ITEM 2.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Business Introduction
When we use the terms
American Express, the Company, we, our or us, we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
We are a global services company that provides our customers with access to products, insights and experiences that enrich lives and build business success.
Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through our non-consolidated joint
venture, American Express Global Business Travel (GBT JV). Our range of products and services includes:
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Charge and credit card products
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Merchant acquisition and processing, servicing and settlement, marketing and information products and services for merchants
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Fee services, including fraud prevention services and the design and operation of customer loyalty and rewards programs
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Expense management products and services
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Other lending products, including merchant financing
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Travel-related services
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Stored-value/prepaid products
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Our various products and services are sold globally to diverse customer groups,
including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response
advertising.
We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, as well as evolving and
growing alternative payment providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customers existing accounts and relationships to create payment
or other fee-based solutions.
Our products and services generate the following types of revenue for the Company:
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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;
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Interest on loans, which principally represents interest income earned on outstanding balances;
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Net card fees, which represent revenue earned from annual card membership fees;
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Other fees and commissions, which are earned on card-related fees (such as late fees and assessments), foreign exchange conversions, loyalty coalition-related fees, travel commissions and fees and other service fees;
and
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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) and other miscellaneous revenue and fees.
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Effective for the first quarter of 2016, we realigned our segment presentation to reflect the organizational
changes announced during the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments, which are: U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global
Commercial Services (GCS) and Global Merchant Services (GMS), with corporate functions and certain other businesses and operations included in Corporate & Other. Refer to Note 1 to the Consolidated Financial Statements for additional
information.
Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to
the Cautionary Note Regarding Forward-Looking Statements section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain
information included within this Form 10-Q constitute non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
Bank Holding Company
American Express Company is
a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserves regulations,
policies and minimum capital standards.
Business Environment
During the third quarter we remained focused on our key initiatives to accelerate revenue growth, optimize our investments and reset our cost base. Our results
reflected progress on our cost reduction efforts and steady credit performance, partially offset by a higher level of investment spending and a restructuring charge. Reported billed business, loans and revenues declined year-over-year primarily due
to the end of our relationship with Costco Wholesale Corporation in the United States (Costco) and the sales of the Card Member loans and receivables related to our cobrand partnerships with Costco and JetBlue Airways Corporation (JetBlue)
(collectively, the HFS portfolios). However, we saw underlying growth in billed business, loans and revenues on an adjusted basis, as described further below. In addition, our strong capital position allowed us to return capital to shareholders.
For the third quarter, worldwide billings adjusted for foreign currency exchange rates were down year-over-year, but were up after excluding
Costco-related billings from the prior year. Billings in the quarter were also impacted by lower gas and airline ticket prices, which remained headwinds across our U.S. businesses. We continued to see differing trends between spending by large
corporations, which declined year-over-year, and spending by middle market and small businesses, which grew versus the prior year after adjusting for the effects of Costco. International billings continued to be strong.
Revenues net of interest expense declined year-over-year on a reported basis, reflecting lower billed business and a decline in Card Member loans. After
excluding Costco-related revenues from the prior year, adjusted revenues net of interest expense grew year-over-year resulting from an increase in adjusted billed business and growth in net card fees across our premium card portfolios. Net interest
income also declined year-over-year on a reported basis, reflecting lower Card Member loans and higher funding costs related to our charge card portfolio, due to an increase in interest rates versus the prior year. Excluding Costco cobrand
card-related activity from the prior year, adjusted net interest income grew year-over-year as a result of growth in adjusted Card Member loans.
Card Member loans declined reflecting the sales of the HFS portfolios in the first half of the year. Adjusted
Card Member loans grew year-over-year, after excluding from the prior year Card Member loans related to these portfolios. Provision expenses on a reported basis were also down year-over-year as the prior period included credit costs associated with
the HFS portfolios. Provision expenses, adjusted for these credit costs, increased primarily as a result of growth in adjusted Card Member loans and seasoning of loans related to new Card Members. We expect that continued growth in adjusted loans
and some modest upward pressure on our write-off rates, due primarily to this seasoning of loans related to new Card Members, will both contribute to an increase in provision expenses going forward.
Total expenses decreased versus the prior year, reflecting a decline in rewards expense, partially offset by an increase in investment spending on growth
initiatives. The decrease in rewards expense was driven by the Costco cobrand expenses included in the prior year and the continued shift in volumes to cash rebate products, for which the rewards costs are classified as contra-discount revenue.
After adjusting for the Costco cobrand, we expect rewards expense, including costs associated with cash rebate products, to grow faster than billings as we continue to enhance our card product value propositions over time. In addition, we expect
that our investment spending on growth initiatives, including marketing and promotion, during the fourth quarter will be significantly higher than in the third quarter.
Competition remains intense across our businesses, particularly in the U.S. While our businesses are global and diversified, to remain competitive we need to
continue to demonstrate the value we deliver to merchants, customers and business partners in all aspects of our relationships. More intense competition has and will continue to impact our cost of renewing and ability to win or extend cobrand and
other relationships. Throughout our business, we are focused on those products, services and relationships that offer the best value to our customers while also providing appropriate returns to our business and shareholders.
See Certain legislative, regulatory and other developments in Other Matters for information on legislative and regulatory changes that
could have a material adverse effect on our results of operations and financial condition.
American Express Company
Consolidated Results of Operations
Refer
to the Glossary of Selected Terminology for the definitions of certain key terms and related information appearing within this section.
Effective December 1, 2015, we transferred the Card Member loans and receivables related to our HFS portfolios to Card Member loans and receivables HFS
on the Consolidated Balance Sheets. On March 18, 2016 and June 17, 2016, we completed the sales of the JetBlue and Costco cobrand card portfolios, respectively. For the periods from December 1, 2015, through the sale completion dates,
the primary impacts beyond the HFS classification on the Consolidated Balance Sheets were to provisions for losses and credit metrics, which do not reflect amounts related to these HFS loans and receivables, as credit costs were reported in Other
expenses through a valuation allowance adjustment. Other, non-credit related metrics (i.e., billed business, cards-in-force, net interest yield) reflect amounts related to the HFS portfolios through the sale completion dates. Additionally, for
periods after the sale completion dates, activities associated with these cobrand partnerships and the HFS portfolios are no longer included in our Consolidated Results of Operations. Specifically, these impacts include: Discount revenue from Costco
in the U.S. for spend on all American Express cards and from other merchants for spend on the Costco cobrand card; Other fees and commissions and Interest income from Costco cobrand Card Members; and Card Member rewards expense related to the Costco
cobrand card.
Table 1: Summary of Financial Performance
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Three Months
Ended
September 30,
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Change
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Nine Months Ended
September 30,
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Change
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(Millions, except percentages and per share amounts)
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2016
|
|
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2015
|
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2016 vs. 2015
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2016
|
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|
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2015
|
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|
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2016 vs. 2015
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|
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|
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|
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|
|
|
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|
|
|
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|
|
|
|
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Total revenues net of interest expense
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$
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7,774
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$
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8,193
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$
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(419
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)
|
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(5
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)%
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$
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24,097
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$
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24,427
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$
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(330
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)
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(1
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)%
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Provisions for losses
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504
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|
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|
529
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|
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(25
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)
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(5
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)
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1,401
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1,416
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(15
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)
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|
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(1
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)
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Expenses
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5,535
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5,726
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(191
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)
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(3
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)
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15,761
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16,527
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(766
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)
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(5
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)
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Net income
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1,142
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1,266
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(124
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)
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(10
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)
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|
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4,583
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|
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4,264
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|
|
319
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|
|
|
7
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Earnings per common share -
diluted
(a)
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$
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1.20
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$
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1.24
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|
$
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(0.04
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)
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(3
|
)%
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$
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4.76
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|
|
$
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4.15
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$
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0.61
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|
|
15
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%
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Return on average equity
(b)
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26.1
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%
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26.8
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%
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26.1
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%
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26.8
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%
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(a)
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Earnings per common share - diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $9 million and $10 million for the three months ended September 30, 2016
and 2015, respectively, and $37 million and $32 million for the nine months ended September 30, 2016 and 2015, respectively, and (ii) dividends on preferred shares of $21 million and $22 million for the three months ended
September 30, 2016 and 2015, respectively, and $61 million and $42 million for the nine months ended September 30, 2016 and 2015, respectively.
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(b)
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Return on average equity (ROE) is computed by dividing (i) one-year period net income ($5.5 billion and $5.7 billion for September 30, 2016 and 2015, respectively) by (ii) one-year average total
shareholders equity ($21.0 billion and $21.4 billion for September 30, 2016 and 2015, respectively).
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Table 2: Total Revenue
Net of Interest Expense Summary
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|
|
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|
|
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|
Three Months Ended
September 30,
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Change
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Nine Months Ended
September 30,
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Change
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(Millions, except percentages)
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2016
|
|
|
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2015
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|
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2016 vs. 2015
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2016
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2015
|
|
|
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2016 vs. 2015
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|
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|
|
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Discount revenue
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$
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4,516
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$
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4,778
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$
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(262
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)
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|
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(5
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)%
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|
$
|
13,983
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|
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$
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14,384
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$
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(401
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)
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|
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(3
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)%
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Net card fees
|
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747
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|
679
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68
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|
|
|
10
|
|
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2,161
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|
|
|
2,013
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|
|
|
148
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|
|
|
7
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Other fees and commissions
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694
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|
727
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(33
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)
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|
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(5
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)
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2,076
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|
|
|
2,162
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|
|
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(86
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)
|
|
|
(4
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)
|
Other
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|
|
483
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|
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|
504
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|
|
|
(21
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)
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|
|
(4
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)
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|
1,514
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|
|
|
1,493
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|
|
21
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|
|
1
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|
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Total non-interest revenues
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6,440
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|
6,688
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|
|
|
(248
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)
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|
|
(4
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)
|
|
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19,734
|
|
|
|
20,052
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|
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(318
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)
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|
|
(2
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)
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|
|
|
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|
|
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Total interest income
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1,764
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|
|
1,904
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(140
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)
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|
(7
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)
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5,654
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|
5,598
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|
|
56
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|
|
|
1
|
|
Total interest expense
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430
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|
399
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31
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|
8
|
|
|
|
1,291
|
|
|
|
1,223
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|
|
|
68
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|
|
|
6
|
|
|
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|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,334
|
|
|
|
1,505
|
|
|
|
(171
|
)
|
|
|
(11
|
)
|
|
|
4,363
|
|
|
|
4,375
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|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
7,774
|
|
|
$
|
8,193
|
|
|
$
|
(419
|
)
|
|
|
(5
|
)%
|
|
$
|
24,097
|
|
|
$
|
24,427
|
|
|
$
|
(330
|
)
|
|
|
(1
|
)%
|
|
|
Total Revenues Net of Interest Expense
Discount revenue decreased $262 million or 5 percent and $401 million or 3 percent for the three and nine months ended September 30, 2016, respectively,
compared to the same periods in the prior year, primarily driven by the Costco-related revenue included in the prior year, as previously mentioned, as well as increases in contra-discount revenues, including higher cash rebate rewards, partially
offset by lower discount revenue share with GNS issuing partners.
Billed business decreased 3 percent and increased 1 percent for the three and nine
months ended September 30, 2016, respectively, compared to the same periods in the prior year. U.S. billed business decreased 9 percent and 1 percent for the three and nine months ended September 30, 2016, respectively, primarily driven by
Costco-related volumes in the prior year. Non-U.S. billed business increased 10 percent and 6 percent in the same respective periods.
The average
discount rate was 2.47 percent and 2.45 percent for the three and nine months ended September 30, 2016, respectively, and 2.46 percent and 2.48 percent for the three and nine months ended September 30, 2015, respectively. The increase for
the three-month period reflects the absence of Costco merchant volumes in the current year, which were at a lower discount rate than the average. The decrease for the nine-month period was driven primarily by a prior-year benefit related to certain
merchant rebate accruals, growth of the OptBlue program and merchant negotiations, including those resulting from the recent European regulatory changes, partially offset by the benefit to the discount rate from the decline in Costco merchant
volumes in the current period. We expect the average discount rate will likely decline over time due to further expansion of OptBlue, overall changes in the mix of spending by location and industry, merchant incentives and concessions, volume
related pricing discounts, strategic investments, certain pricing initiatives, competition, pricing regulation (including regulation of competitors interchange rates) and other factors. See Tables 5, 6 and 7 for more details on billed business
performance and the average discount rate.
Net card fees increased $68 million or 10 percent and $148 million or 7 percent for the three and nine months
ended September 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by growth in the Platinum, Gold and Delta portfolios.
Other fees and commissions decreased $33 million or 5 percent and $86 million or 4 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year, primarily driven by Costco-related fees included in the prior year, partially offset by an increase in delinquency and loyalty coalition-related fees.
Other revenues decreased $21 million or 4 percent and increased $21 million or 1 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year. Both periods reflect Costco-related revenues in the prior year and lower revenues related to the GBT JV transition services agreement in the current period, both of which were more than
offset in the nine-month period by a contractual payment from a GNS partner in the second quarter of 2016 and higher revenues from our Prepaid Services business.
Interest income decreased $140 million or 7 percent and increased $56 million or 1 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year. Both periods reflect Costco-related interest income in the prior year, which was more than offset in the nine-month period by modestly higher yields and an increase in average Card Member
loans (including Card Member loans HFS).
Interest expense increased $31 million or 8 percent and $68 million or 6 percent for the three and nine months
ended September 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher average customer deposit balances, partially offset by lower average long-term debt.
Table 3: Provisions for Losses Summary
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
Change
|
|
|
|
September 30,
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge card
|
|
$
|
174
|
|
|
$
|
203
|
|
|
$
|
(29
|
)
|
|
|
(14
|
)%
|
|
$
|
496
|
|
|
$
|
542
|
|
|
$
|
(46
|
)
|
|
|
(8
|
)%
|
Card Member loans
|
|
|
319
|
|
|
|
309
|
|
|
|
10
|
|
|
|
3
|
|
|
|
831
|
|
|
|
829
|
|
|
|
2
|
|
|
|
|
|
Other
|
|
|
11
|
|
|
|
17
|
|
|
|
(6
|
)
|
|
|
(35
|
)
|
|
|
74
|
|
|
|
45
|
|
|
|
29
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provisions for
losses
(a)
|
|
$
|
504
|
|
|
$
|
529
|
|
|
$
|
(25
|
)
|
|
|
(5
|
)%
|
|
$
|
1,401
|
|
|
$
|
1,416
|
|
|
$
|
(15
|
)
|
|
|
(1
|
)%
|
|
|
(a)
|
Beginning December 1, 2015 through to the sale completion dates, does not reflect the HFS portfolios.
|
Provisions for Losses
Charge card provision for
losses decreased $29 million or 14 percent and $46 million or 8 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by lower net write-offs and improved
delinquencies.
Card Member loans provision for losses increased $10 million or 3 percent and remained flat for the three and nine months ended
September 30, 2016, respectively, compared to the same periods in the prior year, as the current year periods do not reflect credit costs associated with the HFS portfolios, as previously mentioned, which was offset by strong momentum in our
lending growth initiatives, resulting in higher loan balances and net write-offs.
Other provision for losses decreased $6 million and increased $29
million for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The increase in the nine-month period was primarily driven by higher net write-offs in the merchant financing loan
portfolio as a result of historic growth, whereas the decrease in the three-month period was due to improving merchant financing loan credit performance.
Table 4: Expenses Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
Change
|
|
|
|
September 30,
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and promotion
|
|
$
|
930
|
|
|
$
|
847
|
|
|
$
|
83
|
|
|
|
10
|
%
|
|
$
|
2,445
|
|
|
$
|
2,217
|
|
|
$
|
228
|
|
|
|
10
|
%
|
Card Member rewards
|
|
|
1,566
|
|
|
|
1,763
|
|
|
|
(197
|
)
|
|
|
(11
|
)
|
|
|
5,035
|
|
|
|
5,202
|
|
|
|
(167
|
)
|
|
|
(3
|
)
|
Card Member services and other
|
|
|
278
|
|
|
|
269
|
|
|
|
9
|
|
|
|
3
|
|
|
|
841
|
|
|
|
772
|
|
|
|
69
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketing, promotion, rewards, Card Member services and other
|
|
|
2,774
|
|
|
|
2,879
|
|
|
|
(105
|
)
|
|
|
(4
|
)
|
|
|
8,321
|
|
|
|
8,191
|
|
|
|
130
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,263
|
|
|
|
1,212
|
|
|
|
51
|
|
|
|
4
|
|
|
|
4,052
|
|
|
|
3,767
|
|
|
|
285
|
|
|
|
8
|
|
Other, net
(a)
|
|
|
1,498
|
|
|
|
1,635
|
|
|
|
(137
|
)
|
|
|
(8
|
)
|
|
|
3,388
|
|
|
|
4,569
|
|
|
|
(1,181
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,535
|
|
|
$
|
5,726
|
|
|
$
|
(191
|
)
|
|
|
(3
|
)%
|
|
$
|
15,761
|
|
|
$
|
16,527
|
|
|
$
|
(766
|
)
|
|
|
(5
|
)%
|
|
|
(a)
|
Beginning December 1, 2015 through to the sale completion dates, includes the valuation allowance adjustment associated with the HFS portfolios.
|
Expenses
Marketing and promotion expenses
increased $83 million or 10 percent and $228 million or 10 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, driven by higher levels of spending on growth initiatives,
predominantly within the USCS and ICNS segments.
Card Member rewards expenses decreased $197 million or 11 percent and $167 million or 3 percent for the
three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decreases were primarily driven by lower cobrand rewards expense of $236 million and $289 million, in the same respective periods,
primarily reflecting Costco-related expenses in the prior year, as well as, in the current year, a shift in volumes to cash rebate products for which the rewards costs are classified as contra-discount revenue, partially offset in both periods by
increased spending volumes across other cobrand card products. The lower cobrand rewards expense was partially offset by higher Membership Rewards expense of $38 million and $122 million, in the same respective periods, primarily driven by an
increase in new points earned as a result of higher spending volumes and a lower benefit in the weighted average cost per point (WAC).
The Membership Rewards URR for current program participants was 95 percent (rounded down) at September 30,
2016, compared to 95 percent (rounded up) at September 30, 2015.
Card Member services and other expenses increased $9 million or 3 percent and $69
million or 9 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, driven by increased usage of travel-related benefits.
Salaries and employee benefits expenses increased $51 million or 4 percent and $285 million or 8 percent for the three and nine months ended
September 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by restructuring in the current year.
Other
expenses decreased $137 million or 8 percent and $1.2 billion or 26 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decreases in both periods reflected an
impairment charge related to previously capitalized software development costs, partially offset by a litigation reserve release, both in the prior year, and lower technology-related costs in the current year. The decrease in the nine-month period
also reflected the gains on the sales of the HFS portfolios, partially offset by the benefit in the prior year from both the reassessment of the functional currency of certain UK legal entities and other foreign exchange (FX) related activity.
Income Taxes
The effective tax rate was 34.2
percent and 33.9 percent for the three and nine months ended September 30, 2016, respectively, and 34.7 percent and 34.2 percent for the three and nine months ended September 30, 2015, respectively. The changes in tax rates primarily
reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business.
Table 5: Selected Card-Related Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
|
|
Change
|
|
|
|
As of or for the
|
|
|
|
Change
|
|
|
|
|
Three Months Ended
|
|
|
|
2016
|
|
|
|
Nine Months Ended
|
|
|
|
2016
|
|
|
|
|
September 30,
|
|
|
|
vs.
|
|
|
|
September 30,
|
|
|
|
vs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card billed business:
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
164.6
|
|
|
$
|
180.4
|
|
|
|
(9
|
)%
|
|
$
|
526.0
|
|
|
$
|
531.6
|
|
|
|
(1
|
)%
|
Outside the United States
|
|
|
86.6
|
|
|
|
78.5
|
|
|
|
10
|
|
|
|
248.3
|
|
|
|
234.9
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
251.2
|
|
|
$
|
258.9
|
|
|
|
(3
|
)
|
|
$
|
774.3
|
|
|
$
|
766.5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
47.1
|
|
|
|
56.4
|
|
|
|
(16
|
)
|
|
|
47.1
|
|
|
|
56.4
|
|
|
|
(16
|
)
|
Outside the United States
|
|
|
61.7
|
|
|
|
59.4
|
|
|
|
4
|
|
|
|
61.7
|
|
|
|
59.4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
|
108.8
|
|
|
|
115.8
|
|
|
|
(6
|
)
|
|
|
108.8
|
|
|
|
115.8
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic cards-in-force:
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
37.0
|
|
|
|
43.6
|
|
|
|
(15
|
)
|
|
|
37.0
|
|
|
|
43.6
|
|
|
|
(15
|
)
|
Outside the United States
|
|
|
51.1
|
|
|
|
49.0
|
|
|
|
4
|
|
|
|
51.1
|
|
|
|
49.0
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
|
88.1
|
|
|
|
92.6
|
|
|
|
(5
|
)
|
|
|
88.1
|
|
|
|
92.6
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic Card Member spending:
(dollars)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,937
|
|
|
$
|
4,503
|
|
|
|
10
|
|
|
$
|
13,732
|
|
|
$
|
13,432
|
|
|
|
2
|
|
Outside the United States
|
|
|
3,264
|
|
|
|
3,197
|
|
|
|
2
|
|
|
|
9,667
|
|
|
|
9,620
|
|
|
|
|
|
Worldwide Average
|
|
|
4,433
|
|
|
|
4,165
|
|
|
|
6
|
|
|
|
12,628
|
|
|
|
12,437
|
|
|
|
2
|
|
Card Member loans:
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
53.9
|
|
|
|
62.1
|
|
|
|
(13
|
)
|
|
|
53.9
|
|
|
|
62.1
|
|
|
|
(13
|
)
|
Outside the United States
|
|
|
6.7
|
|
|
|
6.8
|
|
|
|
(1
|
)
|
|
|
6.7
|
|
|
|
6.8
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
60.6
|
|
|
$
|
68.9
|
|
|
|
(12
|
)
|
|
$
|
60.6
|
|
|
$
|
68.9
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average discount rate
|
|
|
2.47
|
%
|
|
|
2.46
|
%
|
|
|
|
|
|
|
2.45
|
%
|
|
|
2.48
|
%
|
|
|
|
|
Average fee per card
(dollars)
(a)
|
|
$
|
49
|
|
|
$
|
39
|
|
|
|
26
|
%
|
|
$
|
43
|
|
|
$
|
39
|
|
|
|
10
|
%
|
|
|
(a)
|
Average basic Card Member spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees divided by average worldwide proprietary
cards-in-force.
|
Table 6: Billed Business Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
Percentage
Increase
(Decrease)
|
|
|
|
Percentage Increase
(Decrease) Assuming
No Changes in
FX Rates
(a)
|
|
|
|
|
|
|
|
|
|
|
Worldwide
(b)
|
|
|
|
|
|
|
|
|
Total billed business
|
|
|
(3
|
)%
|
|
|
(3
|
)%
|
Proprietary billed business
|
|
|
(5
|
)
|
|
|
(5
|
)
|
GNS billed business
(c)
|
|
|
10
|
|
|
|
10
|
|
Airline-related volume (8% of worldwide billed business)
|
|
|
(6
|
)
|
|
|
(5
|
)
|
United States
(b)
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
(9
|
)
|
|
|
|
|
Proprietary consumer card billed
business
(d)
|
|
|
(15
|
)
|
|
|
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
(1
|
)
|
|
|
|
|
T&E-related volume (26% of U.S. billed business)
|
|
|
(7
|
)
|
|
|
|
|
Non-T&E-related volume
|
|
|
(9
|
)
|
|
|
|
|
Airline-related volume (7% of U.S. billed business)
|
|
|
(11
|
)
|
|
|
|
|
Outside the United States
(b)
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
10
|
|
|
|
11
|
|
Japan, Asia Pacific & Australia billed business
|
|
|
22
|
|
|
|
16
|
|
Latin America & Canada billed business
|
|
|
|
|
|
|
7
|
|
Europe, the Middle East & Africa billed business
|
|
|
2
|
|
|
|
7
|
|
Proprietary consumer card billed
business
(c)
|
|
|
6
|
|
|
|
8
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
(a)
|
The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to
determine results for the current period apply to the corresponding period against which such results are being compared).
|
(b)
|
Captions in the table above not designated as proprietary or GNS include both proprietary and GNS data.
|
(c)
|
Included in the ICNS segment.
|
(d)
|
Included in the USCS segment.
|
(e)
|
Included in the GCS segment.
|
Table 7: Billed Business Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
Percentage
Increase
(Decrease)
|
|
|
|
Percentage Increase
(Decrease) Assuming
No Changes in
FX Rates
(a)
|
|
|
|
|
|
|
|
|
|
|
Worldwide
(b)
|
|
|
|
|
|
|
|
|
Total billed business
|
|
|
1
|
%
|
|
|
2
|
%
|
Proprietary billed business
|
|
|
|
|
|
|
1
|
|
GNS billed business
(c)
|
|
|
7
|
|
|
|
11
|
|
Airline-related volume (8% of worldwide billed business)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
United States
(b)
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
(1
|
)
|
|
|
|
|
Proprietary consumer card billed
business
(d)
|
|
|
(4
|
)
|
|
|
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
3
|
|
|
|
|
|
T&E-related volume (26% of U.S. billed business)
|
|
|
(3
|
)
|
|
|
|
|
Non-T&E-related volume
|
|
|
(1
|
)
|
|
|
|
|
Airline-related volume (7% of U.S. billed business)
|
|
|
(8
|
)
|
|
|
|
|
Outside the United States
(b)
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
6
|
|
|
|
10
|
|
Japan, Asia Pacific & Australia billed business
|
|
|
14
|
|
|
|
14
|
|
Latin America & Canada billed business
|
|
|
(8
|
)
|
|
|
6
|
|
Europe, the Middle East & Africa billed business
|
|
|
3
|
|
|
|
7
|
|
Proprietary consumer card billed
business
(c)
|
|
|
4
|
|
|
|
8
|
|
Proprietary small business and corporate services billed business
(e)
|
|
|
2
|
%
|
|
|
5
|
%
|
|
|
(a)
|
Refer to Note (a) in Table 6.
|
(b)
|
Captions in the table above not designated as proprietary or GNS include both proprietary and GNS data.
|
(c)
|
Included in the ICNS segment.
|
(d)
|
Included in the USCS segment.
|
(e)
|
Included in the GCS segment.
|
Table 8: Selected Credit-Related Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
|
Change
|
|
|
As of or for the
|
|
|
Change
|
|
|
|
Three Months Ended
|
|
|
2016
|
|
|
Nine Months Ended
|
|
|
2016
|
|
|
|
September 30,
|
|
|
vs.
|
|
|
September 30,
|
|
|
vs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Card Member receivables:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
45.3
|
|
|
$
|
44.3
|
|
|
|
2
|
%
|
|
$
|
45.3
|
|
|
$
|
44.3
|
|
|
|
2
|
%
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
423
|
|
|
$
|
420
|
|
|
|
1
|
|
|
$
|
462
|
|
|
$
|
465
|
|
|
|
(1
|
)
|
Provisions
(b)
|
|
|
174
|
|
|
|
203
|
|
|
|
(14
|
)
|
|
|
496
|
|
|
|
542
|
|
|
|
(8
|
)
|
Net write-offs
(c)
|
|
|
(159
|
)
|
|
|
(174
|
)
|
|
|
(9
|
)
|
|
|
(518
|
)
|
|
|
(544
|
)
|
|
|
(5
|
)
|
Other
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
(88
|
)
|
|
|
(3
|
)
|
|
|
(22
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
437
|
|
|
$
|
441
|
|
|
|
(1
|
)
|
|
$
|
437
|
|
|
$
|
441
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of receivables
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
|
|
Net write-off rate principal only
(d)
|
|
|
1.4
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
|
|
Net write-off rate principal and fees
(d)
|
|
|
1.6
|
|
|
|
2.0
|
|
|
|
|
|
|
|
1.8
|
|
|
|
2.1
|
|
|
|
|
|
30+ days past due as a % of total
(d)
|
|
|
1.4
|
|
|
|
1.6
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.6
|
|
|
|
|
|
Net loss ratio as a % of charge volume GCP
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
|
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
|
|
90+ days past billing as a % of total GCP
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Card Member loans:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
60.6
|
|
|
$
|
68.9
|
|
|
|
(12
|
)
|
|
$
|
60.6
|
|
|
$
|
68.9
|
|
|
|
(12
|
)
|
Loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,091
|
|
|
$
|
1,132
|
|
|
|
(4
|
)
|
|
$
|
1,028
|
|
|
$
|
1,201
|
|
|
|
(14
|
)
|
Provisions
(b)
|
|
|
319
|
|
|
|
309
|
|
|
|
3
|
|
|
|
831
|
|
|
|
829
|
|
|
|
|
|
Net write-offs principal only
(c)
|
|
|
(250
|
)
|
|
|
(231
|
)
|
|
|
8
|
|
|
|
(687
|
)
|
|
|
(733
|
)
|
|
|
(6
|
)
|
Net write-offs interest and fees
(c)
|
|
|
(48
|
)
|
|
|
(37
|
)
|
|
|
30
|
|
|
|
(128
|
)
|
|
|
(122
|
)
|
|
|
5
|
|
Other
(e)
|
|
|
2
|
|
|
|
(9
|
)
|
|
|
#
|
|
|
|
70
|
|
|
|
(11
|
)
|
|
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,114
|
|
|
$
|
1,164
|
|
|
|
(4
|
)
|
|
$
|
1,114
|
|
|
$
|
1,164
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending reserves principal
|
|
$
|
1,050
|
|
|
$
|
1,114
|
|
|
|
(6
|
)
|
|
$
|
1,050
|
|
|
$
|
1,114
|
|
|
|
(6
|
)
|
Ending reserves interest and fees
|
|
$
|
64
|
|
|
$
|
50
|
|
|
|
28
|
|
|
$
|
64
|
|
|
$
|
50
|
|
|
|
28
|
|
% of loans
|
|
|
1.8
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
1.8
|
%
|
|
|
1.7
|
%
|
|
|
|
|
% of past due
|
|
|
160
|
%
|
|
|
164
|
%
|
|
|
|
|
|
|
160
|
%
|
|
|
164
|
%
|
|
|
|
|
Average loans
(billions)
(a)
|
|
$
|
60.3
|
|
|
$
|
69.0
|
|
|
|
(13
|
)%
|
|
$
|
58.9
|
|
|
$
|
68.3
|
|
|
|
(14
|
)%
|
Net write-off rate principal only
(d)
|
|
|
1.7
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.6
|
%
|
|
|
1.4
|
%
|
|
|
|
|
Net write-off rate principal, interest and
fees
(d)
|
|
|
2.0
|
|
|
|
1.6
|
|
|
|
|
|
|
|
1.8
|
|
|
|
1.7
|
|
|
|
|
|
30+ days past due as a % of total
(d)
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
#
|
Denotes a variance greater than 100 percent.
|
(a)
|
Beginning December 1, 2015 through to the sale completion dates, does not reflect the HFS portfolios.
|
(b)
|
Provisions on principal and fee reserve components on Card Member receivables and provisions for principal, interest and/or fees on Card Member loans. Refer to Table 3 footnote (a).
|
(c)
|
Write-offs, less recoveries.
|
(d)
|
We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our
reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The net write-off rates and 30+ days past due as a percentage of total for Card Member receivables relate to USCS, ICNS and Global Small
Business Services (GSBS) Card Member receivables.
|
(e)
|
Includes reserves associated with Card Member loans reclassified from HFS to held for investment. Refer to Changes in Card Member loans reserve for losses under Note 4 to the Consolidated Financial Statements for
additional information.
|
Table 9: Net Interest Yield on Card Member Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,334
|
|
|
$
|
1,505
|
|
|
$
|
4,363
|
|
|
$
|
4,375
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
261
|
|
|
|
232
|
|
|
|
746
|
|
|
|
726
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
(104
|
)
|
|
|
(89
|
)
|
|
|
(309
|
)
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(a)
|
|
$
|
1,491
|
|
|
$
|
1,648
|
|
|
$
|
4,800
|
|
|
$
|
4,835
|
|
Average loans including HFS loan portfolios
(billions)
|
|
$
|
60.3
|
|
|
$
|
69.0
|
|
|
$
|
66.6
|
|
|
$
|
68.3
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
8.8
|
%
|
|
|
8.7
|
%
|
|
|
8.7
|
%
|
|
|
8.5
|
%
|
Net interest yield on Card Member loans
(a)
|
|
|
9.8
|
%
|
|
|
9.5
|
%
|
|
|
9.6
|
%
|
|
|
9.5
|
%
|
|
|
(a)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to Glossary of Selected Terminology for definitions of these terms. We believe adjusted net interest
income is useful to investors because it is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
|
Business Segment Results
U.S. Consumer Services
Table 10: USCS
Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Change
|
|
|
Nine Months Ended
September 30,
|
|
|
Change
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,849
|
|
|
$
|
2,117
|
|
|
$
|
(268
|
)
|
|
|
(13
|
)%
|
|
$
|
5,947
|
|
|
$
|
6,324
|
|
|
|
(377
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,178
|
|
|
|
1,324
|
|
|
|
(146
|
)
|
|
|
(11
|
)
|
|
|
3,847
|
|
|
|
3,849
|
|
|
|
(2
|
)
|
|
|
|
|
Interest expense
|
|
|
125
|
|
|
|
123
|
|
|
|
2
|
|
|
|
2
|
|
|
|
404
|
|
|
|
358
|
|
|
|
46
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,053
|
|
|
|
1,201
|
|
|
|
(148
|
)
|
|
|
(12
|
)
|
|
|
3,443
|
|
|
|
3,491
|
|
|
|
(48
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
2,902
|
|
|
|
3,318
|
|
|
|
(416
|
)
|
|
|
(13
|
)
|
|
|
9,390
|
|
|
|
9,815
|
|
|
|
(425
|
)
|
|
|
(4
|
)
|
Provisions for losses
|
|
|
275
|
|
|
|
294
|
|
|
|
(19
|
)
|
|
|
(6
|
)
|
|
|
702
|
|
|
|
730
|
|
|
|
(28
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,627
|
|
|
|
3,024
|
|
|
|
(397
|
)
|
|
|
(13
|
)
|
|
|
8,688
|
|
|
|
9,085
|
|
|
|
(397
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
1,274
|
|
|
|
1,396
|
|
|
|
(122
|
)
|
|
|
(9
|
)
|
|
|
3,991
|
|
|
|
3,972
|
|
|
|
19
|
|
|
|
|
|
Salaries and employee benefits and other operating expenses
|
|
|
738
|
|
|
|
768
|
|
|
|
(30
|
)
|
|
|
(4
|
)
|
|
|
1,297
|
|
|
|
2,273
|
|
|
|
(976
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,012
|
|
|
|
2,164
|
|
|
|
(152
|
)
|
|
|
(7
|
)
|
|
|
5,288
|
|
|
|
6,245
|
|
|
|
(957
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
615
|
|
|
|
860
|
|
|
|
(245
|
)
|
|
|
(28
|
)
|
|
|
3,400
|
|
|
|
2,840
|
|
|
|
560
|
|
|
|
20
|
|
Income tax provision
|
|
|
214
|
|
|
|
318
|
|
|
|
(104
|
)
|
|
|
(33
|
)
|
|
|
1,238
|
|
|
|
1,026
|
|
|
|
212
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
401
|
|
|
$
|
542
|
|
|
$
|
(141
|
)
|
|
|
(26
|
)%
|
|
$
|
2,162
|
|
|
$
|
1,814
|
|
|
|
348
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
34.8
|
%
|
|
|
37.0
|
%
|
|
|
|
|
|
|
|
|
|
|
36.4
|
%
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
|
|
USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including
consumer travel services.
Non-interest revenues decreased $268 million or 13 percent and $377 million or 6 percent for the three and nine months ended
September 30, 2016, respectively, compared to the same periods in the prior year. The decreases in both periods were primarily due to lower discount revenue, which decreased $266 million or 17 percent and $413 million or 9 percent for the three
and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, reflecting Costco-related revenues in the prior year and higher cash rebate rewards in the current year, for which the rewards costs are
classified as contra-discount revenue. Billed business decreased 15 percent and 4 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by Costco-related
volumes included in the prior year. The decrease in discount revenue was partially offset by an increase in net card fees, resulting from growth in the Platinum, Gold and Delta portfolios.
Net interest income decreased $148 million or 12 percent and $48 million or 1 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year, primarily driven by Costco-related interest income included in the prior year and higher interest expense in the current year, partially offset in the nine-month period by modestly higher
yields and an increase in average Card Member loans (including Card Member loans HFS).
Overall, provisions for losses decreased $19 million or 6 percent
and $28 million or 4 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, as the current year periods do not reflect credit costs associated with the HFS portfolios, as
previously mentioned, which was partially offset by strong momentum in our lending growth initiatives, resulting in higher loan balances and net write-offs.
44
Marketing, promotion, rewards, Card Member services and other expenses decreased $122 million or 9 percent
and was relatively flat for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. Both periods reflect lower cobrand rewards expense due to Costco-related expenses in the prior year,
which was offset in the nine-month period by an increase in marketing and promotion expense, driven by higher levels of spending on growth initiatives, and an increase in Card Member services expense, driven by increased usage of new benefits.
Salaries and employee benefits and other operating expenses decreased $30 million or 4 percent and $976 million or 43 percent for the
three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decrease in the three-month period was primarily driven by lower operating expenses, partially offset by restructuring in the
current year. The decrease in the nine-month period primarily reflects the gains on the sales of the HFS portfolios.
Table 11: USCS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
|
As of or for the
Nine Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Card billed business
(billions)
|
|
$
|
78.6
|
|
|
$
|
92.3
|
|
|
|
(15
|
)%
|
|
$
|
261.0
|
|
|
$
|
271.6
|
|
|
|
(4
|
)%
|
Total cards-in-force
|
|
|
32.3
|
|
|
|
40.0
|
|
|
|
(19
|
)
|
|
|
32.3
|
|
|
|
40.0
|
|
|
|
(19
|
)
|
Basic cards-in-force
|
|
|
22.9
|
|
|
|
28.0
|
|
|
|
(18
|
)
|
|
|
22.9
|
|
|
|
28.0
|
|
|
|
(18
|
)
|
Average basic Card Member spending
(dollars)
|
|
$
|
3,452
|
|
|
$
|
3,337
|
|
|
|
3
|
|
|
$
|
9,878
|
|
|
$
|
9,969
|
|
|
|
(1
|
)
|
Total segment assets
(billions)
(a)
|
|
$
|
79.4
|
|
|
$
|
84.0
|
|
|
|
(5
|
)
|
|
$
|
79.4
|
|
|
$
|
84.0
|
|
|
|
(5
|
)
|
Segment capital
(billions)
|
|
$
|
7.5
|
|
|
$
|
7.3
|
|
|
|
3
|
|
|
$
|
7.5
|
|
|
$
|
7.3
|
|
|
|
3
|
|
Return on average segment capital
(b)
|
|
|
37.4
|
%
|
|
|
30.1
|
%
|
|
|
|
|
|
|
37.4
|
%
|
|
|
30.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
10.1
|
|
|
$
|
10.5
|
|
|
|
(4
|
)
|
|
$
|
10.1
|
|
|
$
|
10.5
|
|
|
|
(4
|
)
|
Net write-off rate principal only
(d)
|
|
|
1.1
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
Net write-off rate principal and fees
(d)
|
|
|
1.3
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
1.6
|
%
|
|
|
1.8
|
%
|
|
|
|
|
30+ days past due as a % of total
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
44.9
|
|
|
$
|
52.2
|
|
|
|
(14
|
)%
|
|
$
|
44.9
|
|
|
$
|
52.2
|
|
|
|
(14
|
)%
|
Average loans
(billions)
|
|
$
|
44.8
|
|
|
$
|
52.1
|
|
|
|
(14
|
)%
|
|
$
|
43.7
|
|
|
$
|
51.4
|
|
|
|
(15
|
)%
|
Net write-off rate principal only
(d)
|
|
|
1.6
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
|
|
Net write-off rate principal, interest and
fees
(d)
|
|
|
1.9
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
Calculation of Net Interest Yield on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,053
|
|
|
$
|
1,201
|
|
|
|
|
|
|
$
|
3,443
|
|
|
$
|
3,491
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
|
|
59
|
|
|
|
53
|
|
|
|
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(e)
|
|
$
|
1,067
|
|
|
$
|
1,214
|
|
|
|
|
|
|
$
|
3,487
|
|
|
$
|
3,533
|
|
|
|
|
|
Average loans including HFS loan portfolios
(billions)
|
|
$
|
44.8
|
|
|
$
|
52.1
|
|
|
|
|
|
|
$
|
50.1
|
|
|
$
|
51.4
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
9.4
|
%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
9.2
|
%
|
|
|
9.1
|
%
|
|
|
|
|
Net interest yield on Card Member
loans
(e)
|
|
|
9.5
|
%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
9.3
|
%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($2.7 billion and $2.3 billion for the twelve months ended September 30, 2016 and 2015, respectively) by
(ii) one-year average segment capital ($7.2 billion and $7.6 billion for the twelve months ended September 30, 2016 and 2015, respectively).
|
(c)
|
Refer to Table 8 footnote (a).
|
(d)
|
Refer to Table 8 footnote (d).
|
(e)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to Glossary of Selected Terminology for the definitions of these terms. We believe adjusted net interest
income is useful to investors because it is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
|
International Consumer and Network Services
Table 12: ICNS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Change
|
|
|
Nine Months Ended
September 30,
|
|
|
Change
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,205
|
|
|
$
|
1,141
|
|
|
$
|
64
|
|
|
|
6
|
%
|
|
$
|
3,587
|
|
|
$
|
3,449
|
|
|
$
|
138
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
231
|
|
|
|
228
|
|
|
|
3
|
|
|
|
1
|
|
|
|
692
|
|
|
|
710
|
|
|
|
(18
|
)
|
|
|
(3
|
)
|
Interest expense
|
|
|
55
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
176
|
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
176
|
|
|
|
173
|
|
|
|
3
|
|
|
|
2
|
|
|
|
525
|
|
|
|
534
|
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
1,381
|
|
|
|
1,314
|
|
|
|
67
|
|
|
|
5
|
|
|
|
4,112
|
|
|
|
3,983
|
|
|
|
129
|
|
|
|
3
|
|
Provisions for losses
|
|
|
84
|
|
|
|
77
|
|
|
|
7
|
|
|
|
9
|
|
|
|
233
|
|
|
|
223
|
|
|
|
10
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,297
|
|
|
|
1,237
|
|
|
|
60
|
|
|
|
5
|
|
|
|
3,879
|
|
|
|
3,760
|
|
|
|
119
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
554
|
|
|
|
504
|
|
|
|
50
|
|
|
|
10
|
|
|
|
1,535
|
|
|
|
1,433
|
|
|
|
102
|
|
|
|
7
|
|
Salaries and employee benefits and other operating expenses
|
|
|
535
|
|
|
|
532
|
|
|
|
3
|
|
|
|
1
|
|
|
|
1,608
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,089
|
|
|
|
1,036
|
|
|
|
53
|
|
|
|
5
|
|
|
|
3,143
|
|
|
|
3,041
|
|
|
|
102
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
208
|
|
|
|
201
|
|
|
|
7
|
|
|
|
3
|
|
|
|
736
|
|
|
|
719
|
|
|
|
17
|
|
|
|
2
|
|
Income tax provision
|
|
|
53
|
|
|
|
47
|
|
|
|
6
|
|
|
|
13
|
|
|
|
165
|
|
|
|
175
|
|
|
|
(10
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
155
|
|
|
$
|
154
|
|
|
$
|
1
|
|
|
|
1
|
%
|
|
$
|
571
|
|
|
$
|
544
|
|
|
$
|
27
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
25.5
|
%
|
|
|
23.4
|
%
|
|
|
|
|
|
|
|
|
|
|
22.4
|
%
|
|
|
24.3
|
%
|
|
|
|
|
|
|
|
|
|
|
ICNS issues a wide range of proprietary consumer cards outside the United States and enters into partnership agreements with
third-party card issuers and acquirers, licensing the American Express brand and extending the reach of the global network. It also provides travel services to consumers outside the United States.
Non-interest revenues increased $64 million or 6 percent and $138 million or 4 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year, primarily driven by higher discount revenue, due to an increase in both proprietary and non-proprietary (i.e., GNS) billed business, and higher net card fees. The increase in the
nine-month period also reflected a contractual payment from a GNS partner in the second quarter of 2016. Total billed business increased 8 percent and 6 percent for the three and nine months ended September 30, 2016, respectively, compared to
the same periods in the prior year, primarily due to increased proprietary and GNS cards-in-force and average spend per card. Refer to Tables 6 and 7 for additional information on billed business by region.
Interest income was relatively flat and decreased $18 million or 3 percent for the three and nine months ended September 30, 2016, respectively, compared
to the same periods in the prior year, reflecting the impact of changes in FX rates year-over-year. FX-adjusted interest income increased 8 percent and 7 percent, in the same respective periods, primarily driven by higher average FX-adjusted loan
balances.
1
1
The foreign currency adjusted information assumes a constant exchange rate between the periods being
compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current period apply to the corresponding period against which such results are being compared).
FX-adjusted revenues and expenses constitute non-GAAP measures. We believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of
another period without the variability caused by fluctuations in currency exchange rates.
Interest expense was relatively flat and decreased $9 million or 5 percent for the three and nine months ended
September 30, 2016, respectively, compared to the same periods in the prior year, reflecting the impact of changes in FX rates year-over-year. FX-adjusted interest expense increased 6 percent for both periods driven by higher funding costs.
2
Provisions for losses increased $7 million or 9 percent and $10 million or 4 percent for the three and
nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, driven by higher net write-offs.
Marketing,
promotion, rewards, Card Member services and other expenses increased $50 million or 10 percent and $102 million or 7 percent for the three and nine months ended September 30, 2016, respectively, compared to the same periods in
the prior year, primarily driven by higher levels of spending on growth initiatives.
Salaries and employee benefits and other operating expenses were
relatively flat for both the three and nine months ended September 30, 2016, and increased 3 percent for both periods on an FX-adjusted basis, compared to the same periods in the prior year, primarily driven by restructuring in the current
year.
2
The effective tax rate in all periods reflects the recurring permanent tax benefit related
to the segments ongoing funding activities outside the United States, which is allocated to ICNS under the Companys internal tax allocation process. The effective tax rate for 2016 also reflects the allocated share of tax benefits
related to the resolution of certain prior years items. In addition, the effective tax rate in each of the periods reflects the impact of recurring permanent tax benefits on varying levels of pretax income.
2
Refer to footnote 1 on page 47 for details regarding foreign currency adjusted information.
Table 13: ICNS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
|
As of or for the
Nine Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card billed business
(billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
$
|
26.6
|
|
|
$
|
25.1
|
|
|
|
6
|
%
|
|
$
|
77.8
|
|
|
$
|
75.0
|
|
|
|
4
|
%
|
GNS
|
|
|
44.8
|
|
|
|
40.8
|
|
|
|
10
|
|
|
|
129.1
|
|
|
|
121.0
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71.4
|
|
|
$
|
65.9
|
|
|
|
8
|
|
|
$
|
206.9
|
|
|
$
|
196.0
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cards-in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
|
|
|
14.8
|
|
|
|
14.5
|
|
|
|
2
|
|
|
|
14.8
|
|
|
|
14.5
|
|
|
|
2
|
|
GNS
|
|
|
48.1
|
|
|
|
46.3
|
|
|
|
4
|
|
|
|
48.1
|
|
|
|
46.3
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
62.9
|
|
|
|
60.8
|
|
|
|
3
|
|
|
|
62.9
|
|
|
|
60.8
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary basic cards-in-force
|
|
|
10.3
|
|
|
|
9.9
|
|
|
|
4
|
|
|
|
10.3
|
|
|
|
9.9
|
|
|
|
4
|
|
Average proprietary basic Card Member spending
(dollars)
|
|
$
|
2,596
|
|
|
$
|
2,547
|
|
|
|
2
|
|
|
$
|
7,665
|
|
|
$
|
7,591
|
|
|
|
1
|
|
Total segment assets
(billions)
(a)
|
|
$
|
34.4
|
|
|
$
|
34.5
|
|
|
|
|
|
|
$
|
34.4
|
|
|
$
|
34.5
|
|
|
|
|
|
Segment capital
(billions)
|
|
$
|
2.7
|
|
|
$
|
3.1
|
|
|
|
(13
|
)
|
|
$
|
2.7
|
|
|
$
|
3.1
|
|
|
|
(13
|
)
|
Return on average segment capital
(b)
|
|
|
26.4
|
%
|
|
|
21.9
|
%
|
|
|
|
|
|
|
26.4
|
%
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
(billions)
|
|
$
|
5.6
|
|
|
$
|
5.2
|
|
|
|
8
|
|
|
$
|
5.6
|
|
|
$
|
5.2
|
|
|
|
8
|
|
Net write-off rate principal only
(d)
|
|
|
2.0
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
|
|
Net write-off rate principal and
fees
(d)
|
|
|
2.2
|
%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
2.3
|
%
|
|
|
2.3
|
%
|
|
|
|
|
30+ days past due as a % of total
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
(billions)
|
|
$
|
6.7
|
|
|
$
|
6.7
|
|
|
|
|
|
|
$
|
6.7
|
|
|
$
|
6.7
|
|
|
|
|
|
Average loans
(billions)
|
|
$
|
6.7
|
|
|
$
|
6.9
|
|
|
|
(3
|
)%
|
|
$
|
6.8
|
|
|
$
|
7.0
|
|
|
|
(3
|
)%
|
Net write-off rate principal only
(d)
|
|
|
2.1
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
|
|
Net write-off rate principal, interest and fees
(d)
|
|
|
2.6
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
2.5
|
%
|
|
|
2.4
|
%
|
|
|
|
|
30+ days past due loans as a % of total
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
176
|
|
|
$
|
173
|
|
|
|
|
|
|
$
|
525
|
|
|
$
|
534
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the Companys Card Member loan portfolio
|
|
|
12
|
|
|
|
14
|
|
|
|
|
|
|
|
33
|
|
|
|
42
|
|
|
|
|
|
Interest income not attributable to the Companys Card Member loan portfolio
|
|
|
|
|
|
|
(6)
|
|
|
|
|
|
|
|
(7)
|
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(e)
|
|
$
|
188
|
|
|
$
|
181
|
|
|
|
|
|
|
$
|
551
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans
(billions)
|
|
$
|
6.7
|
|
|
$
|
6.9
|
|
|
|
|
|
|
$
|
6.8
|
|
|
$
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
10.5
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
10.4
|
%
|
|
|
10.1
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(e)
|
|
|
11.2
|
%
|
|
|
10.5
|
%
|
|
|
|
|
|
|
10.9
|
%
|
|
|
10.7
|
%
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($712 million and $627 million for the twelve months ended September 30, 2016 and 2015, respectively) by
(ii) one-year average segment capital ($2.7 billion and $2.9 billion for the twelve months ended September 30, 2016 and 2015, respectively).
|
(c)
|
Refer to Table 8 footnote (a).
|
(d)
|
Refer to Table 8 footnote (d).
|
(e)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to Glossary of Selected Terminology for the definitions of these terms. We believe adjusted net interest
income is useful to investors because it is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
|
Global Commercial Services
Table 14: GCS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Change
|
|
|
Nine Months Ended
September 30,
|
|
|
Change
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
2,240
|
|
|
$
|
2,217
|
|
|
$
|
23
|
|
|
|
1
|
%
|
|
$
|
6,710
|
|
|
$
|
6,677
|
|
|
$
|
33
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
282
|
|
|
|
297
|
|
|
|
(15
|
)
|
|
|
(5
|
)
|
|
|
913
|
|
|
|
864
|
|
|
|
49
|
|
|
|
6
|
|
Interest expense
|
|
|
98
|
|
|
|
91
|
|
|
|
7
|
|
|
|
8
|
|
|
|
297
|
|
|
|
271
|
|
|
|
26
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
184
|
|
|
|
206
|
|
|
|
(22
|
)
|
|
|
(11
|
)
|
|
|
616
|
|
|
|
593
|
|
|
|
23
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
2,424
|
|
|
|
2,423
|
|
|
|
1
|
|
|
|
|
|
|
|
7,326
|
|
|
|
7,270
|
|
|
|
56
|
|
|
|
1
|
|
Provisions for losses
|
|
|
134
|
|
|
|
148
|
|
|
|
(14
|
)
|
|
|
(9
|
)
|
|
|
433
|
|
|
|
435
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
2,290
|
|
|
|
2,275
|
|
|
|
15
|
|
|
|
1
|
|
|
|
6,893
|
|
|
|
6,835
|
|
|
|
58
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
808
|
|
|
|
826
|
|
|
|
(18
|
)
|
|
|
(2
|
)
|
|
|
2,415
|
|
|
|
2,358
|
|
|
|
57
|
|
|
|
2
|
|
Salaries and employee benefits and other operating expenses
|
|
|
753
|
|
|
|
712
|
|
|
|
41
|
|
|
|
6
|
|
|
|
2,078
|
|
|
|
2,074
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,561
|
|
|
|
1,538
|
|
|
|
23
|
|
|
|
1
|
|
|
|
4,493
|
|
|
|
4,432
|
|
|
|
61
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
729
|
|
|
|
737
|
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
2,400
|
|
|
|
2,403
|
|
|
|
(3
|
)
|
|
|
|
|
Income tax provision
|
|
|
263
|
|
|
|
269
|
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
873
|
|
|
|
868
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
466
|
|
|
$
|
468
|
|
|
$
|
(2
|
)
|
|
|
|
%
|
|
$
|
1,527
|
|
|
$
|
1,535
|
|
|
$
|
(8
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.1
|
%
|
|
|
36.5
|
%
|
|
|
|
|
|
|
|
|
|
|
36.4
|
%
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
GCS issues a wide range of proprietary corporate and small business cards and provides payment and expense management services
globally. In addition, GCS provides financing products for qualified merchants.
Non-interest revenues were relatively flat for both the three and nine
months ended September 30, 2016, compared to the same periods in the prior year, with billed business increasing 1 percent and 3 percent over the same respective periods, offset by Costco-related revenues in the prior year.
Net interest income decreased $22 million or 11 percent and increased $23 million or 4 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year. Both periods reflect Costco-related revenues in the prior year, which were more than offset in the nine-month period by an increase in average Card Member loans (including Card Member
loans HFS), partially offset by higher interest expense.
Provisions for losses decreased $14 million or 9 percent and remained relatively flat for the
three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decrease in the three-month period was primarily due to improving merchant financing loan credit performance.
Marketing, promotion, rewards, Card Member services and other expenses decreased $18 million or 2 percent and increased $57 million or 2 percent for the three
and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The decrease in the three-month period was primarily driven by Costco-related expenses in the prior year, partially offset by higher
investment spending in the current year. The increase in the
nine-month
period was primarily driven by higher Card Member rewards expense, due to higher spending volumes, and increased marketing and promotion
expense.
Salaries and employee benefits and other operating expenses increased $41 million or 6 percent and remained
relatively flat for the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The increase in the three-month period was primarily due to a restructuring charge in the current quarter, and
higher operating expenses, including technology development and professional fees. In the nine-month period, these increases were offset by the gains on the sales of the HFS portfolios.
Table 15: GCS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
|
As of or for the
Nine Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card billed business
(billions)
|
|
$
|
100.1
|
|
|
$
|
99.5
|
|
|
|
1
|
%
|
|
$
|
302.8
|
|
|
$
|
295.4
|
|
|
|
3
|
%
|
Total cards-in-force
|
|
|
13.6
|
|
|
|
15.0
|
|
|
|
(9
|
)
|
|
|
13.6
|
|
|
|
15.0
|
|
|
|
(9
|
)
|
Basic cards-in-force
|
|
|
13.6
|
|
|
|
15.0
|
|
|
|
(9
|
)
|
|
|
13.6
|
|
|
|
15.0
|
|
|
|
(9
|
)
|
Average basic Card Member spending
(dollars)
|
|
$
|
7,386
|
|
|
$
|
6,711
|
|
|
|
10
|
|
|
$
|
20,857
|
|
|
$
|
19,999
|
|
|
|
4
|
|
Total segment assets
(billions)
(a)
|
|
$
|
46.8
|
|
|
$
|
45.9
|
|
|
|
2
|
|
|
$
|
46.8
|
|
|
$
|
45.9
|
|
|
|
2
|
|
Segment capital
(billions)
|
|
$
|
7.3
|
|
|
$
|
6.8
|
|
|
|
7
|
|
|
$
|
7.3
|
|
|
$
|
6.8
|
|
|
|
7
|
|
Return on average segment capital
(b)
|
|
|
28.0
|
%
|
|
|
34.1
|
%
|
|
|
|
|
|
|
28.0
|
%
|
|
|
34.1
|
%
|
|
|
|
|
Card Member receivables
(billions)
|
|
$
|
29.6
|
|
|
$
|
28.6
|
|
|
|
3
|
|
|
$
|
29.6
|
|
|
$
|
28.6
|
|
|
|
3
|
|
Card Member loans
(billions)
|
|
$
|
9.1
|
|
|
$
|
10.0
|
|
|
|
(9
|
)
|
|
$
|
9.1
|
|
|
$
|
10.0
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables - GCP
(billions)
|
|
$
|
15.8
|
|
|
$
|
15.7
|
|
|
|
|
|
|
$
|
15.8
|
|
|
$
|
15.7
|
|
|
|
|
|
90+ days past billing as a % of total - GCP
(d)
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Net loss ratio (as a % of charge volume) - GCP
|
|
|
0.11
|
%
|
|
|
0.08
|
%
|
|
|
|
|
|
|
0.09
|
%
|
|
|
0.09
|
%
|
|
|
|
|
Total receivables - GSBS
(billions)
|
|
$
|
13.8
|
|
|
$
|
12.9
|
|
|
|
7
|
|
|
$
|
13.8
|
|
|
$
|
12.9
|
|
|
|
7
|
|
Net write-off rate (principal only) - GSBS
(e)
|
|
|
1.3
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
1.6
|
%
|
|
|
1.9
|
%
|
|
|
|
|
Net write-off rate (principal and fees) - GSBS
(e)
|
|
|
1.5
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
1.8
|
%
|
|
|
2.2
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans - GSBS
(billions)
|
|
$
|
9.0
|
|
|
$
|
10.0
|
|
|
|
(10
|
)
|
|
$
|
9.0
|
|
|
$
|
10.0
|
|
|
|
(10
|
)
|
Average loans - GSBS
(billions)
|
|
$
|
8.8
|
|
|
$
|
9.9
|
|
|
|
(11
|
)%
|
|
$
|
8.4
|
|
|
$
|
9.8
|
|
|
|
(14
|
)%
|
Net write-off rate (principal only) - GSBS
(e)
|
|
|
1.5
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
1.3
|
%
|
|
|
|
|
Net write-off rate (principal, interest and fees) - GSBS
(e)
|
|
|
1.8
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
|
|
30+ days past due as a % of total - GSBS
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Net Interest Yield on Card Member loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
184
|
|
|
$
|
206
|
|
|
|
|
|
|
$
|
616
|
|
|
$
|
593
|
|
|
|
|
|
Exclude:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense not attributable to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys Card Member loan portfolio
|
|
|
79
|
|
|
|
71
|
|
|
|
|
|
|
|
231
|
|
|
|
213
|
|
|
|
|
|
Interest income not attributable to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys Card Member loan portfolio
|
|
|
(28
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
(85
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income
(f)
|
|
$
|
235
|
|
|
$
|
253
|
|
|
|
|
|
|
$
|
762
|
|
|
$
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans including HFS loan portfolios
(billions)
|
|
$
|
8.8
|
|
|
$
|
10.0
|
|
|
|
|
|
|
$
|
9.8
|
|
|
$
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income divided by average loans
|
|
|
8.3
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
8.4
|
%
|
|
|
8.1
|
%
|
|
|
|
|
Net interest yield on Card Member loans
(f)
|
|
|
10.6
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
10.4
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($2.0 billion and $2.4 billion for the twelve months ended September 30, 2016 and 2015, respectively) by
(ii) one-year average segment capital ($7.2 billion and $7.0 billion for the twelve months ended September 30, 2016 and 2015, respectively).
|
(c)
|
Refer to Table 8 footnote (a).
|
(d)
|
For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within
90 days of the Card Members billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90
days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
|
(e)
|
Refer to Table 8 footnote (d).
|
(f)
|
Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to Glossary of Selected Terminology for the definitions of these terms. We believe adjusted net interest
income is useful to investors because it is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
|
Global Merchant Services
Table 16: GMS Selected Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Change
|
|
|
Nine Months Ended
September 30,
|
|
|
Change
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
1,044
|
|
|
$
|
1,123
|
|
|
$
|
(79
|
)
|
|
|
(7
|
)%
|
|
$
|
3,172
|
|
|
$
|
3,323
|
|
|
$
|
(151
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(60
|
)
|
|
|
(46
|
)
|
|
|
(14
|
)
|
|
|
30
|
|
|
|
(180
|
)
|
|
|
(154
|
)
|
|
|
(26
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
60
|
|
|
|
46
|
|
|
|
14
|
|
|
|
30
|
|
|
|
181
|
|
|
|
155
|
|
|
|
26
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
1,104
|
|
|
|
1,169
|
|
|
|
(65
|
)
|
|
|
(6
|
)
|
|
|
3,353
|
|
|
|
3,478
|
|
|
|
(125
|
)
|
|
|
(4
|
)
|
Provisions for losses
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
22
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for losses
|
|
|
1,096
|
|
|
|
1,161
|
|
|
|
(65
|
)
|
|
|
(6
|
)
|
|
|
3,332
|
|
|
|
3,456
|
|
|
|
(124
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards, Card Member services and other
|
|
|
55
|
|
|
|
78
|
|
|
|
(23
|
)
|
|
|
(29
|
)
|
|
|
171
|
|
|
|
210
|
|
|
|
(39
|
)
|
|
|
(19
|
)
|
Salaries and employee benefits and other operating expenses
|
|
|
470
|
|
|
|
449
|
|
|
|
21
|
|
|
|
5
|
|
|
|
1,422
|
|
|
|
1,440
|
|
|
|
(18
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
525
|
|
|
|
527
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
1,593
|
|
|
|
1,650
|
|
|
|
(57
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
571
|
|
|
|
634
|
|
|
|
(63
|
)
|
|
|
(10
|
)
|
|
|
1,739
|
|
|
|
1,806
|
|
|
|
(67
|
)
|
|
|
(4
|
)
|
Income tax provision
|
|
|
212
|
|
|
|
237
|
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
650
|
|
|
|
671
|
|
|
|
(21
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
359
|
|
|
$
|
397
|
|
|
$
|
(38
|
)
|
|
|
(10
|
)%
|
|
$
|
1,089
|
|
|
$
|
1,135
|
|
|
$
|
(46
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37.1
|
%
|
|
|
37.4
|
%
|
|
|
|
|
|
|
|
|
|
|
37.4
|
%
|
|
|
37.2
|
%
|
|
|
|
|
|
|
|
|
|
|
GMS operates a global payments network that processes and settles proprietary and non-proprietary card transactions. GMS
acquires merchants and provides multi-channel marketing programs and capabilities, services and data, leveraging the Companys global closed-loop network. GMS also operates loyalty coalition businesses in certain countries around the world.
Non-interest revenues decreased $79 million or 7 percent and $151 million or 5 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year, as a result of Costco-related revenues in the prior year, as well as higher contra-revenues in the current year.
Net interest income increased $14 million or 30 percent and $26 million or 17 percent for the three and nine months ended September 30, 2016,
respectively, compared to the same periods in the prior year, reflecting a higher interest expense credit relating to internal transfer pricing and funding rates, which resulted in a net benefit for GMS due to its merchant payables.
Marketing, promotion, rewards, Card Member services and other expenses decreased $23 million or 29 percent and $39 million or 19 percent for the three
and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year, primarily driven by higher marketing and promotion expenses related to our loyalty coalition business in the prior year.
Salaries and employee benefits and other operating expenses increased $21 million or 5 percent and decreased $18 million or 1 percent for the three and
nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The increase in the three-month period was primarily driven by a litigation reserve release in prior year. In the nine-month period, this
increase was more than offset by growth of the OptBlue program, which does not entail merchant acquirer payments.
Table 17: GMS Selected Statistical Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the
Three Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
|
As of or for the
Nine Months Ended
September 30,
|
|
|
Change
2016
vs.
|
|
(Millions, except percentages and where indicated)
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyalty Coalition revenue
|
|
$
|
106
|
|
|
$
|
100
|
|
|
|
6
|
%
|
|
$
|
304
|
|
|
$
|
279
|
|
|
|
9
|
%
|
Average discount rate
|
|
|
2.47
|
%
|
|
|
2.46
|
%
|
|
|
|
|
|
|
2.45
|
%
|
|
|
2.48
|
%
|
|
|
|
|
Total segment assets
(billions)
(a)
|
|
$
|
23.2
|
|
|
$
|
23.3
|
|
|
|
|
%
|
|
$
|
23.2
|
|
|
$
|
23.3
|
|
|
|
|
%
|
Segment capital
(billions)
|
|
$
|
2.3
|
|
|
$
|
2.6
|
|
|
|
(12
|
)%
|
|
$
|
2.3
|
|
|
$
|
2.6
|
|
|
|
(12
|
)%
|
Return on average segment capital
(b)
|
|
|
59.9
|
%
|
|
|
66.9
|
%
|
|
|
|
|
|
|
59.9
|
%
|
|
|
66.9
|
%
|
|
|
|
|
|
|
(a)
|
Effective September 30, 2015, certain intercompany balances have been reclassified between operating segments as a result of system enhancements.
|
(b)
|
Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.5 billion for both the twelve months ended September 30, 2016 and 2015) by (ii) one-year average segment
capital ($2.4 billion and $2.2 billion for the twelve months ended September 30, 2016 and 2015, respectively).
|
Corporate & Other
Corporate
functions and certain other businesses, including our Prepaid Services business and other operations, are included in Corporate & Other.
Corporate & Other net expense decreased to $239 million for the three months ended September 30, 2016, compared to $295 million for the three
months ended September 30, 2015, and increased to $766 million for the nine months ended September 30, 2016, compared to $764 million for the nine months ended September 30, 2015. The decrease for the three-month period was primarily
driven by the impairment charge related to previously capitalized software development costs in the prior year, partially offset by restructuring in the current year. In the nine-month period, this decrease, combined with higher income from our
Prepaid Services business, was more than offset by the benefit in the first quarter of 2015 from both the reassessment of the functional currency of certain UK legal entities and other
FX-related
activity.
Results for both periods disclosed included net interest expense related to maintaining the liquidity pool discussed in Consolidated Capital
Resources and Liquidity Liquidity Management, as well as interest expense related to other corporate indebtedness.
Consolidated Capital Resources and Liquidity
Our balance sheet management objectives are to maintain:
|
|
A solid and flexible equity capital profile;
|
|
|
A broad, deep and diverse set of funding sources to finance our assets and meet operating requirements; and
|
|
|
Liquidity programs that enable us to continuously meet expected future financing obligations and business requirements for at least a twelve-month period, even in the event we are unable to continue to raise new funds
under our traditional funding programs during a substantial weakening in economic conditions.
|
Transitional Basel III
The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank subsidiaries, American Express
Centurion Bank (AECB) and American Express Bank, FSB (FSB), as well as additional ratios widely utilized in the marketplace, as of September 30, 2016.
Table 18: Regulatory Risk-Based Capital and Leverage Ratios
|
|
|
|
|
|
|
|
|
|
|
|
Basel III
Standards
2016
(a)
|
|
|
|
Ratios as of
September 30,
2016
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Capital
|
|
|
|
|
|
|
|
|
Common Equity Tier 1
|
|
|
5.1
|
%
|
|
|
|
|
American Express
|
|
|
|
|
|
|
13.6
|
%
|
AECB
|
|
|
|
|
|
|
17.0
|
|
FSB
|
|
|
|
|
|
|
17.5
|
|
Tier 1
|
|
|
6.6
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
14.9
|
|
AECB
|
|
|
|
|
|
|
17.0
|
|
FSB
|
|
|
|
|
|
|
17.5
|
|
Total
|
|
|
8.6
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
16.6
|
|
AECB
|
|
|
|
|
|
|
18.3
|
|
FSB
|
|
|
|
|
|
|
18.7
|
|
Tier 1 Leverage
|
|
|
4.0
|
|
|
|
|
|
American Express
|
|
|
|
|
|
|
11.9
|
|
AECB
|
|
|
|
|
|
|
15.9
|
|
FSB
|
|
|
|
|
|
|
13.6
|
|
Supplementary Leverage
Ratio
(b)
|
|
|
3.0
|
%
|
|
|
|
|
American Express
|
|
|
|
|
|
|
10.3
|
|
AECB
|
|
|
|
|
|
|
12.5
|
|
FSB
|
|
|
|
|
|
|
11.5
|
%
|
(a)
|
Transitional Basel III minimum capital requirement and additional capital conservation buffer as defined by the Federal Reserve for calendar year 2016 for Advanced Approaches institutions.
|
(b)
|
The minimum supplementary leverage ratio (SLR) requirement of 3 percent is effective January 1, 2018.
|
Table 19: Regulatory Risk-Based Capital Components and Risk Weighted Assets
|
|
|
|
|
($ in
Billions)
|
|
|
September 30,
2016
|
|
Risk-Based Capital
|
|
|
|
|
Common Equity Tier 1
|
|
$
|
16.8
|
|
Tier 1 Capital
|
|
|
18.4
|
|
Tier 2 Capital
(a)
|
|
|
2.1
|
|
Total Capital
|
|
|
20.5
|
|
|
|
Risk Weighted Assets
|
|
|
123.6
|
|
Average Total Assets to calculate the Tier 1 Leverage Ratio
|
|
|
154.2
|
|
Total Leverage Exposure to calculate SLR
|
|
$
|
178.7
|
|
(a)
|
Tier 2 capital is the sum of the allowance for receivable and loan losses (limited to 1.25 percent of risk-weighted assets) and $600 million of subordinated notes adjusted for capital held by insurance subsidiaries.
|
We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements and finance such capital in a cost efficient
manner; failure to maintain minimum capital levels could affect our status as a financial holding company and cause the regulatory agencies with oversight of American Express, AECB and FSB to take actions that could limit our business operations.
Our primary source of equity capital has been the generation of net income. Historically, capital generated through net income and other sources, such as
the exercise of stock options by employees, has exceeded the annual growth in our capital requirements. To the extent capital has exceeded business, regulatory and rating agency requirements, we have historically returned excess capital to
shareholders through our regular common share dividend and share repurchase program.
We maintain certain flexibility to shift capital across our
businesses as appropriate. For example, we may infuse additional capital into subsidiaries to maintain capital at targeted levels in consideration of debt ratings and regulatory requirements. These infused amounts can affect the capital profile and
liquidity levels at the American Express parent company level. We do not currently intend or foresee a need to shift capital from non-U.S. subsidiaries with permanently reinvested earnings to a U.S. parent company.
The following are definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance:
Risk-Weighted Assets
Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines.
On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. Off-balance sheet exposures comprise a minimal
part of the total risk-weighted assets.
Common Equity Tier 1 Risk-Based Capital Ratio
Calculated as Common Equity Tier 1 capital
(CET1), divided by risk-weighted assets. CET1 is the sum of common shareholders equity, adjusted for ineligible goodwill and intangible assets, certain deferred tax assets, as well as certain other comprehensive income items as
follows: net unrealized gains/losses on securities and derivatives, and net unrealized pension and other postretirement benefit/losses, all net of tax and subject to transition provisions.
Tier 1 Risk-Based Capital Ratio
Calculated as Tier 1 capital divided by risk-weighted assets. Tier 1 capital is the sum of CET1, our perpetual
preferred stock and third-party non-controlling interests in consolidated subsidiaries adjusted for capital to be held by insurance subsidiaries and deferred tax assets from net operating losses not deducted from CET1.
Total Risk-Based Capital Ratio
Calculated as the sum of Tier 1 capital and Tier 2 capital, divided
by risk-weighted assets. Tier 2 capital is the sum of the allowance for receivable and loan losses (limited to 1.25 percent of risk-weighted assets), a portion of the unrealized gains on equity securities, and $600 million of subordinated notes
adjusted for capital held by insurance subsidiaries.
Tier 1 Leverage Ratio
The Tier 1 leverage ratio is calculated by dividing Tier 1
capital by our average total consolidated assets for the most recent quarter. Average total consolidated assets as of September 30, 2016 were $154.2 billion.
Supplementary Leverage Ratio
The supplementary leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure under Basel
III. Leverage exposure, which reflects average total consolidated assets with adjustments for Tier 1 capital deductions, average off-balance sheet derivatives exposures, securities purchased under agreements to resell and credit equivalents of
undrawn commitments that are both conditionally and unconditionally cancellable. Total leverage exposure for supplementary leverage ratio purposes as of September 30, 2016 was $178.7 billion.
Fully Phased-in Basel III
Basel III, when fully
phased-in, will require bank holding companies and their bank subsidiaries to maintain more capital than prior requirements, with a greater emphasis on common equity. The following table presents our estimates for our regulatory risk-based capital
ratios and leverage ratios had Basel III been fully phased-in as of September 30, 2016. These ratios are calculated using the Standardized Approach for determining risk-weighted assets. As noted previously, we are currently taking steps toward
Basel III Advanced Approaches implementation in the United States. We believe the presentation of these ratios is helpful to investors by showing the impact of future regulatory capital standards on our capital and leverage ratios.
Table 20: Estimated Fully Phased-in Basel III Capital and Leverage Ratios
|
|
|
|
|
($ in
Billions)
|
|
|
September 30,
2016
|
|
Estimated Common Equity Tier 1 Ratio under Fully Phased-In Basel III
(a)
|
|
|
13.1
|
%
|
Estimated Tier 1 Capital Ratio under Fully Phased-In Basel III
(a)
|
|
|
14.3
|
|
|
|
Estimated Tier 1 Leverage Ratio under Fully Phased-In Basel III
(b)
|
|
|
11.6
|
|
Estimated Supplementary Leverage Ratio under Fully Phased-In Basel III
|
|
|
10.0
|
%
|
|
|
Estimated Risk-Weighted Assets under Fully Phased-In Basel III
(c)
|
|
$
|
124.7
|
|
Estimated Average Total Assets to calculate the Tier 1 Leverage Ratio
(b)
|
|
|
154.0
|
|
Estimated Total Leverage Exposure to calculate SLR under
Fully Phased-In Basel III
(d)
|
|
$
|
178.4
|
|
(a)
|
The Fully Phased-in Basel III Common Equity Tier 1 and Tier 1 risk-based capital ratios, non-GAAP measures, are calculated as Common Equity Tier 1 or Tier 1 capital under Fully Phased-in Basel III rules, as applicable,
divided by risk-weighted assets under Fully Phased-in Basel III rules. Refer to Table 21 for a reconciliation of Common Equity Tier 1 and Tier 1 capital under Fully Phased-in Basel III rules to Common Equity Tier 1 and Tier 1 capital under
Transitional Basel III rules.
|
(b)
|
The Fully Phased-in Basel III Tier 1 and supplementary leverage ratios, non-GAAP measures, are calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total assets and Fully Phased-in total
leverage exposure for supplementary leverage ratio purposes under Fully Phased-in Basel III, respectively.
|
(c)
|
Estimated Fully Phased-in Basel III risk-weighted assets, a non-GAAP measure, reflect our Basel III risk-weighted assets, with all transition provisions fully phased in. This includes incremental risk weighting applied
to deferred tax assets and significant investments in unconsolidated financial institutions, as well as exposures to past due accounts, equities and sovereigns.
|
(d)
|
Estimated Fully Phased-in Basel III Leverage Exposure, a non-GAAP measure, reflects average total consolidated assets with adjustments for Tier 1 capital deductions on a fully phased-in basis, off-balance sheet
derivatives, undrawn conditionally and unconditionally cancellable commitments and other off-balance sheet liabilities.
|
The Basel capital
standards establish minimum requirements for the Tier 1 risk-based capital ratios that are 1.5 percent higher than the minimum requirements for CET1 risk-based capital ratios. This difference between Tier 1 capital, which includes common equity and
qualifying preferred securities, and CET1 is also present in the minimum capital requirements within Comprehensive Capital Analysis and Review (CCAR).
We issued $1.6 billion of preferred shares to help finance a portion of the Tier 1 capital requirements in excess of common equity requirements.
Our $750 million of subordinated debentures, which prior to 2014, were fully included in Tier 2 capital (but not in Tier 1 capital), do not meet the
requirements of Tier 2 capital under Basel III and thus were redeemed for cash on September 1, 2016 at 100 percent of the principal amount outstanding. As previously mentioned, we issued $600 million of subordinated notes, which qualify as Tier
2 capital under Basel rules.
The following table presents a comparison of our Common Equity Tier 1 and Tier 1 risk-based capital under Transitional Basel
III rules to our estimated Common Equity Tier 1 and Tier 1 risk-based capital under Fully Phased-in Basel III rules as of September 30, 2016.
Table 21: Transitional Basel III versus Fully Phased-in Basel III
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
|
CET 1
|
|
|
|
Tier 1
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Capital under Transitional Basel III
|
|
$
|
16.8
|
|
|
$
|
18.4
|
|
Adjustments related to:
|
|
|
|
|
|
|
|
|
AOCI
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Transition provisions for intangible assets
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Common Equity Tier 1 (CET1) and Tier 1 Risk-Based Capital under Fully Phased-in Basel III
|
|
$
|
16.3
|
|
|
$
|
17.9
|
|
|
|
Fully Phased-in Basel III Risk-Weighted Assets
Reflects our Basel III risk-weighted assets, with all transition
provisions fully phased in. This includes incremental risk weighting applied to deferred tax assets and significant investments in unconsolidated financial institutions, as well as exposures to past due accounts, equities and sovereigns.
Fully Phased-in Basel III Tier 1 Leverage Ratio
Calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total
consolidated assets.
Fully Phased-in Basel III Supplementary Leverage Ratio
Calculated by dividing Fully Phased-in Basel III Tier 1
capital by our Fully Phased-in total leverage exposure for supplementary leverage ratio purposes under Fully Phased-in Basel III.
Share Repurchases
and Dividends
We return capital to common shareholders through dividends and share repurchases. The share repurchases reduce common shares
outstanding and more than offset the issuance of new shares as part of employee compensation plans.
During the three and nine months ended
September 30, 2016, we returned $0.9 billion and $4.2 billion, respectively, to our shareholders in the form of common stock dividends ($0.3 billion and $0.8 billion, respectively) and share repurchases ($0.6 billion and $3.4 billion,
respectively). We repurchased 8.8 million common shares at an average price of $64.39 in the third quarter of 2016. These dividend and share repurchase amounts collectively represent approximately 75 percent and 92 percent of total capital
generated during the three and nine-month periods, respectively.
In addition, during the three months ended September 30, 2016, we had $750 million
of non-cumulative perpetual preferred shares (the Series B Preferred Shares) and $850 million of non-cumulative perpetual preferred shares (the Series C Preferred Shares) outstanding. Dividends declared and paid on Series C
Preferred Shares during the third quarter of 2016 were $21 million.
Funding Strategy
Our principal funding objective is to maintain broad and well-diversified funding sources to allow us to meet our maturing obligations, cost-effectively
finance current and future asset growth in our global businesses as well as to maintain a strong liquidity profile.
Summary of Consolidated Debt
We had the following consolidated debt and customer deposits outstanding as of September 30, 2016, and December 31, 2015:
Table 22: Consolidated Debt
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
|
September 30,
2016
|
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
2.9
|
|
|
$
|
4.8
|
|
Long-term debt
|
|
|
44.9
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
47.8
|
|
|
|
52.9
|
|
Customer deposits
|
|
|
53.5
|
|
|
|
55.0
|
|
|
|
|
|
|
|
|
|
|
Total debt and customer deposits
|
|
$
|
101.3
|
|
|
$
|
107.9
|
|
|
|
Management does not currently expect to make any significant changes to our funding programs in order to satisfy
Basel IIIs Liquidity Coverage Ratio (LCR) standard based upon our current understanding of the requirements, which may be subject to change as we receive additional clarification and implementation guidance from regulators relating to the
requirements and as the interpretation of requirements evolves over time.
Our equity capital and funding strategies are designed, among other things, to
maintain appropriate and stable unsecured debt ratings from the major credit rating agencies: Moodys Investor Services (Moodys), Standard & Poors (S&P), Fitch Ratings (Fitch) and Dominion Bond Rating Services (DBRS).
Such ratings help support our access to cost-effective unsecured funding as part of our overall funding strategy. Our asset-backed securitization activities are rated separately.
Table 23: Unsecured Debt Ratings
|
|
|
|
|
|
|
|
|
|
Credit Agency
|
|
American Express Entity
|
|
Short-Term
Ratings
|
|
Long-Term
Ratings
|
|
Outlook
|
|
|
|
|
|
|
|
|
|
DBRS
|
|
All rated entities
|
|
R-1 (middle)
|
|
A (high)
|
|
Stable
|
|
|
|
|
|
Fitch
|
|
All rated entities
|
|
F1
|
|
A
|
|
Negative
|
Moodys
|
|
TRS and rated operating subsidiaries
(a)
|
|
Prime 1
|
|
A2
|
|
Stable
|
Moodys
|
|
American Express Company
|
|
Prime 2
|
|
A3
|
|
Stable
|
S&P
|
|
TRS and rated operating subsidiaries
(a) (b)
|
|
A-2
|
|
A-
|
|
Stable
|
S&P
|
|
American Express Company
|
|
A-2
|
|
BBB+
|
|
Stable
|
|
(a)
|
American Express Travel Related Services Company, Inc.
|
(b)
|
S&P does not provide a rating for TRS short-term debt.
|
Downgrades in the ratings of our unsecured debt or
asset securitization program securities could result in higher funding costs, as well as higher fees related to borrowings under our unused lines of credit. Declines in credit ratings could also reduce our borrowing capacity in the unsecured debt
and asset securitization capital markets. We believe our funding mix including the proportion of U.S. retail deposits insured by the Federal Deposit Insurance Corporation (FDIC), should reduce the impact that credit rating downgrades would have on
our funding capacity and costs.
Deposit Programs
We held the following deposits as of September 30, 2016 and December 31, 2015:
Table 24: Customer Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
(Billions)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
U.S. retail deposits:
|
|
|
|
|
|
|
|
|
Savings accounts Direct
|
|
$
|
30.7
|
|
|
$
|
29.0
|
|
Certificates of deposit:
(a)
|
|
|
|
|
|
|
|
|
Direct
|
|
|
0.3
|
|
|
|
0.3
|
|
Third-party (brokered)
|
|
|
12.9
|
|
|
|
13.9
|
|
Sweep accounts Third-party (brokered)
|
|
|
8.9
|
|
|
|
10.9
|
|
Other retail deposits:
|
|
|
|
|
|
|
|
|
Non-U.S. deposits and U.S. non-interest bearing
|
|
|
0.1
|
|
|
|
0.2
|
|
Card Member credit balances - U.S. and non-U.S.
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
53.5
|
|
|
$
|
55.0
|
|
|
|
(a)
|
The weighted average remaining maturity and weighted average rate at issuance on the total portfolio of U.S. retail CDs, issued through direct and third-party programs, were 23.8 months and 1.93 percent, respectively,
as of September 30, 2016.
|
Asset Securitization Programs
We periodically securitize Card Member loans and receivables arising from our card business, as the securitization market provides us with cost-effective
funding. Securitization of Card Member loans and receivables is accomplished through the transfer of those assets to a trust, which in turn issues securities collateralized by the transferred assets to third-party investors. The proceeds from
issuance are distributed to us, through our wholly owned subsidiaries, as consideration for the transferred assets.
The loans and receivables being
securitized are reported as Card Member loans and receivables on our Consolidated Balance Sheets, and the related securities issued to third-party investors are reported as long-term debt.
Under the respective terms of the securitization trust agreements, the occurrence of certain triggering events associated with the performance of the assets
of each trust could result in payment of trust expenses, establishment of reserve funds, or in a worst-case scenario, early amortization of debt securities. During the three months ended September 30, 2016, no such triggering events occurred.
Liquidity Management
We incur liquidity risk
that arises in the course of offering our products and services. Our liquidity objective is to maintain access to a diverse set of on- and off-balance sheet liquidity sources. We seek to maintain liquidity sources, even in the event we are unable to
raise new funds under our regular funding programs during a substantial weakening in economic conditions, in amounts sufficient to meet our expected future financial obligations and our businesses requirements for liquidity for a period of at
least twelve months. Our liquidity risk policy sets out our objectives and approach to managing liquidity risk.
The liquidity risks that we are exposed to
could arise from a wide variety of scenarios. Our liquidity management strategy thus includes a number of elements, including, but not limited to:
|
|
Maintaining diversified funding sources (refer to the Funding Strategy section for more details);
|
|
|
Maintaining unencumbered liquid assets and off-balance sheet liquidity sources;
|
|
|
Projecting cash inflows and outflows under a variety of economic and market scenarios;
|
|
|
Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements;
|
|
|
Incorporating liquidity risk management as appropriate into our capital adequacy framework.
|
The amount and type of liquidity resources we maintain can vary over time, based upon the results of stress
scenarios required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and other regulatory measures of liquidity, such as the LCR, as well as additional stress scenarios required under our liquidity risk policy. The
Company was in compliance with the liquidity requirements to which it is subject, including the LCR, for the three months ended September 30, 2016.
The investment income we receive on liquidity resources, such as cash, is less than the interest expense on the sources of funding for these balances. The net
interest costs to maintain these resources have been substantial. The level of future net interest costs depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment
yields.
Securitized Borrowing Capacity
As of
September 30, 2016, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2018, that gives us the right to sell up to $3.0 billion face amount of eligible AAA notes from the Charge Trust. We
also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 17, 2018, that gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the Lending Trust. On
September 12, 2016, we extended the Lending Trusts $2.0 billion facility by one year to mature on September 17, 2018. Both facilities are used in the ordinary course of business to fund seasonal working capital needs, as well as to
further enhance our contingent funding resources. As of September 30, 2016, $2.2 billion was drawn on the Charge Trust facility. No amounts were drawn on the Lending Trust facility.
Federal Reserve Discount Window
As insured depository
institutions, the Banks may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying collateral that they may pledge. The Federal Reserve has indicated that both credit and charge card receivables are a form of
qualifying collateral for secured borrowings made through the discount window. Whether specific assets will be considered qualifying collateral and the amount that may be borrowed against the collateral, remain at the discretion of the Federal
Reserve.
We had approximately $54.9 billion as of September 30, 2016 in U.S. credit card loans and charge card receivables that could be sold over
time through our securitization trusts or pledged in return for secured borrowings to provide further liquidity, subject in each case to applicable market conditions and eligibility criteria.
Committed Bank Credit Facilities
In addition to the
secured borrowing facilities described earlier in this section, we maintained a committed syndicated bank credit facility as of September 30, 2016 of $3.0 billion, which expires on December 9, 2018. As of September 30, 2016, no
amounts were drawn on this facility.
Certain Other Off-Balance Sheet Arrangements
As of September 30, 2016, we had approximately $239 billion of unused credit available to Card Members as part of established lending product agreements.
Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set limit, and therefore are
not reflected in unused credit available to Card Members.
Cash Flows
The following table summarizes our cash flow activity for the nine months ended September 30:
Table 25: Cash Flows
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
4.9
|
|
|
$
|
7.8
|
|
Investing activities
|
|
|
10.1
|
|
|
|
(2.7
|
)
|
Financing activities
|
|
|
(11.2
|
)
|
|
|
(7.3
|
)
|
Effect of foreign currency exchange rates on cash and cash equivalents and other
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
3.8
|
|
|
$
|
(2.4
|
)
|
|
|
Cash Flows from Operating Activities
Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income and (ii) changes in the
balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.
For
the nine months ended September 30, 2016 and 2015, net cash provided by operating activities was $4.9 billion and $7.8 billion, respectively, driven by net income of $4.6 billion and $4.3 billion, respectively, adjusted for non-cash items
including changes in provisions for losses, depreciation and amortization, deferred taxes, and stock-based compensation. The current period net income includes the $1.2 billion gain on the sales of the HFS portfolios, which is presented in Net
decrease (increase) in Card Member receivables and loans, including held for sale, within cash flows from investing activities. The decrease was also driven primarily by impacts from movements in Other assets and Accounts payable and Other
liabilities as a result of normal business operating activities.
Cash Flows from Investing Activities
Our cash flows from investing activities primarily include changes in Card Member receivables and loans, including Card Member loans and receivables HFS, along
with gains on sales related thereto, as well as changes in our available for sale investment securities portfolio.
For the nine months ended
September 30, 2016, and 2015, net cash provided by (used in) investing activities was $10.1 billion and $(2.7) billion, respectively. The increase in the current period, as compared to the nine months ended September 30, 2015, was
primarily driven by the sales of the HFS portfolios.
Cash Flows from Financing Activities
Our cash flows from financing activities primarily include issuing and repaying debt, changes in customer deposits, issuing and repurchasing our common shares,
and paying dividends.
For the nine months ended September 30, 2016, and 2015, net cash used in financing activities was $11.2 billion and
$7.3 billion, respectively. The increase in the current period, as compared to the nine months ended September 30, 2015, primarily resulted from a net decrease in short-term borrowings and customer deposits, partially offset by lower net
repayments of long-term debt in the current year, as compared to the same period in the prior year.
OTHER MATTERS
Certain Legislative, Regulatory and Other Developments
As a participant in the financial services industry, and as a bank holding company, we are subject to comprehensive examination and supervision by the Federal
Reserve and to a range of laws and regulations that impact our business and operations. In light of the current environment of additional regulation, enhanced supervision efforts and increased regulatory investigations and enforcement, compliance
requirements and expenditures have risen for financial services firms, including us, and we expect compliance requirements and expenditures will continue to rise in the future.
In addition, legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust
actions, legislation and rules to change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, to establish broad and ongoing regulatory oversight regimes for payment systems. Regulators and
legislators have focused on the fees merchants pay to accept cards, including the way bankcard network members collectively set the interchange (that is, the fee paid by the bankcard merchant acquirer to the card issuer in payment
networks like Visa and MasterCard), as well as the rules, contract terms and practices governing merchant card acceptance. Although, unlike the Visa and MasterCard networks, the American Express network does not have interchange fees or collectively
set fees or rules, antitrust actions and government regulation relating to merchant pricing or terms of merchant rules and contracts could affect all networks directly or indirectly , as well as adversely impact consumers and merchants. Among other
things, lower interchange and/or merchant discount revenue may lead card issuers to look for other sources of revenue from consumers such as higher annual card fees or interest charges, as well as to reduce costs by scaling back or eliminating
rewards, services or benefits to cardholders and merchants. Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to localize aspects of their operations, such as processing
infrastructure, which could increase our costs and diminish the value of our closed loop. The development and enforcement of payment system regulatory regimes generally continue to grow and may adversely affect our ability to compete effectively and
maintain and extend our global network.
In certain countries, such as Australia and certain Member States in the EU, merchants are permitted by law to
surcharge card purchases. While surcharging continues to be actively considered in certain jurisdictions, the benefits to customers have not been apparent in countries that have allowed it, and in some cases regulators are addressing concerns about
excessive surcharging by merchants. Surcharging, particularly where it disproportionately impacts American Express Card Members, which is known as differential surcharging, as well as other steering practices that are permitted by regulation in some
countries could have a material adverse effect on us if it becomes widespread. The Reserve Bank of Australia allows us and other networks to limit a merchants right to surcharge to the reasonable cost of card acceptance. As
discussed below, the Reserve Bank of Australia recently amended its rules to limit surcharging in Australia to the merchants actual cost of card acceptance. In the EU, in those Member States that permit surcharging, the Consumer Rights
Directive prohibits merchants from surcharging card purchases more than the cost of acceptance.
On June 23, 2016, the United Kingdom held a
referendum in which voters approved an exit from the European Union, commonly referred to as Brexit, which has caused and may continue to cause significant volatility in capital and currency markets worldwide. The full impact of Brexit,
however, remains uncertain. A process of negotiation, which is likely to take two years or longer, will determine the future terms of the U.K.s relationship with the European Union. It is unclear at this stage what financial, trade and legal
implications the withdrawal of the U.K. from the European Union would have and how such withdrawal would affect us.
European Union Payments Legislation
In 2015, the European Union adopted legislation in two parts, covering a wide range of topics across the payments industry. The first part was an EU-wide
regulation on interchange fees (the Interchange Fee Regulation); the second consisted of revisions to the Payment Services Directive (the PSD2).
The
Interchange Fee Regulation was formally adopted in April 2015. The substantive terms as adopted include the following:
|
|
Price caps Interchange fees on consumer card transactions in the EU are capped as of December 2015, generally at 20 basis points for debit and prepaid cards and 30 basis points for credit and charge cards, with
the possibility of lower caps in some instances. Although we do not have interchange fees and three party networks such as American Express are exempt from the application of the caps, the regulation provides that three party
networks should be treated as four party networks (such as Visa and MasterCard, which have interchange fees) when they license third-party providers to issue cards and/or acquire merchants or when they issue cards with a cobrand partner
or through an agent. This means, for example, the caps will apply to elements of the financial arrangements agreed to between us and each of our GNS partners in the EU, which may undermine our ability to attract and retain GNS partners. While the
discount rates we agree to with merchants are not capped, the interchange caps have exerted, and will likely continue to exert, downward pressures on merchant fees across the industry, including our discount rates. We have brought a legal challenge
and seek a ruling from the EU Court of Justice to invalidate the application of price caps in circumstances where three party networks issue cards with a cobrand partner or through an agent. The Interchange Fee Regulation excludes commercial card
transactions from the scope of the caps.
|
|
|
Card acceptance terms Anti-steering and honor-all-cards rules across all card networks, including non-discrimination and honor-all-cards provisions in our card acceptance agreements, are prohibited
with some exceptions. Removal of these provisions creates significant risk of customer confusion and Card Member dissatisfaction, which would result in harm to the American Express brand. The prohibition on anti-steering rules took
effect immediately upon effectiveness of the regulation; the prohibition on honor-all-cards rules took effect in June 2016.
|
|
|
Network licensing In December 2015, the geographic scope of the network licenses that we agree to with our GNS partners in the EU was amended to cover the entire EU in order to meet the requirements of the
regulation. This allows GNS partners to actively pursue their American Express business throughout the EU, including countries where we or other GNS partners are present, and may undermine the value of licenses granted to some GNS partners to date,
which have been subject to varying levels of exclusivity to incentivize development of the American Express business in relation to a particular country.
|
|
|
Separation of network processing From June 2016, card networks are required to separate their network processing functions (in which transactions between different issuers and acquirers are processed for
authorization, clearing and settlement). This provision does not generally apply to three party payment networks, such as American Express, but may be deemed applicable, for example, where a different GNS issuer and acquirer is involved
in a transaction, which represent a very small percentage of transactions on our network.
|
|
|
Co-badging of cards From June 2016, a single card may bear the brand of multiple networks and be used to process transactions on any of those networks. Merchants may install automatic mechanisms in point-of-sale
equipment to prioritize selection of a particular network, subject to override by the cardholder. These provisions may harm the American Express brand insofar as GNS issuing partners will be able to offer multiple networks on a single card and
merchants may program their point-of-sale equipment to prioritize selection of another network on such cards.
|
The PSD2 was adopted on November 25, 2015, and was published in the Official Journal of the European Union
on December 23, 2015. Each Member State has until January 2018 to transpose the PSD2 into national law.
Among other terms, the published text of
PSD2 includes provisions that will (i) further regulate surcharging so that transactions falling in scope of the interchange caps could not be surcharged, but transactions falling outside the scope of the caps could be surcharged up to cost,
subject potentially to the decision of an individual Member State to prohibit surcharging altogether; and (ii) require all networks, including three party payment networks that operate with licensing arrangements, such as our GNS
business, to establish objective, proportionate and non-discriminatory criteria under which a financial institution may access the network, for example, as a licensed issuer or acquirer. The potential surcharging regulation may increase instances of
differential surcharging of our cards, prompt customer and merchant confusion as to which transactions may be surcharged and lead to Card Member dissatisfaction. The access requirements will undermine the flexibility and discretion we have had to
date in deciding with whom to partner in our GNS business and, together with requirements in the Interchange Fee Regulation, may undermine the value of our GNS business in Europe.
Australia Payments Regulation
Following a formal review
of the regulatory framework for card payments in Australia, the Reserve Bank of Australia adopted new regulations on May 26, 2016, including the following:
|
|
Interchange caps as of July 1, 2017, the interchange fee paid on Visa and MasterCard credit transactions must not exceed a weighted-average benchmark of 0.50 percent across all transactions, with a maximum
interchange fee cap of 0.80 percent for each individual credit card transaction.
|
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The inclusion of our GNS business in Australia under interchange regulation, which subjects GNS payments to bank partners to the same interchange caps and regulations that apply to Visa and MasterCard credit card
transactions in Australia, effective July 1, 2017.
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Broadening the definition of interchange fees to include any fees paid by networks to card-issuing banks as incentives to issue cards, as well as any other net payments made to card issuers.
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Increasing the frequency of periodic weighted-average benchmark calculations from every three years to quarterly to confirm compliance with the interchange caps. In determining compliance, all transactions at Australian
merchants (including commercial card transactions, but excluding those on foreign-issued cards) will be taken into consideration.
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Changing the rules on merchant surcharging to limit surcharging to the actual cost of card acceptance paid to the merchant acquirer, as recorded on the merchant statement issued by the merchant acquirer; the changes
took effect as of September 1, 2016 for large merchants and will take effect September 1, 2017 for other merchants.
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The inclusion
of our GNS business under interchange regulation may undermine our ability to attract and retain GNS partners. While the discount rates we agree to with merchants do not include an interchange component and are therefore not capped, the interchange
caps, once effective, will likely exert downward pressure on merchant fees across the industry, including our discount rates.
Dodd-Frank Wall Street
Reform and Consumer Protection Act
Dodd-Frank contains a wide array of provisions intended to govern the practices and oversight of financial
institutions and other participants in the financial markets. Among other matters, the law created an independent Consumer Financial Protection Bureau (the CFPB), which has broad rulemaking authority over providers of credit, savings, payment and
other consumer financial products and services with respect to certain federal consumer financial laws. Moreover, the CFPB has examination and enforcement authority with respect to certain federal consumer financial laws for providers of consumer
financial products and services, including certain of our subsidiaries. The CFPB is directed to prohibit unfair, deceptive or abusive acts or practices, and to ensure that all consumers have access to fair, transparent and competitive
markets for consumer financial products and services.
The review of products and practices to assess compliance and prevent unfair, deceptive or abusive conduct will
be a continuing focus of the CFPB and regulators more broadly, as well as our own internal reviews. For example, federal banking regulators have recently announced they are conducting horizontal reviews of banking sales practices and we are
cooperating with regulators in those reviews. Internal and regulatory reviews have resulted in, and are likely to continue to result in, changes to our practices, products and procedures. Such reviews are also likely to continue to result in
increased costs related to regulatory oversight, supervision and examination, and additional restitution to our Card Members and may result in additional regulatory actions, including civil money penalties.
On May 5, 2016, the CFPB issued a proposed rule that, if enacted, would, among other changes, require that our consumer arbitration clause not apply to
cases filed in court as class actions, unless and until class certification is denied or the class claims are dismissed. The CFPB has set a 90-day period for comment, with the rule becoming effective 211 days after enactment and applying to all
agreements entered into after that date.
On July 28, 2016, the CFPB outlined proposals under consideration that would set forth additional
requirements for
third-party
debt collection agencies, which we use in the ordinary course. This proposal is part of a rulemaking process that may not result in a final rule, if any, becoming effective before
2018.
As of March 1, 2017, regulations implementing Dodd-Franks margin requirements would result in us collecting and remitting cash and/or
securities collateral relative to the value of certain uncleared derivative transactions (variation margin), which may create or increase collateral posting requirements for us.
Antitrust Litigation
The U.S. Department of Justice
(DOJ) and certain states attorneys general brought an action against us in 2010 alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from engaging in various actions to discriminate against our
card products violate the U.S. antitrust laws. The trial court had ruled that the challenged provisions violate U.S. antitrust laws and issued an injunction. We appealed this judgment and on September 26, 2016, the Court of Appeals for the
Second Circuit reversed the trial court decision and directed the trial court to enter a judgment for American Express. We continue to vigorously defend similar antitrust claims initiated by merchants in other court and arbitration proceedings. See
Part II, Item 1. Legal Proceedings for a description of the DOJ case and Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2015 (the 2015 Form 10-K) for
descriptions of the related cases. It is possible that significantly increased merchant steering or other actions impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a
material adverse effect on our business. See Part I, Item 1A, Risk Factors in the 2015 Form 10-K for information on the potential impacts of an adverse decision in the merchant litigations on our business.
Recently Issued Accounting Standards
Refer to the Recently Issued Accounting Standards section of Note 1 to the Consolidated Financial Statements.
Glossary of Selected Terminology
Adjusted net
interest income
A non-GAAP measure that represents net interest income attributable to our Card Member loans and loans HFS (which includes, on a GAAP basis, interest that is deemed uncollectible), excluding the impact of interest expense
and interest income not attributable to our Card Member loans. The Company believes adjusted net interest income is useful to investors because it is a component of net interest yield on Card Member loans.
Asset securitizations
Asset securitization involves the transfer and sale of loans or receivables to a special-purpose entity created for the
securitization activity, typically a trust. The trust, in turn, issues securities, commonly referred to as asset-backed securities that are secured by the transferred loans or receivables. The trust uses the proceeds from the sale of such securities
to pay the purchase price for the underlying loans or receivables. The loans and receivables of our Lending Trust and Charge Trust (together, the Trusts) being securitized are reported as assets, and the securities issued by the Trusts are reported
as liabilities on our Consolidated Balance Sheets.
Average discount rate
This calculation is generally designed to reflect pricing at
merchants accepting general-purpose American Express cards. It represents the percentage of billed business (generated from both proprietary and GNS Card Member spending) retained by us from merchants we acquire, or for merchants acquired by a third
party on our behalf, net of amounts retained by such third party.
Basic cards-in-force
Proprietary basic consumer cards-in-force includes
basic cards issued to the primary account owner, (i.e., not including additional supplemental cards issued on accounts). Proprietary basic small business and corporate cards-in-force includes both basic and supplemental cards issued. Non-proprietary
basic cards-in-force includes cards that are issued and outstanding under network partnership agreements, except for supplemental cards and retail cobrand Card Member accounts which have had no out-of-store spending activity during the prior
twelve-month period.
Billed business
Includes activities (including cash advances) related to proprietary cards, cards issued under network
partnership agreements (non-proprietary billed business), corporate payment services and certain insurance fees charged on proprietary cards. In-store spending activity within retail cobrand portfolios in GNS, from which we earn no revenue, is not
included in non-proprietary billed business. Card billed business is included in the United States or outside the United States based on where the issuer is located.
Capital ratios
Represents the minimum standards established by the regulatory agencies as a measure to determine whether the regulated entity has
sufficient capital to absorb on- and off-balance sheet losses beyond current loss accrual estimates. Refer to the Capital Strategy section under Consolidated Capital Resources and Liquidity for further related definitions under
Transitional Basel III and Fully Phased-in Basel III.
Card Member
The individual holder of an issued American Express-branded charge, credit
and certain prepaid cards.
Card Member loans
Represents the outstanding amount due from Card Members for charges made on their American
Express credit cards, as well as any interest charges and card-related fees. Card Member loans also include revolving balances on certain American Express charge card products.
Card Member loans and receivables HFS
Beginning as of December 1, 2015 and continuing until a sale is completed, represents Card Member
loans and receivables related to our cobrand partnerships with Costco in the United States and JetBlue. The JetBlue and Costco portfolio sales were completed on March 18 and June 17, 2016, respectively.
Card Member receivables
Represents the outstanding amount due from Card Members for charges made on
their American Express charge cards, as well as any card-related fees.
Charge cards
Represents cards that generally carry no pre-set
spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge Card Members generally must pay the full amount billed each month. No finance charges are assessed on charge cards. Each charge card
transaction is authorized based on its likely economics reflecting a Card Members most recent credit information and spend patterns. Some charge card accounts have an additional lending-on-charge feature that allows revolving certain balances.
Credit cards
Represents cards that have a range of revolving payment terms, grace periods, and rate and fee structures.
Discount revenue
Represents revenue earned from fees generally charged to merchants who have entered into a card acceptance agreement. The
discount fee generally is deducted from our payment for Card Member purchases. Discount revenue is reduced by incentive payments made to merchants, payments to third-party card issuing partners, cash-back reward costs and statement credits,
corporate incentive payments and other similar items.
Interest expense
Includes interest incurred primarily to fund Card Member loans and
receivables, general corporate purposes and liquidity needs, and is recognized as incurred. Interest expense is divided principally into two categories: (i) deposits, which primarily relates to interest expense on deposits taken from customers
and institutions, and (ii) debt, which primarily relates to interest expense on our long-term financing and short-term borrowings, (e.g., commercial paper, federal funds purchased, bank overdrafts and other short-term borrowings), as well as
the realized impact of derivatives hedging interest rate risk on our long-term debt.
Interest income
Includes (i) interest on loans,
(ii) interest and dividends on investment securities and (iii) interest income on deposits with banks and other.
Interest on loans
Assessed using the average daily balance method for Card Member loans and loans HFS. Unless the loan is classified as non-accrual, interest is recognized based upon the principal amount outstanding in accordance with the terms of the applicable
account agreement until the outstanding balance is paid or written off.
Interest and dividends on investment securities
Primarily relates to
our performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so a constant rate of return is recognized on
the outstanding balance of the related investment security throughout its term. Amounts are recognized until securities are in default or when it is likely that future interest payments will not be made as scheduled.
Interest income on deposits with banks and other
Recognized as earned, and primarily relates to the placement of cash in excess of near-term
funding requirements in interest-bearing time deposits, overnight sweep accounts, and other interest-bearing demand and call accounts.
Liquidity
Coverage Ratio
Represents the proposed minimum standards being established by the regulatory agencies as a measure to determine whether the regulated entity has sufficient liquidity to meet liquidity needs in periods of financial and
economic stress.
Merchant acquisition
Represents our process of entering into agreements with merchants to accept American Express-branded
cards.
Net card fees
Represents the card membership fees earned during the period. These fees are recognized as revenue over the covered
card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation and deferred acquisition costs.
Net interest yield on Card Member loans
A non-GAAP measure that is computed by dividing adjusted net
interest income by average loans, computed on an annualized basis. Reserves and net write-offs related to uncollectible interest are recorded through provisions for losses, and are thus not included in the net interest yield calculation. The Company
believes net interest yield on Card Member loans is useful to investors because it provides a measure of profitability of the Companys Card Member loan portfolio.
Net loss ratio
Represents the ratio of GCP charge card write-offs, consisting of principal (resulting from authorized transactions) and fee
components, less recoveries, on Card Member receivables expressed as a percentage of gross amounts billed to corporate Card Members.
Net write-off rate
principal only
Represents the amount of proprietary consumer or small business Card Member loans or receivables written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage
of the average loan or receivables balance during the period.
Net write-off rate
principal, interest and fees
Includes, in the
calculation of the net write-off rate, amounts for interest and fees in addition to principal for Card Member loans and fees in addition to principal for Card Member receivables.
Operating expenses
Represents salaries and employee benefits, professional services, occupancy and equipment, and other expenses.
Return on average equity
Calculated by dividing one-year period net income by one-year average total shareholders equity.
Return on average segment capital
Calculated by dividing one-year period segment income by one-year average segment capital.
Segment capital
Represents the capital allocated to a segment based upon specific business operational needs, risk measures, and regulatory
capital requirements.
Total cards-in-force
Represents the number of cards that are issued and outstanding. Non-proprietary cards-in-force
includes all cards that are issued and outstanding under network partnership agreements, except for retail cobrand Card Member accounts which have no out-of-store spending activity during the prior twelve-month period.