equal or approximate fair value |
||||||||||||||||||||
Cash and cash equivalents |
$ | 22 | $ | 22 | $ | 21 | $ | 1 | (a) | $ | ||||||||||
Other financial assets(b) |
48 | 48 | | 48 | | |||||||||||||||
Financial assets carried at other than fair value |
||||||||||||||||||||
Loans, net |
70 | 71 | (c) | | | 71 | ||||||||||||||
Financial Liabilities: |
||||||||||||||||||||
Financial liabilities for which carrying values equal or approximate fair value |
61 | 61 | | 61 | | |||||||||||||||
Financial liabilities carried at other than fair value |
||||||||||||||||||||
Certificates of deposit(d) |
8 | 8 | | 8 | | |||||||||||||||
Long-term debt |
$ | 58 | $ | 60 | (c) | $ | | $ | 60 | $ | ||||||||||
|
(a) | Reflects time deposits. |
(b) | Includes accounts receivable (including fair values of Card Member receivables of $5.9 billion and $7.0 billion held by a consolidated VIE as of September 30, 2015 and December 31, 2014, respectively), restricted cash and other miscellaneous assets. |
(c) | Includes fair values of Card Member loans of $27.2 billion and $29.9 billion, and long-term debt of $13.4 billion and $19.5 billion held by a consolidated VIE as of September 30, 2015 and December 31, 2014, respectively. |
(d) | Presented as a component of customer deposits on the Consolidated Balance Sheets. |
Nonrecurring Fair Value Measurements
The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the nine months ended September 30, 2015 and during the year ended December 31, 2014, the Company did not have any material assets that were measured at fair value due to impairment.
25
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. | Guarantees |
The Company provides Card Member protection plans that cover losses associated with purchased products, as well as certain other guarantees and indemnifications in the ordinary course of business.
In relation to its maximum potential undiscounted future payments as shown in the table that follows, to date the Company has not experienced any significant losses related to guarantees or indemnifications. The Companys initial recognition of these instruments is at fair value. In addition, the Company establishes reserves when a loss is probable and the amount can be reasonably estimated.
The following table provides information related to such guarantees and indemnifications as of September 30, 2015 and December 31, 2014:
| ||||||||
Maximum potential (Billions) |
Related liability(b) | |||||||
Type of Guarantee | 2015 | 2014 | 2015 | 2014 | ||||
|
|
|
|
| ||||
Return and Merchant Protection |
$ 42 | $ 37 | $ 49 | $ 44 | ||||
Other(c) |
6 | 8 | 57 | 67 | ||||
|
|
|
|
| ||||
Total |
$ 48 | $ 45 | $ 106 | $ 111 | ||||
|
(a) | Represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed or indemnified parties. The maximum potential undiscounted future payments for Merchant Protection are measured using managements best estimate of maximum exposure, which is based on all eligible claims in relation to annual billed business volumes. |
(b) | Included in Other liabilities on the Companys Consolidated Balance Sheets. |
(c) | Primarily includes guarantees related to the Companys purchase protection, real estate and business dispositions. |
26
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. | Changes In Accumulated Other Comprehensive Loss |
Accumulated Other Comprehensive Loss is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component for the three and nine months ended September 30, 2015 and 2014 were as follows:
| ||||||||||||||||
Three Months Ended September 30, 2015 (Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities |
Foreign Currency Translation Adjustments |
Net Unrealized Other |
Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of June 30, 2015 |
$ | 76 | $ | (1,743) | $ | (487) | $ (2,154) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized loss |
(6) | | | (6) | ||||||||||||
Decrease due to amounts reclassified into earnings |
(1) | | | (1) | ||||||||||||
Net translation loss on investments in foreign operations |
| (604) | | (604) | ||||||||||||
Net gains related to hedges of investments in foreign operations |
| 384 | | 384 | ||||||||||||
Pension and other postretirement benefit gains |
| | 7 | 7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive (loss) income |
(7) | (220) | 7 | (220) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2015 |
$ | 69 | $ | (1,963) | $ | (480) | $ (2,374) | |||||||||
|
| ||||||||||||||||
Nine Months Ended September 30, 2015 (Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities |
Foreign Currency Translation Adjustments |
Net Unrealized Other |
Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of December 31, 2014 |
$ | 96 | $ | (1,499) | $ | (516) | $ (1,919) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized loss |
(26) | | | (26) | ||||||||||||
Decrease due to amounts reclassified into earnings |
(1) | (1) | | (2) | ||||||||||||
Net translation loss on investments in foreign operations |
| (1,009) | | (1,009) | ||||||||||||
Net gains related to hedges of investments in foreign operations |
| 546 | | 546 | ||||||||||||
Pension and other postretirement benefit gains |
| | 36 | 36 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive (loss) income |
(27) | (464) | 36 | (455) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2015 |
$ | 69 | $ | (1,963) | $ | (480) | $ (2,374) | |||||||||
|
27
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| ||||||||||||||||
Three Months Ended September 30, 2014 (Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities |
Foreign Currency Translation Adjustments |
Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains |
Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of June 30, 2014 |
$ | 105 | $ | (1,118) | $ | (358) | $ (1,371) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized gains |
2 | | | 2 | ||||||||||||
(Decrease) increase due to amounts reclassified into earnings |
(13) | 1 | | (12) | ||||||||||||
Net translation loss on investments in foreign operations |
| (414) | | (414) | ||||||||||||
Net gains related to hedges of investments in foreign operations |
| 246 | | 246 | ||||||||||||
Pension and other postretirement benefit gains |
| | 7 | 7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive (loss) income |
(11) | (167) | 7 | (171) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2014 |
$ | 94 | $ | (1,285) | $ | (351) | $ (1,542) | |||||||||
|
| ||||||||||||||||
Nine Months Ended September 30, 2014 (Millions), net of tax | Net Unrealized Gains (Losses) on Investment Securities |
Foreign Currency Translation Adjustments |
Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains |
Accumulated Other Comprehensive (Loss) Income | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of December 31, 2013 |
$ | 63 | $ | (1,090) | $ | (399) | $ (1,426) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized gains |
102 | | | 102 | ||||||||||||
(Decrease) increase due to amounts reclassified into earnings |
(71) | 5 | | (66) | ||||||||||||
Net translation loss on investments in foreign operations |
| (313) | | (313) | ||||||||||||
Net gains related to hedges of investments in foreign operations |
| 113 | | 113 | ||||||||||||
Pension and other postretirement benefit gains |
| | 48 | 48 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in accumulated other comprehensive income (loss) |
31 | (195) | 48 | (116) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of September 30, 2014 |
$ | 94 | $ | (1,285) | $ | (351) | $ (1,542) | |||||||||
|
The following table presents the effects of reclassifications out of Accumulated Other Comprehensive Loss and into the Consolidated Statements of Income:
| ||||||||||||||||||||||||||||
Gains (losses) recognized in earnings | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Amount | Amount | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Description (Millions) | Income Statement Line Item |
2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
Available-for-sale securities |
||||||||||||||||||||||||||||
Reclassifications for previously unrealized net gains on investment securities |
Other non-interest revenues | $ | 1 | $ | 21 | $ | 1 | $ | 111 | |||||||||||||||||||
Related income tax expense |
Income tax provision | | (8) | | (40) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Reclassification to net income related to available-for-sale securities |
1 | 13 | 1 | 71 | ||||||||||||||||||||||||
Foreign currency translation adjustments |
||||||||||||||||||||||||||||
Reclassification of realized losses on translation adjustments and related hedges |
Other expenses | | | 1 | (8) | |||||||||||||||||||||||
Related income tax benefit |
Income tax provision | | (1) | | 3 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
Reclassification of foreign currency translation adjustments |
| (1) | 1 | (5) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Total |
$ | 1 | $ | 12 | $ | 2 | $ | 66 | ||||||||||||||||||||
|
28
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. | Non-Interest Revenue and Expense Detail |
The following is a detail of Other commissions and fees:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions) |
2015 | 2014 | 2015 | 2014 | ||||||||||
Foreign currency conversion fee revenue |
$ | 213 | $ | 225 | $ | 646 | $ 665 | |||||||
Delinquency fees |
197 | 184 | 586 | 539 | ||||||||||
Loyalty coalition-related fees |
101 | 100 | 280 | 286 | ||||||||||
Service fees |
97 | 94 | 279 | 274 | ||||||||||
Other(a) |
32 | 39 | 100 | 120 | ||||||||||
Total Other commissions and fees |
$ | 640 | $ | 642 | $ | 1,891 | $ 1,884 | |||||||
|
(a) | Other primarily includes revenues from fees related to Membership Rewards programs. |
The following is a detail of Other revenues:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions) |
2015 | 2014 | 2015 | 2014 | ||||||||||
Global Network Services partner revenues |
$ | 156 | $ | 173 | $ | 474 | $ 513 | |||||||
Net realized gains on investment securities |
1 | 20 | 1 | 100 | ||||||||||
Other(a) |
347 | 400 | 1,018 | 1,066 | ||||||||||
Total Other revenues |
$ | 504 | $ | 593 | $ | 1,493 | $ 1,679 | |||||||
|
(a) | Other includes revenues arising from net revenue earned on cross-border Card Member spending, merchant-related fees, insurance premiums earned from Card Member travel and other insurance programs, Travelers Cheques-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees. |
The following is a detail of Other expenses:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Professional services |
$ | 687 | $ | 731 | $ | 1,966 | $ 2,240 | |||||||
Occupancy and equipment |
523 | 432 | 1,372 | 1,361 | ||||||||||
Card and merchant-related fraud losses(a) |
64 | 96 | 247 | 282 | ||||||||||
Communications |
84 | 91 | 257 | 285 | ||||||||||
Gain on business travel joint venture transaction |
| (15) | | (641) | ||||||||||
Other(b) |
277 | 261 | 727 | 866 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total Other expenses |
$ | 1,635 | $ | 1,596 | $ | 4,569 | $ 4,393 | |||||||
|
(a) | Beginning January 1, 2015, merchant-related fraud losses are reported within Other expenses. |
(b) | Other expense includes general operating expenses, gains (losses) on sale of assets or businesses not classified as discontinued operations, litigation, certain internal and regulatory review-related reimbursements and insurance costs or settlements, certain loyalty coalition-related expenses and foreign currency-related gains and losses (including the favorable impact from the reassessment of the functional currency of certain UK legal entities in the nine months ended September 30, 2015). |
29
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. | Income Taxes |
The effective tax rate was 34.7 percent and 34.2 percent for the three and nine months ended September 30, 2015, respectively, and 34.2 percent and 34.4 percent for the three and nine months ended September 30, 2014, respectively.
The tax rates for all periods reflect the level of pretax income in relation to recurring permanent tax benefits and geographic mix of business.
The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The IRS has completed its field examination of the Companys federal tax returns for years through 2007; however, refund claims for certain years continue to be reviewed by the IRS. In addition, the Company is currently under examination by the IRS for the years 2008 through 2011.
The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $431 million principally as a result of potential resolutions of prior years tax items with various taxing authorities. The prior years tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $431 million of unrecognized tax benefits, approximately $288 million relates to amounts that if recognized would be recorded in shareholders equity and would not impact the Companys results of operations or its effective tax rate.
30
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
15. | Earnings Per Common Share (EPS); Preferred Shares |
EPS
The computations of basic and diluted EPS were as follows:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions, except per share amounts) | 2015 | 2014 | 2015 | 2014 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Numerator: |
||||||||||||||
Basic and diluted: |
||||||||||||||
Net income |
$ | 1,266 | $ | 1,477 | $ | 4,264 | $ 4,438 | |||||||
Preferred dividends |
(22) | | (42) | | ||||||||||
|
|
|
|
|
|
|
| |||||||
Net income available to common shareholders |
1,244 | 1,477 | 4,222 | 4,438 | ||||||||||
Earnings allocated to participating share awards(a) |
(10) | (11) | (32) | (35) | ||||||||||
|
|
|
|
|
|
|
| |||||||
Net income attributable to common shareholders |
$ | 1,234 | $ | 1,466 | $ | 4,190 | $ 4,403 | |||||||
|
|
|
|
|
|
|
| |||||||
Denominator: (a) |
||||||||||||||
Basic: Weighted-average common stock |
994 | 1,041 | 1,007 | 1,051 | ||||||||||
Add: Weighted-average stock options (b) |
3 | 6 | 4 | 6 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Diluted |
997 | 1,047 | 1,011 | 1,057 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Basic EPS |
$ | 1.24 | $ | 1.41 | $ | 4.16 | $ 4.19 | |||||||
Diluted EPS |
$ | 1.24 | $ | 1.40 | $ | 4.15 | $ 4.17 | |||||||
|
(a) | The Companys unvested restricted stock awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator. |
(b) | The dilutive effect of unexercised stock options excludes from the computation of EPS 0.6 million and 0.2 million of options for the three months ended September 30, 2015 and 2014, respectively, and 0.5 million and 0.2 million of options for the nine months ended September 30, 2015 and 2014, respectively, because inclusion of the options would have been anti-dilutive. |
For the three and nine months ended September 30, 2015 and 2014, the Company met specified performance measures related to the $750 million of Subordinated Debentures issued in 2006, and maturing in 2036. If the performance measures were not achieved in any given quarter, the Company would be required to issue common shares and apply the proceeds to make interest payments.
31
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Preferred Shares
The Board of Directors is authorized to permit the Company to issue up to 20 million Preferred Shares at a par value of $1.662/3 without further shareholder approval. The Company has the following perpetual Fixed Rate/Floating Rate Noncumulative Preferred Share series issued and outstanding as of September 30, 2015:
| ||||
Series B | Series C | |||
| ||||
Issuance date | November 10, 2014 | March 2, 2015 | ||
Securities issued | 750 Preferred Shares; represented by 750,000 depositary shares |
850 Preferred Shares; represented by 850,000 depositary shares | ||
Aggregate liquidation preference | $750 million | $850 million | ||
Fixed dividend rate per annum | 5.20% | 4.90% | ||
Semi-annual fixed dividend payment dates | Beginning May 15, 2015 | Beginning September 15, 2015 | ||
Floating dividend rate per annum | 3 month LIBOR+ 3.428% | 3 month LIBOR+ 3.285% | ||
Quarterly floating dividend payment dates | Beginning February 15, 2020 | Beginning June 15, 2020 | ||
Fixed to floating rate conversion date(a) | November 15, 2019 | March 15, 2020 | ||
|
(a) The date on which dividends convert from a fixed rate calculation to a floating rate calculation.
The Company may redeem these Preferred Shares at $1 million per Preferred Share (equivalent to $1,000 per depositary share) plus any declared but unpaid dividends in whole or in part, from time to time, on any dividend payment date on or after the respective fixed to floating rate conversion date, or in whole, but not in part, within 90 days of certain bank regulatory changes.
32
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. | Reportable Operating Segments |
The Company is a global services company that is principally engaged in businesses comprising four reportable operating segments: USCS, ICS, GCS and Global Network & Merchant Services (GNMS). Corporate functions and certain other businesses, including the Companys Enterprise Growth business, as well as other Company operations are included in Corporate & Other.
The following table presents certain selected financial information for the Companys reportable operating segments and Corporate & Other:
| ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
|
|
|
| |||||||||||
(Millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Non-interest revenues: |
||||||||||||||
USCS |
$ | 3,302 | $ | 3,188 | $ | 9,822 | $ 9,375 | |||||||
ICS |
1,071 | 1,206 | 3,214 | 3,571 | ||||||||||
GCS |
858 | 957 | 2,653 | 3,538 | ||||||||||
GNMS |
1,302 | 1,368 | 3,898 | 4,027 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) |
155 | 189 | 465 | 548 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total |
$ | 6,688 | $ | 6,908 | $ | 20,052 | $ 21,059 | |||||||
|
|
|
|
|
|
|
| |||||||
Interest income: |
||||||||||||||
USCS |
$ | 1,593 | $ | 1,465 | $ | 4,639 | $ 4,296 | |||||||
ICS |
226 | 273 | 706 | 825 | ||||||||||
GCS |
3 | 4 | 10 | 11 | ||||||||||
GNMS |
26 | 14 | 69 | 35 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) |
56 | 59 | 174 | 183 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total |
$ | 1,904 | $ | 1,815 | $ | 5,598 | $ 5,350 | |||||||
|
|
|
|
|
|
|
| |||||||
Interest expense: |
||||||||||||||
USCS |
$ | 166 | $ | 152 | $ | 481 | $455 | |||||||
ICS |
59 | 85 | 183 | 259 | ||||||||||
GCS |
44 | 61 | 138 | 186 | ||||||||||
GNMS |
(42) | (68) | (143) | (208) | ||||||||||
Corporate & Other, including adjustments and eliminations(a) |
172 | 190 | 564 | 610 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total |
$ | 399 | $ | 420 | $ | 1,223 | $ 1,302 | |||||||
|
|
|
|
|
|
|
| |||||||
Total revenues net of interest expense: |
||||||||||||||
USCS |
$ | 4,729 | $ | 4,501 | $ | 13,980 | $13,216 | |||||||
ICS |
1,238 | 1,394 | 3,737 | 4,137 | ||||||||||
GCS |
817 | 900 | 2,525 | 3,363 | ||||||||||
GNMS |
1,370 | 1,450 | 4,110 | 4,270 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) |
39 | 58 | 75 | 121 | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total |
$ | 8,193 | $ | 8,303 | $ | 24,427 | $ 25,107 | |||||||
|
|
|
|
|
|
|
| |||||||
Net income (loss): |
||||||||||||||
USCS |
$ | 794 | $ | 889 | $ | 2,614 | $ 2,535 | |||||||
ICS |
89 | 142 | 348 | 378 | ||||||||||
GCS |
151 | 204 | 534 | 949 | ||||||||||
GNMS |
462 | 427 | 1,354 | 1,243 | ||||||||||
Corporate & Other, including adjustments and eliminations(a) |
(230) | (185) | (586) | (667) | ||||||||||
|
|
|
|
|
|
|
| |||||||
Total |
$ | 1,266 | $ | 1,477 | $ | 4,264 | $ 4,438 | |||||||
|
(a) | Corporate & Other includes adjustments and eliminations for intersegment activity. |
33
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Business Introduction
When we use the terms American Express, the Company, we, our or us, we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
We are a global services company with four reportable operating segments: U.S. Card Services (USCS), International Card Services (ICS), Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). We 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. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, these business travel operations were wholly owned. Our range of products and services includes:
| charge and credit card products; |
| expense management products and services; |
| travel-related services; |
| stored-value/prepaid products; |
| network services; |
| merchant acquisition and processing, servicing and settlement, and point-of-sale, marketing and information products and services for merchants; and |
| fee services, including fraud prevention services and the design and operation of customized customer loyalty and rewards programs. |
Our products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising.
We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, as well as evolving and growing alternative payment providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customers existing accounts and relationships to create payment or other fee-based solutions. We are transforming our existing businesses and creating new products and services for the digital marketplace as we seek to enhance our customers digital experiences and develop platforms for online and mobile commerce.
Our products and services generate the following types of revenue for the Company:
| Discount revenue, our largest revenue source, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services at merchants on our network; |
| Net card fees, which represent revenue earned from annual card membership fees; |
| Travel commissions and fees, which are earned by charging a transaction or management fee to both customers and suppliers for travel-related transactions (business travel commissions and fees included through June 30, 2014); |
34
| Other commissions and fees, which are earned on foreign exchange conversions, card-related fees, such as late fees and assessments, loyalty coalition-related fees and other service fees; |
| Other revenue, which represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees), insurance premiums earned from Card Member travel and other insurance programs, prepaid card-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV after June 30, 2014) and other miscellaneous revenue and fees; and |
| Interest on loans, which principally represents interest income earned on outstanding balances. |
Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the Cautionary Note Regarding Forward-Looking Statements section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-Q constitute non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
Bank Holding Company
American Express Company is a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserves regulations, policies and minimum capital, leverage and liquidity requirements.
Current Business Environment/Outlook
Our third quarter performance was in line with our 2015 financial outlook, reflecting the headwinds that we have been managing throughout 2015, including a challenging economic, competitive and regulatory environment. Results for the quarter were significantly affected by higher spending on growth initiatives, as well as the continued impact of certain previously renewed co-brand partnerships and the stronger U.S. dollar. While our reported third quarter earnings reflected the impact of these discrete items, our performance continued to reflect healthy loan growth, write-off rates at historically low levels, disciplined operating expense control and the benefits of our strong capital position, as well as strong Card Member and merchant acquisitions.
On a reported basis, the Card Member billed business growth rate in the third quarter was modestly slower relative to the second quarter of 2015, and billings were flat when compared with the third quarter of 2014. Billings growth, particularly in the U.S., continued to be impacted by a number of headwinds during 2015. We saw lower average transaction sizes, although there has been an increase in the number of transactions. In addition, we saw a slowdown in growth in spending by middle market corporate customers in the U.S. We also saw spending by Costco U.S. co-brand Card Members soften compared to the prior year. While we will continue to face an evolving regulatory landscape, we have seen very solid performance trends across our international regions over the last several quarters. Overall, international volumes were up compared to the third quarter of 2014 excluding Canada (due to the termination of our relationship with Costco Canada last year) and after adjusting for foreign currency exchange rates.
35
We have continued to see strong growth in worldwide Card Member loans, which along with a reduction in borrowing costs during the quarter, contributed to an increase in net interest income. U.S. loan growth was steady and loan growth internationally, excluding the negative impact of foreign currency exchange rates and changes in Canadian loan balances, which were negatively impacted by the end of our Costco relationship in Canada, improved during the quarter. Our credit performance during the quarter, combined with higher loan balances, drove an increase in provision versus last year. While credit metrics had been steadily improving since the latter half of 2009, following the economic downturn, they have generally stabilized at their current levels over the course of the past year. Therefore, reserve releases from improved credit performance are no longer offsetting the additional reserves needed for higher loan balances. This performance is in line with our expectation that provision would increase year-over-year and, in part, reflects the steady growth that we are seeing in the loan portfolio. Going forward, we do anticipate that write-off rates will gradually increase from todays low levels, in part due to the seasoning of our newer loan vintages.
We have increased our spending on growth initiatives, which appears in our marketing and promotion expenses, as well as in operating expenses and contra-discount revenue. Operating expenses for the third quarter of 2015 decreased on a reported basis, but are higher after adjusting for foreign currency exchange rates. We continue to remain committed to containing operating expense growth in 2015. For the third quarter of 2015, operating expenses include a $91 million impairment charge related to previously capitalized software development costs, primarily in our Enterprise Growth (EG) business, including our decision not to continue with certain investments in the business. We continuously evaluate our investments across the Company to ensure that we are deploying the right level of resources against our most attractive opportunities.
In this context, we decided to pull back on certain initiatives in our EG business during the current quarter, including the decision not to proceed with the launch of our Serve product in Mexico. These decisions are consistent with recent organizational changes designed to better align EGs capabilities with the overall strategy and priorities of the Company, while focusing on those opportunities that can produce the best returns, and ensure that we have the proper operating structure to deliver results in the most efficient and effective way. We plan to continue to evaluate the strategic direction of the EG business in the fourth quarter, which could result in additional impairment.
While our business is diversified by product and geography, including a range of consumer and commercial card offerings, a large international business and GNS partners around the world, which we believe provide a range of growth opportunities, we will continue to face a number of challenges throughout the remainder of 2015 and 2016.
Global economic growth remains uneven. In addition, our results continued to be adversely impacted by the strengthening U.S. dollar, and we expect foreign exchange will continue to have an adverse impact for the remainder of 2015, and could impact 2016 as well. Our results could also be adversely affected by increases in interest rates and U.S. income tax law changes.
Regulation of the payments industry has increased significantly in recent years and various governments around the world have established or are proposing to establish payment system regulatory regimes. See Certain Legislative, Regulatory and Other Developments for additional information on the legislative and regulatory environment, including the potential impacts of regulatory changes in the card payment sector in the European Union (EU).
Competition is extremely intense across the payments industry, including within the co-brand space, which has generally led to increased costs in our renewed co-brand partnerships. During the third quarter of 2015, both Card Member rewards expense and cost of Card Member services continued to grow when compared to the prior year, reflecting a portion of the increased costs related to recently renewed co-brand partnerships.
36
As previously announced, our co-brand and merchant acceptance agreements with Costco in the U.S. will not be renewed and are contractually set to expire on March 31, 2016. Although the softening in spending by existing Costco U.S. co-brand Card Members mentioned above has adversely impacted our billed business volumes, we have not yet seen a significant earnings impact, as lower volume growth has been offset by reduced marketing expenses associated with the co-brand portfolio earlier this year. In early 2015, as we considered the implications of the end of our relationship with Costco in the U.S., we made the decision to increase spending in 2015 across a range of business opportunities to best position us for long-term growth.
For the balance of the year, we expect results to reflect some of the same headwinds as the current quarter, including incremental spending on growth initiatives as well as the discrete impacts from changes in our co-brand relationships and a stronger U.S. dollar. Year-over-year earnings-per-share growth will also be negatively impacted by a net benefit in the fourth quarter of 2014 related to the sale of our investment in Concur. We estimate that full-year 2015 earnings per share will be between $5.20 and $5.35. We believe our outlook to return to positive earnings per share growth in 2016 and within our target range of 12 to 15 percent earnings per share growth in 2017 remains appropriate. Our outlook for 2015 through 2017 does not contemplate the impact of any restructuring charges or other contingencies.
As previously disclosed, a trial court ruled in favor of the U.S. Department of Justice (DOJ) in its antitrust lawsuit against us. Following the decision, on April 30, 2015, the trial court issued an injunction requiring us to change the provisions in our agreements with merchants accepting American Express cards in the U.S. that historically prohibited merchants from engaging in various actions to encourage Card Members to use other credit or charge card products or networks. The injunction became effective on July 20, 2015. We are vigorously pursuing an appeal of the decision and judgment, and we are vigorously defending similar antitrust claims initiated by merchants in other court and arbitration proceedings. See Certain Legislative, Regulatory and Other Developments in this Report and Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 for additional information on the potential impacts of the trial courts decision, the subsequent injunction and the related merchant litigation on our business.
37
American Express Company
Consolidated Results of Operations
Refer to the Glossary of Selected Terminology for the definitions of certain key terms and related information appearing within this section.
As a result of the GBT JV transaction, we deconsolidated the Global Business Travel (GBT) net assets, effective June 30, 2014, resulting in a lack of comparability between the nine months ended September 30, 2015 and the same period in the prior year.
Table 1: Summary of Financial Performance
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(Millions, except percentages and | Three Months Ended September 30, |
Nine Months Ended September 30, |
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per share amounts) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Total revenues net of interest expense |
$ | 8,193 | $ | 8,303 | $ | (110) | (1) | % | $ | 24,427 | $ | 25,107 | $ | (680) | (3)% | |||||||||||||||
Provisions for losses |
529 | 488 | 41 | 8 | 1,416 | 1,462 | (46) | (3) | ||||||||||||||||||||||
Expenses |
5,726 | 5,569 | 157 | 3 | 16,527 | 16,879 | (352) | (2) | ||||||||||||||||||||||
Net income |
1,266 | 1,477 | (211) | (14) | 4,264 | 4,438 | (174) | (4) | ||||||||||||||||||||||
Earnings per common share diluted(a) |
$ | 1.24 | $ | 1.40 | $ | (0.16) | (11) | % | $ | 4.15 | $ | 4.17 | $ | (0.02) | % | |||||||||||||||
Return on average equity(b) |
26.8 | % | 28.8 | % | 26.8 | % | 28.8 | % | ||||||||||||||||||||||
Return on average tangible common equity (c) |
34.2 | % | 35.6 | % | 34.2 | % | 35.6 | % | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
(a) Earnings per common share diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $10 million and $11 million for three months ended September 30, 2015 and 2014, respectively, and $32 million and $35 million for the nine months ended September 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $22 million and nil for the three months ended September 30, 2015 and 2014, respectively, and $42 million and nil for the nine months ended September 30, 2015 and 2014, respectively. | ||||||||||||||||||||||||||||||
(b) Return on Average Equity (ROE) is computed by dividing (i) one-year period net income ($5.7 billion for both September 30, 2015 and 2014) by (ii) one-year average total shareholders equity ($21.4 billion and $19.9 billion for September 30, 2015 and 2014, respectively). | ||||||||||||||||||||||||||||||
(c) Return on average tangible common equity (ROTCE), a non-GAAP measure, is computed in the same manner as ROE except the computation excludes from one-year average total shareholders equity, one-year average goodwill and other intangibles of $3.8 billion and $3.9 billion as of September 30, 2015 and 2014, respectively, and one-year average preferred shares of $1.1 billion and nil as of September 30, 2015 and 2014, respectively. We believe ROTCE is a useful measure of the profitability of our business. | ||||||||||||||||||||||||||||||
Table 2: Total Revenue Net of Interest Expense Summary
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Discount revenue |
$ | 4,778 | $ | 4,889 | $ | (111) | (2) | % | $ | 14,384 | $ | 14,428 | $ | (44) | % | |||||||||||||||
Net card fees |
679 | 680 | (1) | | 2,013 | 2,041 | (28) | (1) | ||||||||||||||||||||||
Travel commissions and fees |
87 | 104 | (17) | (16) | 271 | 1,027 | (756) | (74) | ||||||||||||||||||||||
Other commissions and fees |
640 | 642 | (2) | | 1,891 | 1,884 | 7 | | ||||||||||||||||||||||
Other |
504 | 593 | (89) | (15) | 1,493 | 1,679 | (186) | (11) | ||||||||||||||||||||||
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Total non-interest revenues |
6,688 | 6,908 | (220) | (3) | 20,052 | 21,059 | (1,007) | (5) | ||||||||||||||||||||||
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Total interest income |
1,904 | 1,815 | 89 | 5 | 5,598 | 5,350 | 248 | 5 | ||||||||||||||||||||||
Total interest expense |
399 | 420 | (21) | (5) | 1,223 | 1,302 | (79) | (6) | ||||||||||||||||||||||
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Net interest income |
1,505 | 1,395 | 110 | 8 | 4,375 | 4,048 | 327 | 8 | ||||||||||||||||||||||
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Total revenues net of interest expense |
$ | 8,193 | $ | 8,303 | $ | (110) | (1) | % | $ | 24,427 | $ | 25,107 | $ | (680) | (3)% | |||||||||||||||
|
38
Total Revenues Net of Interest Expense
Discount revenue decreased $111 million or 2 percent for the three months ended September 30, 2015 and was relatively flat for the nine months ended September 30, 2015, as compared to the same periods in the prior year. Foreign currency-adjusted discount revenue, which excludes the impact of changes in foreign exchange (FX) rates, increased 1 percent and 3 percent for the three and nine months ended September 30, 2015, respectively.1 The increases on an FX-adjusted basis were due to growth in billed business of 5 percent and 6 percent, also FX-adjusted, for the three and nine month periods, respectively, partially offset by a decrease in the average discount rate, faster growth in GNS billings than in overall Company billings, increases in cash rebate rewards (recognized as contra-discount revenue) and generally higher contra-revenues related to payments under previously renewed co-brand partnership agreements.1 Billed business in the U.S. increased 4 percent and 5 percent for the three and nine months ended September 30, 2015, respectively, and decreased 8 percent and 5 percent outside the U.S., in the same respective periods, with FX-adjusted billed business outside the U.S. increasing 8 percent for both the three and nine month periods.1
The average discount rate was 2.46 percent and 2.48 percent for the three and nine months ended September 30, 2015, respectively, and 2.48 percent and 2.49 percent for the three and nine months ended September 30, 2014, respectively. The decrease in the average discount rate for both the three and nine month periods was driven in part by growth of the OptBlue program, changes in industry mix, and competition, partially offset by the decline in Costco merchant volume in Canada (which was at a lower discount rate than the average) due to the expiration of our merchant agreement, as well as changes in FX rates. As indicated in prior quarters, changes in the mix of spending by location and industry, volume-related pricing discounts, strategic investments, certain pricing initiatives, competition, pricing regulation (including regulation of competitors interchange rates) and other factors will likely result in continued erosion of our discount rate over time. See Tables 5 and 6 for more details on billed business performance and the average discount rate.
Net card fees decreased $1 million and $28 million for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted net card fees increased 6 percent and 5 percent for the respective periods, primarily driven by higher basic cards-in-force, as well as a benefit from certain pricing initiatives.1
Travel commissions and fees decreased $17 million or 16 percent and $756 million or 74 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily due to the business travel joint venture transaction in the prior year, resulting in a lack of comparability between periods.
Other commissions and fees remained relatively flat for both the three and nine months ended September 30, 2015, as compared to the same periods in the prior year, while FX-adjusted other commissions and fees increased 9 percent and 10 percent for the respective periods.1 The increases on an FX-adjusted basis were driven in part by higher loyalty coalition revenues, as well as higher delinquency fees.
Other revenue decreased $89 million or 15 percent and $186 million or 11 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted other revenue decreased 7 percent and 4 percent for the respective periods.1 The decrease on an FX-adjusted basis for the three month period was primarily driven by gains related to the sale of investment securities in the Industrial and Commercial Bank of China (ICBC) and in Concur Technologies in the prior year, which for the nine month period was partially offset by higher revenues earned related to the GBT JV transition services agreement in the current year.
1The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding year period against which such results are being compared). Certain amounts included in the calculations of foreign currency-adjusted revenues and expenses, which constitute non-GAAP measures, are subject to management allocations. We believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.
39
Interest income increased $89 million or 5 percent and $248 million or 5 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily reflecting higher average Card Member loans.
Interest expense decreased $21 million or 5 percent and $79 million or 6 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, primarily driven by a lower cost of funds and lower average long-term debt.
Table 3: Provisions for Losses Summary
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Charge card |
$ | 203 | $ | 196 | $ | 7 | 4 | % | $ | 542 | $ | 594 | $(52) | (9)% | ||||||||||||||||
Card Member loans |
309 | 265 | 44 | 17 | 829 | 797 | 32 | 4 | ||||||||||||||||||||||
Other |
17 | 27 | (10) | (37) | 45 | 71 | (26) | (37) | ||||||||||||||||||||||
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Total provisions for losses |
$ | 529 | $ | 488 | $ | 41 | 8 | % | $ | 1,416 | $ | 1,462 | $ (46) | (3)% | ||||||||||||||||
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Provisions for Losses | ||||||||||||||||||||||||||||||
Charge card provisions for losses increased $7 million or 4 percent and decreased $52 million or 9 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The increase for the three month period was primarily driven by higher write-off rates in USCS, versus the prior year and the decrease in the nine month period was primarily driven by a reserve release in the current year versus a reserve build in the prior year. | ||||||||||||||||||||||||||||||
Card Member loans provision for losses increased $44 million or 17 percent and $32 million or 4 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The increases were driven by credit performance, combined with higher loan balances. | ||||||||||||||||||||||||||||||
Table 4: Expenses Summary
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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(Millions, except percentages) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
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Marketing and promotion |
$ | 847 | $ | 783 | $ | 64 | 8 | % | $ | 2,217 | $ | 2,329 | $(112) | (5)% | ||||||||||||||||
Card Member rewards |
1,763 | 1,695 | 68 | 4 | 5,202 | 5,050 | 152 | 3 | ||||||||||||||||||||||
Card Member services and other |
269 | 205 | 64 | 31 | 772 | 619 | 153 | 25 | ||||||||||||||||||||||
Salaries and employee benefits |
1,212 | 1,290 | (78) | (6) | 3,767 | 4,488 | (721) | (16) | ||||||||||||||||||||||
Other, net |
1,635 | 1,596 | 39 | 2 | 4,569 | 4,393 | 176 | 4 | ||||||||||||||||||||||
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Total expenses |
$ | 5,726 | $ | 5,569 | $ | 157 | 3 | % | $ | 16,527 | $ | 16,879 | $(352) | (2)% | ||||||||||||||||
|
Expenses
Marketing and promotion expense increased $64 million or 8 percent and decreased $112 million or 5 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The increase for the three month period was primarily driven by increased spending on incremental growth initiatives, while the decrease for the nine month period was primarily driven by the prior-year reinvestment of a significant portion of the gain from the business travel joint venture transaction in growth initiatives.
40
Card Member rewards expense increased $68 million or 4 percent and $152 million or 3 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted Card Member rewards expense increased 7 percent and 6 percent for the respective periods.2
The increase for the three months ended September 30, 2015, was primarily due to an increase in co-brand rewards expense of $60 million, driven by rate impacts as a result of the previously renewed co-brand partnership agreements, and an increase in Membership Rewards expense of $8 million. The latter was driven by an increase of $31 million related to new points earned, resulting from higher spending volumes, partially offset by a $23 million decrease from slower growth in the Membership Rewards ultimate redemption rate (URR), and a decline in the weighted average cost (WAC) per point.
The increase for the nine months ended September 30, 2015, was primarily due to an increase in co-brand rewards expense of $180 million, also driven by rate impacts, partially offset by a decrease in Membership Rewards expense of $28 million. The latter was driven by slower growth in the URR, and a charge in 2014 related to an enhancement in the Membership Rewards URR estimation process for certain international countries, partially offset by increased expenses related to new points earned, driven by higher spending volumes.
The Membership Rewards URR for current program participants remained at 95 percent (rounded up) at September 30, 2015, in line with June 30, 2015 and September 30, 2014.
Card Member services and other expense increased $64 million or 31 percent and $153 million or 25 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted Card Member services and other expense increased 38 percent and 32 percent for the respective periods, primarily driven by higher costs related to the previously renewed co-brand partnership agreements.2
Salaries and employee benefits expense decreased $78 million or 6 percent and $721 million or 16 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year. The decrease for the nine month period was primarily driven by the business travel joint venture transaction (resulting in a lack of comparability between periods), and the restructuring charge in the prior year. The restructuring initiatives in the prior year resulted in lower compensation costs and contributed to the current year decrease for both the three and nine month periods.
Other expenses increased $39 million or 2 percent and $176 million or 4 percent for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted other expenses increased 6 percent and 8 percent for the respective periods.2 The increase in the three month period primarily reflected a $91 million impairment charge related to previously capitalized software development costs, primarily within our EG business, including our decision not to continue with certain initiatives within EG. Other expenses were also favorably impacted by a litigation reserve release of $64 million in the GNMS segment associated with the rejected 2013 merchant litigation settlement. See Part II, Item 1. Legal Proceedings for further information on this merchant litigation. The increase in the nine month period reflected the net gain recognized as a result of the business travel joint venture transaction in the prior year (resulting in a lack of comparability between periods), as well as the previously mentioned impairment charge in the current year, which were partially offset by a favorable impact from the reassessment of the functional currency of certain UK legal entities in the current year, the litigation reserve release mentioned previously, a contribution to the American Express Foundation and a change in the estimated value of certain investments in our Community Reinvestment Act (CRA) portfolio, the latter two in the prior year.
2 Refer to footnote 1 on page 39 for details regarding foreign currency adjusted information.
41
Income Taxes
The effective tax rate was 34.7 percent and 34.2 percent for the three months ended September 30, 2015 and 2014, respectively, and 34.2 percent and 34.4 percent for the nine months ended September 30, 2015 and 2014, respectively. The tax rates for all periods reflect the level of pretax income in relation to recurring permanent tax benefits and geographic mix of business.
Table 5: Selected Statistical Information
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||||||||
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Card billed business: (billions) |
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United States |
$ | 180.3 | $ | 173.0 | 4 % | $ | 531.1 | $ | 505.6 | 5 % | ||||||||||||
Outside the United States |
78.6 | 85.1 | (8) | 235.4 | 248.7 | (5) | ||||||||||||||||
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Total |
$ | 258.9 | $ | 258.1 | | $ | 766.5 | $ | 754.3 | 2 | ||||||||||||
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Total cards-in-force: (millions) |
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United States |
56.4 | 54.5 | 3 | 56.4 | 54.5 | 3 | ||||||||||||||||
Outside the United States |
59.4 | 56.6 | 5 | 59.4 | 56.6 | 5 | ||||||||||||||||
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Total |
115.8 | 111.1 | 4 | 115.8 | 111.1 | 4 | ||||||||||||||||
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Basic cards-in-force: (millions) |
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United States |
43.6 | 42.2 | 3 | 43.6 | 42.2 | 3 | ||||||||||||||||
Outside the United States |
49.0 | 46.3 | 6 | 49.0 | 46.3 | 6 | ||||||||||||||||
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|
|
|||||||||||||||
Total |
92.6 | 88.5 | 5 | 92.6 | 88.5 | 5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Average discount rate(a) |
2.46 | % | 2.48 | % | 2.48 | % | 2.49 | % | ||||||||||||||
Average basic Card Member spending(b) |
$ | 4,165 | $ | 4,223 | (1) | $ | 12,437 | $ | 12,504 | (1) | ||||||||||||
Average fee per card(b) |
$ | 39 | $ | 40 | (3) | $ | 39 | $ | 41 | (5) | ||||||||||||
Average fee per card, adjusted(b) |
$ | 44 | $ | 45 | (2)% | $ | 44 | $ | 45 | (2)% | ||||||||||||
|
(a) | In the three months ended March 31, 2015, we changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. The misclassification in prior periods has been revised to conform to the current period presentation. Accordingly, the average discount rate for prior periods was also revised, resulting in a reduction of between zero and one basis point in any period from what was originally reported. |
(b) | 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, including the amortization of deferred direct acquisition costs divided by average worldwide proprietary cards-in-force. The average fee per card, adjusted, which is a non-GAAP measure, is computed in the same manner, but excludes amortization of deferred direct acquisition costs. The amount of amortization excluded was $72 million and $77 million for the three months ended September 30, 2015 and 2014, respectively, and $217 million and $227 million for the nine months ended September 30, 2015 and 2014, respectively. We present the average fee per card, adjusted, because we believe this metric presents a useful indicator of card fee pricing across a range of our proprietary card products. |
42
Table 6: Selected Statistical Information
| ||||||||
Three Months Ended September 30, 2015 | ||||||||
|
|
Percentage Increase (Decrease) |
|
Percentage Increase Assuming No Changes in Foreign Exchange Rates(a) | ||||
Worldwide(b) |
||||||||
Billed business |
| % | 5 % | |||||
Proprietary billed business |
1 | 4 | ||||||
GNS billed business(c) |
(1) | 13 | ||||||
Airline-related volume (8% of worldwide billed business) |
(6) | | ||||||
United States(b) |
||||||||
Billed business |
4 | |||||||
Proprietary consumer card billed business(d) |
4 | |||||||
Proprietary small business billed business(d) |
7 | |||||||
Proprietary corporate services billed business(e) |
| |||||||
T&E-related volume (26% of U.S. billed business) |
3 | |||||||
Non-T&E-related volume (74% of U.S. billed business) |
4 | |||||||
Airline-related volume (7% of U.S. billed business) |
(3) | |||||||
Outside the United States(b) |
||||||||
Billed business |
(8) | 8 | ||||||
Japan, Asia Pacific & Australia (JAPA) billed business |
(1) | 14 | ||||||
Latin America & Canada (LACC) billed business |
(23) | (4) | ||||||
Europe, the Middle East & Africa (EMEA) billed business |
(4) | 9 | ||||||
Proprietary consumer and small business billed business(f) |
(13) | 2 | ||||||
JAPA billed business |
(7) | 10 | ||||||
LACC billed business |
(26) | (11) | ||||||
EMEA billed business |
(2) | 11 | ||||||
Proprietary corporate services billed business(e) |
(10) | % | 5 % | |||||
| ||||||||
(a) The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding prior year period against which such results are being compared). (b) Captions in the table above not designated as proprietary or GNS include both proprietary and GNS data. (c) Included in the GNMS segment. (d) Included in the USCS segment. (e) Included in the GCS segment. (f) Included in the ICS segment. |
43
Table 7: Selected Statistical Information
| ||||||||
Nine Months Ended September 30, 2015 | ||||||||
|
|
Percentage Increase (Decrease) |
|
Percentage Increase Assuming No Changes in Foreign Exchange Rates(a) | ||||
Worldwide(b) |
||||||||
Billed business |
2 | % | 6% | |||||
Proprietary billed business |
1 | 4 | ||||||
GNS billed business(c) |
3 | 15 | ||||||
Airline-related volume (9% of worldwide billed business) |
(5 | ) | 1 | |||||
United States(b) |
||||||||
Billed business |
5 | |||||||
Proprietary consumer card billed business(d) |
5 | |||||||
Proprietary small business billed business(d) |
7 | |||||||
Proprietary corporate services billed business(e) |
2 | |||||||
T&E-related volume (26% of U.S. billed business) |
4 | |||||||
Non-T&E-related volume (74% of U.S. billed business) |
5 | |||||||
Airline-related volume (8% of U.S. billed business) |
(1 | ) | ||||||
Outside the United States(b) |
||||||||
Billed business |
(5 | ) | 8 | |||||
JAPA billed business |
3 | 15 | ||||||
LACC billed business |
(18 | ) | (4) | |||||
EMEA billed business |
(6 | ) | 8 | |||||
Proprietary consumer and small business billed business(f) |
(12 | ) | 2 | |||||
JAPA billed business |
(4 | ) | 10 | |||||
LACC billed business |
(30 | ) | (19) | |||||
EMEA billed business |
(5 | ) | 10 | |||||
Proprietary corporate services billed business(e) |
(10 | )% | 4% | |||||
|
(a) | Refer to Note (a) in Table 6. |
(b) | Captions in the table above not designated as proprietary or GNS include both proprietary and GNS data. |
(c) | Included in the GNMS segment. |
(d) | Included in the USCS segment. |
(e) | Included in the GCS segment. |
(f) | Included in the ICS segment. |
44
Table 8: Selected Statistical Information
| ||||||||||||||||||||||
As of or for the Three Months Ended September 30, |
As of or for
the |
|||||||||||||||||||||
(Millions, except percentages and where indicated) |
2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||
Worldwide Card Member receivables: |
||||||||||||||||||||||
Total receivables (billions) |
$ | 44.3 | $ | 45.1 | (2) | % | $ | 44.3 | $ | 45.1 | (2)% | |||||||||||
Loss reserves: |
||||||||||||||||||||||
Beginning balance |
$ | 420 | $ | 413 | 2 | $ | 465 | $ | 386 | 20 | ||||||||||||
Provisions (a) |
203 | 196 | 4 | 542 | 594 | (9) | ||||||||||||||||
Net write-offs (b) |
(174) | (168) | 4 | (544) | (527) | 3 | ||||||||||||||||
Other |
(8) | (9) | (11) | (22) | (21) | 5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Ending balance |
$ | 441 | $ | 432 | 2 | $ | 441 | $ | 432 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
% of receivables |
1.0 | % | 1.0 | % | 1.0 | % | 1.0 | % | ||||||||||||||
Net write-off rate principal only USCS/ICS (c) |
1.8 | 1.6 | 1.8 | 1.8 | ||||||||||||||||||
Net write-off rate principal and fees USCS/ICS (c) |
2.0 | 1.8 | 2.1 | 2.0 | ||||||||||||||||||
30+ days past due as a % of total USCS/ICS |
1.6 | 1.6 | 1.6 | 1.6 | ||||||||||||||||||
Net loss ratio as a % of charge volume GCS |
0.08 | 0.09 | 0.09 | 0.09 | ||||||||||||||||||
90+ days past billing as a % of total GCS |
0.7 | % | 0.8 | % | 0.7 | % | 0.8 | % | ||||||||||||||
Worldwide Card Member loans: |
||||||||||||||||||||||
Total loans (billions) |
$ | 68.9 | $ | 66.1 | 4 | $ | 68.9 | $ | 66.1 | 4 | ||||||||||||
Loss reserves: |
||||||||||||||||||||||
Beginning balance |
$ | 1,132 | $ | 1,170 | (3) | $ | 1,201 | $ | 1,261 | (5) | ||||||||||||
Provisions (a) |
309 | 265 | 17 | 829 | 797 | 4 | ||||||||||||||||
Net write-offs principal (b) |
(231) | (245) | (6) | (733) | (786) | (7) | ||||||||||||||||
Net write-offs interest and fees (b) |
(37) | (40) | (8) | (122) | (124) | (2) | ||||||||||||||||
Other |
(9) | (4) | # | (11) | (2) | # | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Ending balance |
$ | 1,164 | $ | 1,146 | 2 | $ | 1,164 | $ | 1,146 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Ending reserves principal |
$ | 1,114 | $ | 1,093 | 2 | $ | 1,114 | $ | 1,093 | 2 | ||||||||||||
Ending reserves interest and fees |
$ | 50 | $ | 53 | (6) | $ | 50 | $ | 53 | (6) | ||||||||||||
% of loans |
1.7 | % | 1.7 | % | 1.7 | % | 1.7 | % | ||||||||||||||
% of past due |
164 | % | 165 | % | 164 | % | 165 | % | ||||||||||||||
Average loans (billions) |
$ | 69.0 | $ | 66.4 | 4 | % | $ | 68.3 | $ | 65.4 | 4 % | |||||||||||
Net write-off rate principal only (c) |
1.3 | % | 1.5 | % | 1.4 | % | 1.6 | % | ||||||||||||||
Net write-off rate principal, interest and fees (c) |
1.6 | 1.7 | 1.7 | 1.9 | ||||||||||||||||||
30+ days past due as a % of total |
1.0 | 1.1 | 1.0 | 1.1 | ||||||||||||||||||
Net interest income divided by average loans (d) |
8.7 | 8.5 | 8.5 | 8.1 | ||||||||||||||||||
Net interest yield on Card Member loans (d) |
9.5 | % | 9.3 | % | 9.5 | % | 9.3 | % | ||||||||||||||
| ||||||||||||||||||||||
# Denotes a variance greater than 100 percent
(a) Provisions on principal (resulting from authorized transactions) and fee reserve components on Card Member receivables and provisions for principal (resulting from authorized transactions), interest and/or fees on Card Member loans. (b) Write-offs, less recoveries. (c) We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The nine months ended September 30, 2015 reflects the impact of a change in the timing of charge-offs for Card Member loans and receivables in certain modification programs from 180 days past due to 120 days past due, which was fully recognized in the three months ended September 30, 2015. (d) Refer to Table 9 for the calculation of net interest income divided by average loans, a GAAP measure, net interest yield on Card Member loans, a non-GAAP measure, and our rationale for presenting net interest yield on Card Member loans. |
45