Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP), and includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, our management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework (2013).
Based
on managements assessment and those criteria, we conclude that, as of December 31, 2016, our internal control over financial reporting is effective.
PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued an attestation report appearing on the following page on the effectiveness of
our internal control over financial reporting as of December 31, 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
American Express Company (the Company) is a global services company that provides customers with access to products,
insights and experiences that enrich lives and build business success. The Companys principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world.
Business travel-related services are offered through the
non-consolidated
joint venture, American Express Global Business Travel (the GBT JV). Prior to July 1, 2014, these business travel operations were
wholly owned. The Companys various products and services are sold globally to diverse customer groups, including consumers, small businesses,
mid-sized
companies and large corporations. These products
and services are sold through various channels, including direct mail, online applications,
in-house
and third-party sales forces and direct response advertising.
Effective for the first quarter of 2016, the Company realigned its segment presentation to reflect the organizational changes announced during the fourth quarter of
2015. Prior periods have been restated to conform to the new reportable operating segments, which are as follows:
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U.S. Consumer Services (USCS) issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including consumer travel services;
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International Consumer and Network Services (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;
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Global Commercial Services (GCS) issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing
products; and
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Global Merchant Services (GMS) operates a global payments network that processes and settles proprietary and
non-proprietary
card transactions. GMS acquires merchants and provides
multi-channel marketing programs and capabilities, services and data analytics, leveraging the Companys global closed-loop network. GMS also operates loyalty coalition businesses in certain countries around the world.
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Corporate functions and certain other businesses and operations, including the Companys Prepaid Services business and the American Express Global Business Travel
(GBT) operations up to June 30, 2014, and subsequent activities related to the GBT JV, are included in Corporate & Other.
PRINCIPLES OF CONSOLIDATION
The Consolidated
Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Significant intercompany transactions are eliminated.
The Company consolidates entities in which it holds a controlling financial interest. For voting interest entities, the Company is considered to hold a
controlling financial interest when it is able to exercise control over the investees operating and financial decisions. For variable interest entities (VIEs), the determination of which is based on the amount and characteristics of the
entitys equity, the Company is considered to hold a controlling financial interest when it is determined to be the primary beneficiary. A primary beneficiary is the party that has both: (1) the power to direct the activities that most
significantly impact that VIEs economic performance, and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.
Entities in which the Companys voting interest in common equity does not provide it with control, but allows the Company to exert significant influence over the
operating and financial decisions, are accounted for under the equity method. All other investments in equity securities, to the extent they are not considered marketable securities, are accounted for under the cost method.
FOREIGN CURRENCY
Assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of the reporting period; revenues and expenses are translated at the average
month-end
exchange rates during the year. Resulting translation adjustments, along with any related qualifying hedge and tax effects, are included in accumulated other comprehensive income (loss) (AOCI), a component of shareholders equity. Translation
adjustments, including qualifying hedge and tax effects, are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Gains
82
and losses related to transactions in a currency other than the functional currency are reported net in Other expenses, in the Companys Consolidated Statements of Income. Net foreign
currency transaction losses amounted to approximately $18 million in 2016, and net foreign currency transaction gains amounted to approximately $68 million and $44 million in 2015 and 2014, respectively.
AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS
Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in part, on managements assumptions concerning
future events. Among the more significant assumptions are those that relate to reserves for Card Member losses on loans and receivables, the proprietary point liability for Membership Rewards costs, fair value measurements, goodwill and
income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ.
INCOME STATEMENT
Discount Revenue
Discount revenue generally represents the
amount earned by the Company on transactions occurring at merchants with which the Company, or a Global Network Services (GNS) partner, has entered into a card acceptance agreement for facilitating transactions between the merchants and the
Companys Card Members. The amount of fees charged, or merchant discount, is generally deducted from the payment to the merchant and recorded as discount revenue at the time a Card Member enters
into a point-of-sale
transaction with a merchant.
Where the Company acts as the merchant acquirer and the card
presented at a merchant is issued by a third-party financial institution, such as in the case of GNS partners, the Company makes financial settlement to the merchant and receives the discount revenue. In the Companys role as the operator of
the card network, it also receives financial settlement from the GNS card issuer, which in turn receives an issuer rate that is individually negotiated between that issuer and the Company. The difference between the merchant discount the Company
receives from the merchant (which is directly agreed between a merchant and the Company and is not based on the issuer rate) and the issuer rate received by the GNS card issuer is recorded as discount revenue.
In cases where the Company is the card issuer and the merchant acquirer is a third party (which can be the case in a country in which an Independent Operator partner is
the local merchant acquirer or in the United States under our OptBlue program with certain third-party merchant acquirers), the Company receives a network rate in its settlement with the merchant acquirer, which is individually negotiated between
the Company and that merchant acquirer and is recorded as discount revenue. In contrast with networks such as those operated by Visa Inc. and MasterCard Incorporated, there are no collectively set interchange rates on the American Express network,
issuer rates do not serve as a basis for merchant discount rates and no fees are agreed or due between the third-party financial institution participants on the network.
Net Card Fees
Net card fees represent revenue earned from annual card
membership fees, which varies based on the type of card and the number of cards for each account. These fees, net of deferred acquisition costs and a reserve for projected refunds for Card Member cancellations, are deferred and recognized on a
straight-line basis over the
12-month
card membership period as Net Card Fees in the Consolidated Statements of Income. The unamortized net card fee balance is reported in Other Liabilities on the Consolidated
Balance Sheets (refer to Note 10).
Other Fees and Commissions
Other
fees and commissions represent foreign currency conversion fees, Card Member delinquency fees, loyalty coalition-related fees, travel commissions and fees and service fees, which are primarily recognized in the period in which they are charged to
the Card Member (refer to Note 19). In addition, service fees are also earned from other customers (e.g., merchants) for a variety of services and are recognized when the service is performed, which is generally in the period the fee is charged.
Also included are fees related to the Companys Membership Rewards program, which are deferred and recognized over the period covered by the fee, typically one year; the unamortized portion of which is included in Other Liabilities on the
Consolidated Balance Sheets (Refer to Note 10).
Contra-revenue
The
Company regularly makes payments through contractual arrangements with merchants, corporate payments clients, Card Members and certain other customers. These payments, including cash rebates and statement credits provided to Card Members, are
generally classified as contra-revenue unless a specifically identifiable benefit (e.g., goods or services) is received by the Company or its Card Members in consideration for that payment, and the fair value of such benefit is determinable and
measurable. If such conditions are met, then the payment is classified as expense up to the estimated fair value of the benefit. If no such benefit is
83
identified, then the entire payment is classified as contra-revenue and included in the Consolidated Statements of Income in the revenue line item where the related transactions are recorded
(e.g., Discount revenue or Other fees and commissions).
Interest Income
Interest on Card Member loans is assessed using the average daily balance method. 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 relate to the Companys 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 that a constant rate of return is recognized on the investment securitys outstanding balance. Amounts are recognized until
securities are in default or when it becomes likely that future interest payments will not be made as scheduled.
Interest on deposits with banks and other is
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.
Interest Expense
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 the Companys long-term debt and short-term borrowings, as well as the realized impact of derivatives hedging interest rate risk
on the Companys long-term debt.
Expenses
Marketing and promotion
expense includes advertising costs, which are expensed in the year in which the advertising first takes place.
BALANCE SHEET
Cash and Cash Equivalents
Cash and cash equivalents include
cash and amounts due from banks, interest-bearing bank balances, including securities purchased under resale agreements, and other highly liquid investments with original maturities of 90 days or less.
Goodwill
Goodwill represents the excess of acquisition cost of an acquired
business over the fair value of assets acquired and liabilities assumed. The Company allocates goodwill to its reporting units for the purpose of impairment testing. A reporting unit is defined as an operating segment, or a business that is one
level below an operating segment, for which discrete financial information is regularly reviewed by the operating segment manager.
The Company evaluates goodwill
for impairment annually as of June 30, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of one or more of the Companys reporting units below its carrying value. The
Company performs an impairment evaluation of goodwill using a
two-step
process. The first step identifies whether there is a potential impairment by comparing the fair value of a reporting unit to the carrying
amount, including goodwill. If the carrying amount of a reporting unit exceeds the fair value, the second step of the impairment test is performed to determine the implied fair value of goodwill. An impairment loss is recognized based on the
amount that the carrying amount of goodwill exceeds the implied fair value. Prior to completing the interim assessment of goodwill for impairment under the second step, the Company performs a recoverability test of certain long-lived
assets by assessing the recoverability of the assets based on the cash flows generated by the relevant assets or asset groups. If the sum of undiscounted cash flow exceeds the carrying value, an impairment loss is recognized based on the amount that
the carrying value of the asset or asset group exceeds its fair value. See further details in Other Intangible Assets herein.
Goodwill impairment testing involves
management judgment, requiring an assessment of whether the carrying value of the reporting unit exceeded its fair value. Using widely accepted valuation techniques, the Company applies a combination of the income approach (discounted cash flows)
and market approach (market multiples) to measure the fair values of its reporting units.
84
When preparing discounted cash flow models under the income approach, the Company uses internal forecasts to estimate future
cash flows expected to be generated by the reporting units. To discount these cash flows, the Company uses the expected cost of equity, determined by using a capital asset pricing model. The Company believes the discount rates used appropriately
reflect the risks and uncertainties in the financial markets generally and specifically in the Companys internally developed forecasts. When using market multiples under the market approach, the Company applies comparable publicly traded
companies multiples (e.g., earnings or revenues) to its reporting units actual results.
Other Intangible Assets
Intangible assets, primarily customer relationships, are amortized on a straight-line basis over their estimated useful lives of 1 to 22 years. The Company reviews
long-lived assets and asset groups, including intangible assets, for impairment whenever events and circumstances indicate their carrying amounts may not be recoverable. An impairment is recognized if the carrying amount is not recoverable and
exceeds the asset or asset groups fair value.
Certain long-lived assets, such as capitalized software development costs, are included in Premises and
equipment. The Company reviews these assets for impairment using the same impairment methodology used for intangible assets.
Premises and Equipment
Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation. Costs incurred during construction are capitalized and are
depreciated once an asset is placed in service. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years for equipment, furniture and building improvements, and
from 40 to 50 years for premises, which are depreciated based upon their estimated useful life at the acquisition date.
Leasehold improvements are depreciated using
the straight-line method over the lesser of the remaining term of the leased facility, or the economic life of the improvement, and ranges from 5 to 10 years. The Company maintains operating leases worldwide for facilities and equipment. Rent
expense for facility leases is recognized ratably over the lease term, and includes adjustments for rent concessions, rent escalations and leasehold improvement allowances. The Company recognizes lease restoration obligations at the fair value of
the restoration liabilities when incurred and amortizes the restoration assets over the lease term.
Certain costs associated with the acquisition or development of
internal-use
software are also recorded in Premises and equipment. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the softwares estimated useful life,
generally 5 years.
OTHER SIGNIFICANT ACCOUNTING POLICIES
The following table identifies the Companys other significant accounting policies, along with the related Note and page number where the Note can be found.
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Significant Accounting Policy
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Note
Number
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Note Title
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Page
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Accounts Receivable
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Note 3
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Loans and Accounts Receivable
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Page 88
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Loans
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Note 3
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Loans and Accounts Receivable
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Page 88
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Reserves for Losses
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Note 4
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Reserves for Losses
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Page 94
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Investment Securities
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Note 5
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Investment Securities
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Page 96
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Asset Securitizations
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Note 6
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Asset Securitizations
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Page 97
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Membership Rewards
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Note 10
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Other Liabilities
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Page 103
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Stock-based Compensation
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Note 11
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Stock Plans
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Page 104
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Retirement Plans
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Note 12
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Retirement Plans
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Page 106
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Legal Contingencies
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Note 13
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Contingencies and Commitments
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Page 106
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Derivative Financial Instruments and Hedging Activities
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Note 14
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Derivatives and Hedging Activities
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Page 107
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Fair Value Measurements
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Note 15
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Fair Values
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Page 111
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Income Taxes
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Note 21
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Income Taxes
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Page 120
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Regulatory Matters and Capital Adequacy
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Note 23
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Regulatory Matters and Capital Adequacy
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Page 122
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Reportable Operating Segments
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Note 25
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Reportable Operating Segments and Geographic Operations
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Page 125
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RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The accounting standard establishes the principles to
apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and
85
uncertainty of revenues and related cash flows. The guidance, as amended, supersedes most of the current revenue recognition requirements, and is effective January 1, 2018, with early
adoption as of January 1, 2017.
The Company will adopt the new guidance on January 1, 2018, and anticipates using the full retrospective method, which
applies the new standard to each prior reporting period presented. The Company has been working on the implementation of the standard since its issuance in 2014 and has made significant progress in evaluating the potential impact on its Consolidated
Financial Statements. There will be changes to the recognition timing and classification of revenues and expenses; however, the Company does not expect a significant impact to pretax income upon adoption. The Company is also in the process of
implementing changes to its accounting policies, business processes, systems and internal controls to support the recognition and disclosure requirements under the new standard.
In January 2016, the FASB issued new accounting guidance on the recognition and measurement of financial assets and financial liabilities. The guidance, which is
effective January 1, 2018, makes targeted changes to current GAAP, specifically to the classification and measurement of equity securities, and to certain disclosure requirements associated with the fair value of financial instruments. The
Company continues to evaluate the impact this guidance will have on its financial position, results of operations and cash flows. In preparation for the implementation, the Company is evaluating the impact the guidance will have on its cost method
investments, as well as the impact the standard will have on its accounting policies, business processes, systems and internal controls.
In February 2016, the FASB
issued new accounting guidance on leases. The guidance, which is effective January 1, 2019, with early adoption permitted, requires virtually all leases to be recognized on the Consolidated Balance Sheets. The Company currently anticipates
adopting the standard effective January 1, 2019, using the modified retrospective approach, which requires recording existing operating leases on the Consolidated Balance Sheets upon adoption and in the comparative period. The Company is in the
process of identifying changes to its accounting policies, business processes, systems, and internal controls in preparation for the implementation. Specifically, the Company is currently reviewing its lease portfolio, including service contracts
that may include embedded leases, and is evaluating and interpreting the requirements under the guidance, including the available accounting policy elections and practical expedients upon transition, in order to determine the impacts to the
Companys financial position, results of operations and cash flows upon adoption.
In March 2016, the FASB issued new accounting guidance on employee share-based
payments, adopted by the Company effective January 1, 2017, which simplifies various aspects of the accounting for share-based payment transactions, including the income tax consequences, accounting for award forfeitures, and classification on
the Consolidated Statements of Cash Flows. Among other items, the guidance requires excess tax benefits and deficiencies, which under previous guidance would have been recorded within additional
paid-in
capital, to now be recognized in the income tax provision within the results of operations. The adoption of the guidance did not have a significant impact on the Companys financial position, results of operations or cash flows.
In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial instruments, which is effective January 1, 2020, with early
adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach
used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information and will
likely result in earlier recognition of credit reserves. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows;
however, it is expected that the new CECL model will alter the assumptions used in estimating credit losses on Card Member loans and receivables, among other financial instruments (e.g., investments in
available-for-sale
debt securities), and may result in material changes to the Companys credit reserves.
CLASSIFICATION OF VARIOUS ITEMS
Certain reclassifications of prior period amounts have been made to conform to the current period
presentation. During 2016, the Company determined that in the Consolidated Statements of Cash Flows for the comparative periods ended June 30, 2015, September 30, 2015 and December 31, 2015, certain activities related to long-term
debt repayments were misclassified between financing activities and operating activities. There is no impact to the Consolidated Statements of Income or Consolidated Balance Sheets. The Company has evaluated the effects of these misclassifications
and concluded that none are material to any of its previously issued Consolidated Financial Statements. Nevertheless, the Company has elected to revise prospectively the comparative periods mentioned above. For the year ended December 31,
2015, this revision resulted in a $361 million decrease to both Net cash used in financing activities and Net cash provided by operating activities. In addition, travel commissions and fees, which were previously disclosed separately on the
Consolidated Statements of Income, are now included within Other fees and commissions.
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NOTE 2
BUSINESS EVENTS
GLOBAL BUSINESS TRAVEL TRANSACTION
On
June 30, 2014, the Company completed a transaction to establish a
non-consolidated
joint venture comprising the former GBT operations of the Company and an external cash investment. As a result of this
transaction, the Company deconsolidated the GBT net assets, effective June 30, 2014, and began accounting for the GBT JV as an equity method investment reported in Other assets within the Consolidated Balance Sheets. Prior to the
deconsolidation, GBTs operations were reported within the Corporate & Other segment.
LOANS AND RECEIVABLES HELD FOR SALE
During the fourth quarter of 2015, it was determined the Company would sell the Card Member loans and receivables related to its cobrand partnerships
with JetBlue Airways Corporation (JetBlue) and Costco Wholesale Corporation (Costco) in the United States (the HFS portfolios). As a result, the HFS portfolios were presented as held for sale (HFS) on the Consolidated Balance Sheets within Card
Member loans and receivables HFS as of December 31, 2015. The Company completed the sales of substantially all of these outstanding Card Member loans and receivables HFS during the first half of 2016 and recognized gains, as an expense
reduction in Other expenses, of $127 million and $1.1 billion related to the JetBlue and Costco HFS portfolios, respectively. The impact of the sales is reported within the investing section of the Consolidated Statements of Cash Flows as
a net decrease in Card Member receivables and loans, including held for sale. From the point of classification as HFS during the fourth quarter of 2015 through the sale completion dates, the Company continued to recognize discount revenue, interest
income and other revenues and expenses related to the HFS portfolios in the respective line items on the Consolidated Statements of Income, with changes in the valuation of the HFS portfolios recognized in Other expenses.
GOODWILL AND TECHNOLOGY IMPAIRMENT
As discussed
in Note 1, the Company evaluates goodwill for impairment annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of one or more of the Companys reporting units below its
carrying value. Based on its annual assessment as of June 30, 2015, the Company determined that goodwill was not impaired; however, during the fourth quarter of 2015, the Company announced changes to its management organizational structure
under which reconsideration of the Companys Prepaid Services business (a reporting unit that is included in Corporate & Other) occurred. As a result, the Company determined that sufficient indicators of potential impairment of
goodwill existed and performed an impairment evaluation. In performing the
two-step
impairment evaluation, it was determined the carrying value of the Prepaid Services business goodwill exceeded its
implied fair value and the Company recognized an impairment loss. The fair value of the Prepaid Services business asset group was measured based on an income approach (discounted cash flow valuation methodology), with the assistance of a third-party
valuation firm. Prior to completing the assessment of goodwill for impairment, the Company performed a recoverability test of certain long-lived assets in the Prepaid Services business and determined that certain long-lived assets, primarily
technology assets, were not recoverable. As a result, during the fourth quarter of 2015, the Company recorded a $384 million impairment charge, comprising a $219 million write-down of the entire balance of goodwill in the Prepaid Services
business and a $165 million write-down of technology and other assets to fair value. These charges were reported in Other expenses. The Company did not recognize any significant goodwill impairment losses in either 2016 or 2014. Refer to Note 7
for further discussion of the Companys goodwill and intangible assets.
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NOTE 3
LOANS AND ACCOUNTS RECEIVABLE
The
Companys lending and charge payment card products result in the generation of Card Member loans and Card Member receivables, respectively. This Note is presented excluding amounts associated with the Card Member loans and receivables HFS as of
December 31, 2015; the Company did not have any Card Member loans and receivables HFS as of December 31, 2016.
CARD MEMBER AND
OTHER LOANS
Card Member loans are recorded at the time a Card Member enters into a
point-of-sale
transaction with a merchant and represent revolving amounts due on lending card products, as well as amounts due from charge Card Members who utilize the
Pay Over Time features on their account and elect to revolve a portion of the outstanding balance by entering into a revolving payment arrangement with the Company. These loans have a range of terms such as credit limits, interest rates, fees and
payment structures, which can be revised over time based on new information about Card Members, and in accordance with applicable regulations and the respective products terms and conditions. Card Members holding revolving loans are typically
required to make monthly payments based on
pre-established
amounts and the amounts that Card Members choose to revolve are subject to finance charges.
Card Member loans are presented on the Consolidated Balance Sheets net of reserves for losses (refer to Note 4), and include principal and any related accrued interest
and fees. The Companys policy generally is to cease accruing interest on a Card Member loan at the time the account is written off, and establish reserves for interest that the Company believes will not be collected.
Card Member loans by segment and Other loans as of December 31, 2016 and 2015 consisted of:
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(Millions)
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2016
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2015
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U.S. Consumer Services
(a)
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$
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48,758
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$
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43,495
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International Consumer and Network Services
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6,971
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7,072
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Global Commercial Services
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9,536
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8,006
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Card Member loans
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65,265
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58,573
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Less: Reserve for losses
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1,223
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1,028
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Card Member loans, net
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$
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64,042
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$
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57,545
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Other loans, net
(b)
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$
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1,419
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$
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1,254
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(a)
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Includes approximately $26.1 billion and $23.6 billion of gross Card Member loans available to settle obligations of a consolidated VIE as of December 31, 2016 and 2015, respectively.
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(b)
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Other loans primarily represent commercial financing products. Other loans are presented net of reserves for losses of $42 million and $20 million as of December 31, 2016 and 2015, respectively.
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CARD MEMBER AND OTHER RECEIVABLES
Card Member receivables are also recorded at the time a Card Member enters into a
point-of-sale
transaction with a merchant and represent amounts due on charge card products. Each charge card transaction is authorized based on its likely economics, a
Card Members most recent credit information and spend patterns. Additionally, global spend limits are established to limit the maximum exposure for the Company.
Charge Card Members generally must pay the full amount billed each month. Card Member receivable balances are presented on the Consolidated Balance Sheets net of
reserves for losses (refer to Note 4), and include principal and any related accrued fees.
Card Member accounts receivable by segment and Other receivables as of
December 31, 2016 and 2015 consisted of:
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(Millions)
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2016
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|
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2015
|
|
U.S. Consumer Services
(a)
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|
$
|
12,302
|
|
|
$
|
11,807
|
|
International Consumer and Network Services
|
|
|
|
|
|
|
5,966
|
|
|
|
5,599
|
|
Global Commercial Services
|
|
|
|
|
|
|
29,040
|
|
|
|
26,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables
|
|
|
|
|
|
|
47,308
|
|
|
|
44,133
|
|
Less: Reserve for losses
|
|
|
|
|
|
|
467
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member receivables, net
|
|
|
|
|
|
$
|
46,841
|
|
|
$
|
43,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables, net
(b)
|
|
|
|
|
|
$
|
3,232
|
|
|
$
|
3,024
|
|
|
|
(a)
|
Includes $8.9 billion and $6.6 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of December 31, 2016 and 2015, respectively.
|
(b)
|
Other receivables primarily represent amounts related to (i) GNS partner banks for items such as royalty and franchise fees, (ii) certain merchants for billed discount revenue, and (iii) loyalty coalition
partners for points issued, as well as program participation and servicing fees. Other receivables are presented net of reserves for losses of $45 million and $43 million as of December 31, 2016 and 2015, respectively.
|
88
CARD MEMBER LOANS AND CARD MEMBER RECEIVABLES AGING
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the
aging of Card Member loans and receivables as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
(Millions)
|
|
|
|
Current
|
|
|
30-59
Days Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
90+
Days Past
Due
|
|
|
Total
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
48,216
|
|
|
$
|
156
|
|
|
$
|
119
|
|
|
$
|
267
|
|
|
$
|
48,758
|
|
International Consumer and Network Services
|
|
|
|
|
6,863
|
|
|
|
32
|
|
|
|
24
|
|
|
|
52
|
|
|
|
6,971
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
|
|
9,378
|
|
|
|
34
|
|
|
|
23
|
|
|
|
49
|
|
|
|
9,484
|
|
Global Corporate Payments
(a)
|
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
|
|
|
|
52
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
12,158
|
|
|
$
|
45
|
|
|
$
|
30
|
|
|
$
|
69
|
|
|
$
|
12,302
|
|
International Consumer and Network Services
|
|
|
|
|
5,888
|
|
|
|
22
|
|
|
|
15
|
|
|
|
41
|
|
|
|
5,966
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
|
|
14,047
|
|
|
|
77
|
|
|
|
47
|
|
|
|
102
|
|
|
|
14,273
|
|
Global Corporate Payments
(a)
|
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
135
|
|
|
|
14,767
|
|
|
|
|
|
|
2015
(Millions)
|
|
|
|
Current
|
|
|
30-59
Days Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
90+
Days Past
Due
|
|
|
Total
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
43,063
|
|
|
$
|
128
|
|
|
$
|
94
|
|
|
$
|
210
|
|
|
$
|
43,495
|
|
International Consumer and Network Services
|
|
|
|
|
6,961
|
|
|
|
34
|
|
|
|
25
|
|
|
|
52
|
|
|
|
7,072
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
|
|
7,867
|
|
|
|
26
|
|
|
|
18
|
|
|
|
40
|
|
|
|
7,951
|
|
Global Corporate Payments
(a)
|
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
1
|
|
|
|
55
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
11,646
|
|
|
$
|
54
|
|
|
$
|
32
|
|
|
$
|
75
|
|
|
$
|
11,807
|
|
International Consumer and Network Services
|
|
|
|
|
5,515
|
|
|
|
24
|
|
|
|
18
|
|
|
|
42
|
|
|
|
5,599
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Small Business Services
|
|
|
|
|
12,734
|
|
|
|
69
|
|
|
|
45
|
|
|
|
102
|
|
|
|
12,950
|
|
Global Corporate Payments
(a)
|
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
(b)
|
|
|
|
124
|
|
|
|
13,777
|
|
|
|
(a)
|
For Global Corporate Payments (GCP) Card Member loans and receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past
billing if payment has not been received within 90 days of the Card Members billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated
Card Member loan and receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
|
(b)
|
Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days
past due can be derived as the difference between the Total and the 90+ Days Past Due balances.
|
89
CREDIT QUALITY INDICATORS FOR CARD MEMBER LOANS AND RECEIVABLES
The following tables present the key credit quality indicators as of or for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net Write-Off Rate
|
|
|
|
|
|
Net
Write-Off
Rate
|
|
|
|
|
|
|
|
|
|
Principal
Only
|
(a)
|
|
|
Principal,
Interest, &
Fees
|
(a)
|
|
|
30+
Days Past Due
as a % of
Total
|
|
|
|
Principal
Only
|
(a)
|
|
|
Principal,
Interest, &
Fees
|
(a)
|
|
|
30+
Days Past Due
as a % of
Total
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
1.5
|
%
|
|
|
1.8
|
%
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
1.0%
|
|
International Consumer and Network Services
|
|
|
|
|
2.0
|
%
|
|
|
2.5
|
%
|
|
|
1.6
|
%
|
|
|
1.9
|
%
|
|
|
2.4
|
%
|
|
|
1.6%
|
|
Global Small Business Services
|
|
|
|
|
1.4
|
%
|
|
|
1.7
|
%
|
|
|
1.1
|
%
|
|
|
1.3
|
%
|
|
|
1.5
|
%
|
|
|
1.1%
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
1.2
|
%
|
|
|
1.6
|
%
|
|
|
1.8
|
%
|
|
|
1.4%
|
|
International Consumer and Network Services
|
|
|
|
|
2.0
|
%
|
|
|
2.2
|
%
|
|
|
1.3
|
%
|
|
|
2.1
|
%
|
|
|
2.3
|
%
|
|
|
1.5%
|
|
Global Small Business Services
|
|
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
1.8
|
%
|
|
|
2.1
|
%
|
|
|
1.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net Loss
Ratio as
a %
of
Charge
Volume
|
|
|
90+
Days Past Billing
as a % of
Receivables
|
|
|
Net Loss
Ratio as
a % of
Charge
Volume
|
|
|
90+
Days Past Billing
as a % of
Receivables
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Corporate Payments
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09
|
%
|
|
|
0.9
|
%
|
|
|
0.09
|
%
|
|
|
0.9%
|
|
|
|
(a)
|
The Company presents a net
write-off
rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the
Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net
write-off
rate including principal, interest and/or fees is also presented. The year ended
December 31, 2015, reflects the impact of a change in the timing of charge-offs for Card Member loans and receivables in certain modification programs from 180 days past due to 120 days past due, which was fully recognized during the three
months ended March 31, 2015.
|
Refer to Note 4 for additional indicators, including external environmental qualitative factors, management
considers in its monthly evaluation process for reserves for losses.
IMPAIRED CARD MEMBER LOANS AND RECEIVABLES
Impaired Card Member loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the
Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. The Company considers impaired loans and receivables to include: (i) loans over 90 days past due still accruing
interest, (ii) nonaccrual loans and (iii) loans and receivables modified as troubled debt restructurings (TDRs).
In instances where the Card Member is
experiencing financial difficulty, the Company may modify, through various programs, Card Member loans and receivables in order to minimize losses and improve collectability, while providing Card Members with temporary or permanent financial relief.
The Company has classified Card Member loans and receivables in these modification programs as TDRs. Beginning January 1, 2015, on a prospective basis the Company continues to classify Card Member accounts that have exited a modification
program as a TDR, with such accounts identified as Out of Program TDRs.
Such modifications to the loans and receivables primarily include
(i) temporary interest rate reductions (possibly as low as zero percent, in which case the loan is characterized as
non-accrual
in the Companys TDR disclosures), (ii) placing the Card Member on a
fixed payment plan not to exceed 60 months and (iii) suspending delinquency fees until the Card Member exits the modification program. Upon entering the modification program, the Card Members ability to make future purchases is either
cancelled, or in certain cases suspended until the Card Member successfully exits the modification program. In accordance with the modification agreement with the Card Member, loans may revert back to the original contractual terms (including the
contractual interest rate) when the Card Member exits the modification program, which is (i) when all payments have been made in accordance with the modification agreement or, (ii) when the Card Member defaults out of the modification
program. The Company establishes a reserve for Card Member interest charges and fees considered to be uncollectible.
Reserves for Card Member loans and receivables
modified as TDRs are determined as the difference between the cash flows expected to be received from the Card Member (taking into consideration the probability of subsequent defaults), discounted at the original effective interest rates, and the
carrying value of the related Card Member loan or receivable balance. The Company
90
determines the original effective interest rate as the interest rate in effect prior to the imposition of any penalty interest rate. All changes in the impairment measurement are included in
Provisions for losses in the Consolidated Statements of Income.
The following tables provide additional information with respect to the Companys impaired Card
Member loans and receivables. Impaired Card Member receivables are not significant for ICNS as of December 31, 2016, 2015 and 2014; therefore, this segments receivables are not included in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Classified
as a TDR
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
Over 90 days
Past Due &
Accruing
Interest
|
(a)
|
|
|
Non-Accruals
|
(b)
|
|
|
In Program
|
(d)
|
|
|
Out of
Program
|
(e)
|
|
|
Total Impaired
Balance
|
|
|
|
Unpaid
Principal
Balance
|
|
|
|
Allowance for
TDRs
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
178
|
|
|
$
|
139
|
|
|
$
|
165
|
|
|
$
|
129
|
|
|
$
|
611
|
|
|
$
|
558
|
|
|
$
|
51
|
|
International Consumer and Network Services
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
51
|
|
|
|
|
|
Global Commercial Services
|
|
|
30
|
|
|
|
30
|
|
|
|
26
|
|
|
|
26
|
|
|
|
112
|
|
|
|
103
|
|
|
|
9
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
6
|
|
|
|
17
|
|
|
|
17
|
|
|
|
7
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
10
|
|
|
|
38
|
|
|
|
38
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
260
|
|
|
$
|
169
|
|
|
$
|
230
|
|
|
$
|
171
|
|
|
$
|
830
|
|
|
$
|
767
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Classified
as a TDR
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
Over 90 days
Past Due &
Accruing
Interest
|
(a)
|
|
|
Non-Accruals
|
(b)
|
|
|
In Program
|
(d)
|
|
|
Out of
Program
|
(e)
|
|
|
Total Impaired
Balance
|
|
|
|
Unpaid
Principal
Balance
|
|
|
|
Allowance for
TDRs
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
140
|
|
|
$
|
124
|
|
|
$
|
149
|
|
|
$
|
89
|
|
|
$
|
502
|
|
|
$
|
463
|
|
|
$
|
44
|
|
International Consumer and Network Services
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
51
|
|
|
|
|
|
Global Commercial Services
|
|
|
24
|
|
|
|
26
|
|
|
|
23
|
|
|
|
18
|
|
|
|
91
|
|
|
|
85
|
|
|
|
9
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
3
|
|
|
|
14
|
|
|
|
14
|
|
|
|
8
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
3
|
|
|
|
19
|
|
|
|
19
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
216
|
|
|
$
|
150
|
|
|
$
|
199
|
|
|
$
|
113
|
|
|
$
|
678
|
|
|
$
|
632
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
Over 90 days
Past Due &
Accruing
Interest
|
(a)
|
|
|
Non-Accruals
|
(b)
|
|
|
In Program
TDRs
|
(c)(d)
|
|
|
Total Impaired
Balance
|
|
|
|
Unpaid
Principal
Balance
|
|
|
|
Allowance for
TDRs
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
$
|
137
|
|
|
$
|
204
|
|
|
$
|
245
|
|
|
$
|
586
|
|
|
$
|
551
|
|
|
$
|
57
|
|
International Consumer and Network Services
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
56
|
|
|
|
|
|
Global Commercial Services
|
|
|
24
|
|
|
|
37
|
|
|
|
41
|
|
|
|
102
|
|
|
|
95
|
|
|
|
10
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
13
|
|
Global Commercial Services
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
31
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
218
|
|
|
$
|
241
|
|
|
$
|
334
|
|
|
$
|
793
|
|
|
$
|
750
|
|
|
$
|
102
|
|
|
|
(a)
|
The Companys policy is generally to accrue interest through the date of
write-off
(typically 180 days past due). The Company establishes reserves for interest that it
believes will not be collected. Amounts presented exclude Card Member loans classified as a TDR.
|
(b)
|
Non-accrual
loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing
interest. Amounts presented exclude Card Member loans classified as a TDR.
|
(c)
|
Accounts classified as a TDR include $20 million, $20 million and $26 million that are over 90 days past due and accruing interest and $11 million, $18 million and $34 million that are
non-accruals
as of December 31, 2016, 2015 and 2014, respectively.
|
(d)
|
In Program TDRs include Card Member accounts that are currently enrolled in a modification program.
|
(e)
|
Out of Program TDRs include $132 million and $84 million of Card Member accounts that have successfully completed a modification program and $39 million and $29 million of Card Member accounts that
were not in compliance with the terms of the modification programs as of December 31, 2016 and 2015, respectively.
|
91
The following table provides information with respect to the Companys average balances of, and interest income
recognized from, impaired Card Member loans and the average balances of impaired Card Member receivables for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
(Millions)
|
|
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
559
|
|
|
$
|
53
|
|
International Consumer and Network Services
|
|
|
|
|
53
|
|
|
|
15
|
|
Global Commercial Services
|
|
|
|
|
103
|
|
|
|
13
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
14
|
|
|
|
|
|
Global Commercial Services
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
757
|
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
(Millions)
|
|
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
569
|
|
|
$
|
48
|
|
International Consumer and Network Services
|
|
|
|
|
54
|
|
|
|
14
|
|
Global Commercial Services
|
|
|
|
|
104
|
|
|
|
11
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
13
|
|
|
|
|
|
Global Commercial Services
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
760
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
(Millions)
|
|
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
Card Member Loans:
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
$
|
633
|
|
|
$
|
39
|
|
International Consumer and Network Services
|
|
|
|
|
62
|
|
|
|
16
|
|
Global Commercial Services
|
|
|
|
|
117
|
|
|
|
10
|
|
Card Member Receivables:
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer Services
|
|
|
|
|
19
|
|
|
|
|
|
Global Commercial Services
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
859
|
|
|
$
|
65
|
|
|
|
92
CARD MEMBER LOANS AND RECEIVABLES MODIFIED AS TDRS
The following table provides additional information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs for the years ended
December 31, 2016, 2015 and 2014. The ICNS Card Member loans and receivables modifications were not significant; therefore, this segment is not included in the following TDR disclosures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
Number
of
Accounts
(in thousands)
|
|
|
Outstanding
Balances
($ in millions)
(a)
|
|
|
Average Interest
Rate Reduction
(% points)
|
|
|
Average Payment
Term Extensions
(# of months)
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
|
|
31
|
|
|
$
|
220
|
|
|
|
9
|
|
|
|
(b)
|
|
Card Member Receivables
|
|
|
|
|
9
|
|
|
|
123
|
|
|
|
(c)
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
40
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
Number
of
Accounts
(in thousands)
|
|
|
Outstanding
Balances
($ in millions)
(a)
|
|
|
Average Interest
Rate Reduction
(% points)
|
|
|
Average Payment
Term Extensions
(# of months)
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
|
|
40
|
|
|
$
|
285
|
|
|
|
9
|
|
|
|
(b)
|
|
Card Member Receivables
|
|
|
|
|
12
|
|
|
|
147
|
|
|
|
(c)
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
52
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
Number
of
Accounts
(in thousands)
|
|
|
Outstanding
Balances
($ in millions)
(a)
|
|
|
Average Interest
Rate Reduction
(% points)
|
|
|
Average Payment
Term Extensions
(# of months)
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member Loans
|
|
|
|
|
46
|
|
|
$
|
342
|
|
|
|
10
|
|
|
|
(b)
|
|
Card Member Receivables
|
|
|
|
|
15
|
|
|
|
176
|
|
|
|
(c)
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
61
|
|
|
$
|
518
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables.
Modifications did not reduce the principle balance.
|
(b)
|
For Card Member loans, there have been no payment term extensions.
|
(c)
|
The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are
non-interest
bearing.
|
93
The following table provides information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs
that subsequently defaulted within 12 months of modification for the years ended December 31, 2016, 2015 and 2014. A Card Member is considered in default of a modification program after one and up to two consecutive missed payments, depending
on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables.
|
|
|
|
|
|
|
|
|
2016
|
|
Number of
Accounts
(thousands)
|
|
Aggregated
Outstanding
Balances Upon
Default
(a)
(millions)
|
|
Troubled Debt Restructurings That Subsequently Defaulted:
|
|
|
|
|
|
|
Card Member Loans
|
|
7
|
|
$
|
41
|
|
Card Member Receivables
|
|
3
|
|
|
4
|
|
|
|
|
|
|
|
|
Total
|
|
10
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Number of
Accounts
(thousands)
|
|
Aggregated
Outstanding
Balances Upon
Default
(a)
(millions)
|
|
Troubled Debt Restructurings That Subsequently Defaulted:
|
|
|
|
|
|
|
Card Member Loans
|
|
8
|
|
$
|
52
|
|
Card Member Receivables
|
|
3
|
|
|
5
|
|
|
|
|
|
|
|
|
Total
|
|
11
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
(b)
|
|
Number of
Accounts
(thousands)
|
|
Aggregated
Outstanding
Balances Upon
Default
(a)
(millions)
|
|
Troubled Debt Restructurings That Subsequently Defaulted:
|
|
|
|
|
|
|
Card Member Loans
|
|
8
|
|
$
|
52
|
|
Card Member Receivables
|
|
3
|
|
|
12
|
|
|
|
|
|
|
|
|
Total
|
|
11
|
|
$
|
64
|
|
|
|
(a)
|
The outstanding balances upon default include principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables.
|
(b)
|
The number of accounts and outstanding balances upon default have been revised to reflect the exclusion of written off accounts, which are not material.
|
NOTE 4
RESERVES FOR LOSSES
Reserves for losses relating to Card Member loans and receivables represent managements best estimate of
the probable inherent losses in the Companys outstanding portfolio of loans and receivables, as of the balance sheet date. Managements evaluation process requires certain estimates and judgments.
Reserves for losses are primarily based upon statistical and analytical models that analyze portfolio performance and reflect managements judgment regarding the
quantitative components of the reserve. The models take into account several factors, including delinquency-based loss migration rates, loss emergence periods and average losses and recoveries over an appropriate historical period. Management
considers whether to adjust the quantitative reserves for certain external and internal qualitative factors, which may increase or decrease the reserves for losses on Card Member loans and receivables. These external factors include employment,
spend, sentiment, housing and credit, and changes in the legal and regulatory environment, while the internal factors include increased risk in certain portfolios, impact of risk management initiatives, changes in underwriting requirements and
overall process stability. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of Card Member loans or receivables, and net
write-off
coverage ratios.
Card Member loans and receivables balances are written off when management considers amounts to be
uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due. Card Member loans and receivables in bankruptcy or owed by deceased individuals are generally written off upon
notification, and recoveries are recognized as they are collected.
94
This Note is presented excluding amounts associated with the Card Member loans and receivables HFS as of December 31,
2015; the Company did not have any Card Member loans and receivables HFS as of December 31, 2016 or 2014.
CHANGES IN CARD MEMBER
LOANS RESERVE FOR LOSSES
The following table presents changes in the Card Member loans reserve for losses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, January 1
|
|
|
|
$
|
1,028
|
|
|
$
|
1,201
|
|
|
$
|
1,261
|
|
Provisions
(a)
|
|
|
|
|
1,235
|
|
|
|
1,190
|
|
|
|
1,138
|
|
Net write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
(b)
|
|
|
|
|
(930)
|
|
|
|
(967)
|
|
|
|
(1,023)
|
|
Interest and fees
(b)
|
|
|
|
|
(175)
|
|
|
|
(162)
|
|
|
|
(164)
|
|
Transfer of reserves on HFS loan portfolios
|
|
|
|
|
|
|
|
|
(224)
|
|
|
|
|
|
Other
(c)
|
|
|
|
|
65
|
|
|
|
(10)
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
|
|
$
|
1,223
|
|
|
$
|
1,028
|
|
|
$
|
1,201
|
|
|
|
(a)
|
Provisions for principal, interest and fee reserve components.
|
(b)
|
Consists of principal write-offs, less recoveries of $379 million, $418 million and $428 million, including net write-offs/(recoveries) from TDRs of $34 million, $41 million and $(10) million, for the
years ended December 31, 2016, 2015 and 2014, respectively. Recoveries of interest and fees were de minimis.
|
(c)
|
Includes foreign currency translation adjustments of $(10) million, $(20) million and $(17) million for the years ended December 31, 2016, 2015 and 2014, respectively, and other adjustments of $8 million, $10
million and $12 million for the years ended December 31, 2016, 2015 and 2014, respectively. Additionally, 2016 includes reserves of $67 million associated with $265 million of retained Card Member loans reclassified from HFS to held for
investment during the first half of the year, and 2014 includes an adjustment related to reserves for card-related fraud losses of $(6) million, which were reclassified to Other liabilities.
|
CARD MEMBER LOANS EVALUATED INDIVIDUALLY AND COLLECTIVELY FOR IMPAIRMENT
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Card Member loans evaluated individually for impairment
(a)
|
|
|
|
$
|
346
|
|
|
$
|
279
|
|
|
$
|
286
|
|
Related reserves
(a)
|
|
|
|
$
|
60
|
|
|
$
|
53
|
|
|
$
|
67
|
|
|
|
Card Member loans evaluated collectively for impairment
(b)
|
|
|
|
$
|
64,919
|
|
|
$
|
58,294
|
|
|
$
|
70,099
|
|
Related reserves
(b)
|
|
|
|
$
|
1,163
|
|
|
$
|
975
|
|
|
$
|
1,134
|
|
|
|
(a)
|
Represents loans modified as a TDR and related reserves.
|
(b)
|
Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and
non-accrual
loans. The reserves include the quantitative
results of analytical models that are specific to individual pools of loans, and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment.
|
CHANGES IN CARD MEMBER RECEIVABLES RESERVE FOR LOSSES
The following table presents changes in the Card Member receivables reserve for losses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, January 1
|
|
|
|
$
|
462
|
|
|
$
|
465
|
|
|
$
|
386
|
|
Provisions
(a)
|
|
|
|
|
696
|
|
|
|
737
|
|
|
|
792
|
|
Net write-offs
(b)
|
|
|
|
|
(674)
|
|
|
|
(713)
|
|
|
|
(683)
|
|
Other
(c)
|
|
|
|
|
(17)
|
|
|
|
(27)
|
|
|
|
(30)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
|
|
$
|
467
|
|
|
$
|
462
|
|
|
$
|
465
|
|
|
|
(a)
|
Provisions for principal and fee reserve components.
|
(b)
|
Consists of principal and fee components, less recoveries of $391 million, $401 million and $358 million, including net write-offs from TDRs of $16 million, $60 million and $15 million, for
the years ended December 31, 2016, 2015 and 2014, respectively.
|
(c)
|
Includes foreign currency translation adjustments of $(12) million, $(16) million and $(15) million for the years ended December 31, 2016, 2015 and 2014, respectively; and other adjustments of $(5) million, $(11)
million and $(8) million for the years ended December 31, 2016, 2015 and 2014, respectively. Additionally, 2015 includes the impact of the transfer of the HFS receivables portfolio, which was not significant, and 2014 includes an adjustment
related to reserves for card-related fraud losses of $(7) million, which was reclassified to Other liabilities.
|
95
CARD MEMBER RECEIVABLES EVALUATED INDIVIDUALLY AND COLLECTIVELY FOR IMPAIRMENT
The following table presents Card Member receivables evaluated individually and collectively for impairment and related reserves as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Card Member receivables evaluated individually for
impairment
(a)
|
|
|
|
$
|
55
|
|
|
$
|
33
|
|
|
$
|
48
|
|
Related reserves
(a)
|
|
|
|
$
|
28
|
|
|
$
|
20
|
|
|
$
|
35
|
|
|
|
Card Member receivables evaluated collectively for impairment
|
|
|
|
$
|
47,253
|
|
|
$
|
44,100
|
|
|
$
|
44,803
|
|
Related reserves
(b)
|
|
|
|
$
|
439
|
|
|
$
|
442
|
|
|
$
|
430
|
|
|
|
(a)
|
Represents receivables modified as a TDR and related reserves.
|
(b)
|
The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are
collectively evaluated for impairment.
|
NOTE 5
INVESTMENT SECURITIES
Investment securities
principally include debt securities the Company classifies as
available-for-sale
and carries at fair value on the Consolidated Balance Sheets, with unrealized gains and
losses recorded in AOCI, net of income taxes. Realized gains and losses are recognized upon disposition of the securities using the specific identification method. Refer to Note 15 and Note 19 for a description of the Companys methodology for
determining the fair value of investment securities and gross realized gains on the sale of investment securities, respectively.
The following is a summary of
investment securities as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Description of
Securities
(Millions)
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations
|
|
$
|
2,019
|
|
|
$
|
28
|
|
|
$
|
(11)
|
|
|
$
|
2,036
|
|
|
$
|
2,813
|
|
|
$
|
85
|
|
|
$
|
(5)
|
|
|
$
|
2,893
|
|
|
$
|
3,366
|
|
|
$
|
129
|
|
|
$
|
(2)
|
|
|
$
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government treasury obligations
|
|
|
465
|
|
|
|
3
|
|
|
|
(8)
|
|
|
|
460
|
|
|
|
406
|
|
|
|
4
|
|
|
|
(1)
|
|
|
|
409
|
|
|
|
346
|
|
|
|
4
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
29
|
|
|
|
1
|
|
|
|
|
|
|
|
30
|
|
|
|
37
|
|
|
|
3
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
(a)
|
|
|
92
|
|
|
|
3
|
|
|
|
|
|
|
|
95
|
|
|
|
117
|
|
|
|
4
|
|
|
|
|
|
|
|
121
|
|
|
|
128
|
|
|
|
8
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign government bonds and obligations
|
|
|
486
|
|
|
|
1
|
|
|
|
(1)
|
|
|
|
486
|
|
|
|
250
|
|
|
|
6
|
|
|
|
(1)
|
|
|
|
255
|
|
|
|
350
|
|
|
|
9
|
|
|
|
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(b)
|
|
|
50
|
|
|
|
|
|
|
|
(2)
|
|
|
|
48
|
|
|
|
50
|
|
|
|
|
|
|
|
(2)
|
|
|
|
48
|
|
|
|
50
|
|
|
|
|
|
|
|
(1)
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,144
|
|
|
$
|
35
|
|
|
$
|
(22)
|
|
|
$
|
3,157
|
|
|
$
|
3,668
|
|
|
$
|
100
|
|
|
$
|
(9)
|
|
|
$
|
3,759
|
|
|
$
|
4,280
|
|
|
$
|
154
|
|
|
$
|
(3)
|
|
|
$
|
4,431
|
|
|
|
(a)
|
Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
|
(b)
|
Other comprises investments in various mutual funds.
|
The following table provides information about the Companys
investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
Description of Securities
(Millions)
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
State and municipal obligations
|
|
$
|
153
|
|
|
$
|
(11)
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
(3)
|
|
|
$
|
13
|
|
|
$
|
(2)
|
|
U.S. Government treasury obligations
|
|
|
298
|
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Foreign government bonds and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
451
|
|
|
$
|
(19)
|
|
|
$
|
|
|
|
|
32
|
|
|
$
|
|
|
|
|
(2)
|
|
|
$
|
452
|
|
|
$
|
(5)
|
|
|
$
|
46
|
|
|
$
|
(4)
|
|
|
|
96
The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized
cost as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
Ratio of Fair Value to
Amortized Cost
(Dollars in millions)
|
|
|
|
Number of
Securities
|
|
|
Estimated Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Number of
Securities
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Number of
Securities
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90%100%
|
|
|
|
|
33
|
|
|
$
|
411
|
|
|
$
|
(13)
|
|
|
|
6
|
|
|
$
|
32
|
|
|
$
|
(2)
|
|
|
|
39
|
|
|
$
|
443
|
|
|
$
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 90%
|
|
|
|
|
4
|
|
|
|
40
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
40
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2016
|
|
|
|
|
37
|
|
|
$
|
451
|
|
|
$
|
(19)
|
|
|
|
6
|
|
|
$
|
32
|
|
|
$
|
(2)
|
|
|
|
43
|
|
|
$
|
483
|
|
|
$
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90%100%
|
|
|
|
|
52
|
|
|
$
|
450
|
|
|
$
|
(5)
|
|
|
|
15
|
|
|
$
|
37
|
|
|
$
|
(2)
|
|
|
|
67
|
|
|
$
|
487
|
|
|
$
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 90%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
2
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2015
|
|
|
|
|
52
|
|
|
$
|
450
|
|
|
$
|
(5)
|
|
|
|
17
|
|
|
$
|
46
|
|
|
$
|
(4)
|
|
|
|
69
|
|
|
$
|
496
|
|
|
$
|
(9)
|
|
|
|
The gross unrealized losses are attributed to overall wider credit spreads for state and municipal securities, wider credit spreads for
specific issuers, adverse changes in market benchmark interest rates, or a combination thereof, all compared to those prevailing when the investment securities were acquired.
Overall, for the investment securities in gross unrealized loss positions, (i) the Company does not intend to sell the investment securities, (ii) it is more
likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment
securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.
Weighted average yields and contractual maturities
for investment securities with stated maturities as of December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
Due within
1 year
|
|
|
Due after 1
year
but
within 5 years
|
|
|
Due after 5
years but
within 10 years
|
|
|
Due after
10 years
|
|
|
Total
|
|
State and municipal obligations
(a)
|
|
|
|
$
|
17
|
|
|
$
|
92
|
|
|
$
|
274
|
|
|
$
|
1,653
|
|
|
$
|
2,036
|
|
U.S. Government agency obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
U.S. Government treasury obligations
|
|
|
|
|
115
|
|
|
|
210
|
|
|
|
125
|
|
|
|
10
|
|
|
|
460
|
|
Corporate debt securities
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Mortgage-backed securities
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
95
|
|
Foreign government bonds and obligations
|
|
|
|
|
471
|
|
|
|
12
|
|
|
|
|
|
|
|
3
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Estimated Fair Value
|
|
|
|
$
|
622
|
|
|
$
|
314
|
|
|
$
|
399
|
|
|
$
|
1,773
|
|
|
$
|
3,108
|
|
|
|
|
|
|
|
|
|
|
Total Cost
|
|
|
|
$
|
621
|
|
|
$
|
317
|
|
|
$
|
394
|
|
|
$
|
1,761
|
|
|
$
|
3,093
|
|
Weighted average yields
(b)
|
|
|
|
|
2.90
|
%
|
|
|
2.04
|
%
|
|
|
5.25
|
%
|
|
|
4.71
|
%
|
|
|
4.16%
|
|
|
|
(a)
|
The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.
|
(b)
|
Average yields for investment securities have been calculated using the effective yield on the date of purchase. Yields on
tax-exempt
investment securities have been computed on a
tax-equivalent
basis using the U.S. federal statutory tax rate of 35
percent.
|
NOTE 6
ASSET SECURITIZATIONS
The Company periodically
securitizes Card Member loans and receivables arising from its card businesses, including, prior to the sales discussed in Note 2, Card Member loans and receivables HFS, through the transfer of those assets to securitization trusts. The trusts then
issue debt securities to third-party investors, collateralized by the transferred assets.
Card Member loans are transferred to the American Express Credit Account
Master Trust (the Lending Trust) and Card Member receivables are transferred to the American Express Issuance Trust II (the Charge Trust, collectively the Trusts). The Trusts are consolidated by American Express Travel Related Services Company, Inc.
(TRS), which is a consolidated subsidiary of the Company. The Trusts are considered VIEs as they have insufficient equity at risk to finance their activities, which are to issue debt securities that are collateralized by the underlying Card Member
loans and receivables. Refer to Note 1, Summary of significant accounting policies for further details on the principles of consolidation.
97
TRS, in its role as servicer of the Trusts, has the power to direct the most significant activity of the Trusts, which is
the collection of the underlying Card Member loans and receivables. In addition, TRS directly and indirectly (through its consolidated subsidiaries) holds all of the variable interests in both Trusts, with the exception of the debt securities issued
to third-party investors. As of December 31, 2016, TRS direct and indirect ownership of variable interests was $15.1 billion for the Lending Trust and $4.5 billion for the Charge Trust. These variable interests held by TRS
provide it with the right to receive benefits and the obligation to absorb losses, which could be significant to both the Lending Trust and the Charge Trust. Based on these considerations, TRS is the primary beneficiary of both Trusts and therefore
consolidates both Trusts.
The debt securities issued by the Trusts are
non-recourse
to the Company. The securitized Card
Member loans and receivables held by the Lending Trust and the Charge Trust, respectively, are available only for payment of the debt securities or other obligations issued or arising in the securitization transactions (refer to Note 3). The
long-term debt of each Trust is payable only out of collections on their respective underlying securitized assets (refer to Note 9).
The following table provides
information on the restricted cash held by the Lending Trust and the Charge Trust as of December 31, 2016 and 2015, included in Other assets on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Lending Trust
|
|
$
|
35
|
|
|
$
|
153
|
|
Charge Trust
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38
|
|
|
$
|
155
|
|
|
|
These amounts relate to collections of Card Member loans and receivables to be used by the Trusts to fund future expenses and
obligations, including interest on debt securities, credit losses and upcoming debt maturities.
Under the respective terms of the Lending Trust and the Charge Trust
agreements, the occurrence of certain triggering events associated with the performance of the assets of each Trust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of debt
securities. During the year ended December 31, 2016, no such triggering events occurred.
NOTE 7
OTHER ASSETS
The following is
a summary of Other assets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Goodwill
|
|
$
|
2,927
|
|
|
$
|
2,749
|
|
Deferred tax assets, net
(a)
|
|
|
2,336
|
|
|
|
2,231
|
|
Prepaid expenses
|
|
|
696
|
|
|
|
851
|
|
Other intangible assets, at amortized cost
|
|
|
868
|
|
|
|
796
|
|
Tax Credit investments
|
|
|
824
|
|
|
|
638
|
|
Restricted cash
(b)
|
|
|
286
|
|
|
|
477
|
|
Derivative assets
(a)
|
|
|
555
|
|
|
|
282
|
|
Other
|
|
|
2,069
|
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,561
|
|
|
$
|
10,069
|
|
|
|
(a)
|
Refer to Notes 14 and 21 for a discussion of derivative assets and deferred tax assets, net, respectively, as of December 31, 2016 and 2015. For 2016 and 2015, $81 million and $80 million, respectively,
of foreign deferred tax liabilities is reflected in Other liabilities. Derivative assets reflect the impact of master netting agreements.
|
(b)
|
Includes restricted cash available to settle obligations related to certain Card Member credit balances and customer deposits, as well as coupon and maturity obligations of consolidated VIEs.
|
98
GOODWILL
The changes in the carrying amount of goodwill reported in the Companys reportable operating segments and Corporate & Other were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
USCS
|
|
|
|
|
ICNS
|
|
|
|
|
GCS
|
|
|
|
|
GMS
|
|
|
|
|
Corporate &
Other
|
|
|
|
|
Total
|
|
Balance as of January 1, 2015
|
|
|
|
$
|
122
|
|
|
|
|
$
|
673
|
|
|
|
|
$
|
1,715
|
|
|
|
|
$
|
291
|
|
|
|
|
$
|
223
|
|
|
|
|
$
|
3,024
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including impairment and foreign currency
translation
(a)
|
|
|
|
|
|
|
|
|
|
|
(53)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222)
|
|
|
|
|
|
(275)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
|
$
|
122
|
|
|
|
|
$
|
620
|
|
|
|
|
$
|
1,715
|
|
|
|
|
$
|
291
|
|
|
|
|
$
|
1
|
|
|
|
|
$
|
2,749
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
201
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including foreign currency
translation
(a)
|
|
|
|
|
|
|
|
|
|
|
(16)
|
|
|
|
|
|
(3)
|
|
|
|
|
|
(3)
|
|
|
|
|
|
(1)
|
|
|
|
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
|
$
|
122
|
|
|
|
|
$
|
604
|
|
|
|
|
$
|
1,712
|
|
|
|
|
$
|
489
|
|
|
|
|
$
|
|
|
|
|
|
$
|
2,927
|
|
|
|
(a)
|
Includes $1 million and $219 million in impairment charges within Corporate & Other as of December 31, 2016 and 2015, respectively. Refer to Note 2 for additional information.
|
Accumulated impairment losses were $220 million and $219 million as of December 31, 2016 and 2015, respectively.
OTHER INTANGIBLE ASSETS
The components of other
intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
(Millions)
|
|
|
|
Gross Carrying
Amount
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
Net Carrying
Amount
|
|
|
|
|
|
Gross Carrying
Amount
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
Net Carrying
Amount
|
|
Customer relationships
|
|
|
|
$
|
1,625
|
|
|
|
|
|
|
$
|
(895)
|
|
|
|
|
|
|
$
|
730
|
|
|
|
|
|
|
$
|
1,506
|
|
|
|
|
|
|
$
|
(836)
|
|
|
|
|
|
|
$
|
670
|
|
Other
|
|
|
|
|
260
|
|
|
|
|
|
|
|
(122)
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
(105)
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
1,885
|
|
|
|
|
|
|
$
|
(1,017)
|
|
|
|
|
|
|
$
|
868
|
|
|
|
|
|
|
$
|
1,737
|
|
|
|
|
|
|
$
|
(941)
|
|
|
|
|
|
|
$
|
796
|
|
|
|
Amortization expense for the years ended December 31, 2016, 2015 and 2014 was $194 million, $183 million and
$174 million, respectively. Intangible assets acquired in 2016 and 2015 are being amortized, on average, over 7 and 5 years, respectively.
Estimated
amortization expense for other intangible assets over the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2017
|
|
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
Estimated amortization expense
|
|
|
|
$
|
189
|
|
|
|
|
$
|
175
|
|
|
|
|
$
|
146
|
|
|
|
|
$
|
121
|
|
|
|
|
$
|
93
|
|
|
|
TAX CREDIT INVESTMENTS
The Company accounts for its tax credit investments, including Qualified Affordable Housing (QAH) investments, using the equity method of accounting. The Company had
$824 million and $638 million in tax credit investments as of December 31, 2016 and 2015, respectively, included in Other assets on the Consolidated Balance Sheets, of which $798 million and $578 million, respectively,
specifically related to QAH investments. Included in QAH investments as of December 31, 2016 and 2015, the Company has $701 million and $489 million, respectively, specifically related to investments in unconsolidated VIEs for which
the Company does not have a controlling financial interest.
As of December 31, 2016, the Company has committed to provide funding related to certain of these
QAH investments, resulting in a $266 million unfunded commitment reported in Other liabilities, of which $239 million specifically relates to unconsolidated VIEs, which is expected to be paid between 2017 and 2029.
In addition, the Company has contractual
off-balance
sheet obligations, which were not deemed probable of being drawn, whereby it
may provide additional funding up to $151 million for these QAH investments as of December 31, 2016, all of which specifically relate to unconsolidated VIEs.
During the years ended December 31, 2016 and 2015, the Company recognized equity method losses related to its QAH investments of $43 million and
$50 million, respectively, which were recognized in Other, net expenses; and associated tax credits of $63 million and $53 million, respectively, recognized in Income tax provision.
99
NOTE 8
CUSTOMER DEPOSITS
As of December 31,
customer deposits were categorized as interest-bearing or
non-interest-bearing
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
|
|
2015
|
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
|
|
$
|
52,316
|
|
|
|
|
$
|
54,102
|
|
Non-interest-bearing
(includes Card Member credit balances of: 2016,
$331 million; 2015, $389 million)
|
|
|
|
|
367
|
|
|
|
|
|
478
|
|
Non-U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
|
|
|
58
|
|
|
|
|
|
82
|
|
Non-interest-bearing
(includes Card Member credit balances of: 2016,
$285 million; 2015, $323 million)
|
|
|
|
|
301
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
|
|
$
|
53,042
|
|
|
|
|
$
|
54,997
|
|
|
|
Customer deposits by deposit type as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
U.S. retail deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts Direct
|
|
|
|
$
|
30,980
|
|
|
|
|
|
|
$
|
29,023
|
|
Certificates of deposit:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
|
|
291
|
|
|
|
|
|
|
|
281
|
|
Third-party (brokered)
|
|
|
|
|
11,925
|
|
|
|
|
|
|
|
13,856
|
|
Sweep accounts Third-party (brokered)
|
|
|
|
|
9,120
|
|
|
|
|
|
|
|
10,942
|
|
Other retail deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
deposits and U.S.
non-interest
bearing deposits
|
|
|
|
|
110
|
|
|
|
|
|
|
|
183
|
|
Card Member credit balances U.S. and
non-U.S.
|
|
|
|
|
616
|
|
|
|
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
|
|
$
|
53,042
|
|
|
|
|
|
|
$
|
54,997
|
|
|
|
(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 46.5 months and 1.94 percent,
respectively, as of December 31, 2016.
|
The scheduled maturities of certificates of deposit as of December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
U.S.
|
|
|
|
|
Non-U.S.
|
|
|
|
|
Total
|
|
2017
|
|
|
|
$
|
3,735
|
|
|
|
|
$
|
15
|
|
|
|
|
$
|
3,750
|
|
2018
|
|
|
|
|
3,437
|
|
|
|
|
|
|
|
|
|
|
|
3,437
|
|
2019
|
|
|
|
|
2,396
|
|
|
|
|
|
|
|
|
|
|
|
2,396
|
|
2020
|
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
2,542
|
|
2021
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
After 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
12,216
|
|
|
|
|
$
|
15
|
|
|
|
|
$
|
12,231
|
|
|
|
As of December 31, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
U.S.
|
|
|
|
$
|
117
|
|
|
|
|
|
|
$
|
105
|
|
Non-U.S.
|
|
|
|
|
7
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
124
|
|
|
|
|
|
|
$
|
106
|
|
|
|
100
NOTE 9
DEBT
SHORT-TERM
BORROWINGS
The Companys short-term borrowings outstanding, defined as borrowings with original contractual maturity dates of less than one year, as
of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
(Millions, except percentages)
|
|
|
|
|
Outstanding Balance
|
|
|
|
Year-End Stated
Rate on Debt
|
(a)
|
|
|
|
|
|
|
Outstanding Balance
|
|
|
|
Year-End Stated
Rate on Debt
(a)
|
|
Commercial paper
(b)
|
|
|
|
$
|
2,993
|
|
|
|
1.13
|
%
|
|
|
|
|
|
$
|
2,120
|
|
|
|
0.38 %
|
|
Other short-term borrowings
(c)
|
|
|
|
|
2,588
|
|
|
|
1.28
|
|
|
|
|
|
|
|
2,692
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
5,581
|
|
|
|
1.20
|
%
|
|
|
|
|
|
$
|
4,812
|
|
|
|
0.79 %
|
|
|
|
(a)
|
For floating-rate issuances, the stated interest rates are weighted based on the outstanding balances and rates in effect as of December 31, 2016 and 2015.
|
(b)
|
Average commercial paper outstanding was $491 million and $943 million in 2016 and 2015, respectively.
|
(c)
|
Includes interest-bearing overdrafts with banks of $369 million and $410 million as of December 31, 2016 and 2015, respectively. In addition, balances include certain book overdrafts (i.e., primarily
timing differences arising in the ordinary course of business), short-term borrowings from banks, as well as interest-bearing amounts due to merchants in accordance with merchant service agreements.
|
The Company maintained a
2-year
committed, revolving, secured borrowing facility that gives the Company the right to sell up to
$2.0 billion face amount of eligible certificates issued from the Lending Trust at any time through September 17, 2018. As of December 31, 2016 the Company had nil outstanding under this facility. As of December 31, 2015, the
Company had $100 million drawn on this facility with an original contractual maturity of less than
1-year.
The Company
paid $8.6 million and $6.7 million in fees to maintain the secured borrowing facility in 2016 and 2015, respectively. The committed facility does not contain a material adverse change clause, which might otherwise preclude borrowing under
the facility, nor is it dependent on the Companys credit rating.
101
LONG-TERM DEBT
The Companys long-term debt outstanding, defined as debt with original contractual maturity dates of one year or greater, as of December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(Millions, except percentages)
|
|
|
|
|
Original
Contractual
Maturity
Dates
|
|
|
|
|
|
|
|
Outstanding
Balance
(a)
|
|
|
|
Year-End
Stated Rate
on Debt
|
(b)
|
|
|
Year-End
Effective
Interest
Rate with
Swaps
|
(b)(c)
|
|
|
Outstanding
Balance
|
(a)
|
|
|
Year-End
Stated
Rate on
Debt
(b)
|
|
|
|
Year-End
Effective
Interest
Rate
with
Swaps
(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent Company only)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
|
|
|
2017-2042
|
|
|
|
|
|
|
$
|
6,932
|
|
|
|
5.13
|
%
|
|
|
4.24
|
%
|
|
$
|
7,546
|
|
|
|
5.15
%
|
|
|
|
4.25 %
|
|
Floating Rate Senior Notes
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
850
|
|
|
|
1.51
|
|
|
|
|
|
|
|
850
|
|
|
|
0.97
|
|
|
|
|
|
Subordinated Notes
|
|
|
|
|
2024
|
|
|
|
|
|
|
|
598
|
|
|
|
3.63
|
|
|
|
1.92
|
|
|
|
1,347
|
|
|
|
5.39
|
|
|
|
4.47
|
|
American Express Credit Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
|
|
|
2017-2021
|
|
|
|
|
|
|
|
16,201
|
|
|
|
1.98
|
|
|
|
1.44
|
|
|
|
16,469
|
|
|
|
2.16
|
|
|
|
1.28
|
|
Floating Rate Senior Notes
|
|
|
|
|
2017-2020
|
|
|
|
|
|
|
|
4,350
|
|
|
|
1.52
|
|
|
|
|
|
|
|
5,300
|
|
|
|
0.98
|
|
|
|
|
|
American Express Centurion Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
1,306
|
|
|
|
5.99
|
|
|
|
4.83
|
|
|
|
1,319
|
|
|
|
5.99
|
|
|
|
4.75
|
|
Floating Rate Senior Notes
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
125
|
|
|
|
1.26
|
|
|
|
|
|
|
|
125
|
|
|
|
0.81
|
|
|
|
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
1,000
|
|
|
|
6.00
|
|
|
|
|
|
|
|
1,000
|
|
|
|
6.00
|
|
|
|
|
|
Floating Rate Senior Notes
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
300
|
|
|
|
0.96
|
|
|
|
|
|
|
|
300
|
|
|
|
0.62
|
|
|
|
|
|
American Express Lending Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
3,500
|
|
|
|
1.41
|
|
|
|
|
|
|
|
4,000
|
|
|
|
1.35
|
|
|
|
|
|
Floating Rate Senior Notes
|
|
|
|
|
2017-2019
|
|
|
|
|
|
|
|
7,025
|
|
|
|
1.20
|
|
|
|
|
|
|
|
7,025
|
|
|
|
0.82
|
|
|
|
|
|
Floating Rate Subordinated Notes
|
|
|
|
|
2017-2019
|
|
|
|
|
|
|
|
316
|
|
|
|
1.34
|
|
|
|
|
|
|
|
316
|
|
|
|
0.97
|
|
|
|
|
|
American Express Charge Trust II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Senior Notes
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
4,200
|
|
|
|
1.12
|
|
|
|
|
|
|
|
2,200
|
|
|
|
0.67
|
|
|
|
|
|
Floating Rate Subordinated Notes
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
87
|
|
|
|
1.34
|
|
|
|
|
|
|
|
87
|
|
|
|
0.97
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Instruments
(d)
|
|
|
|
|
2021-2033
|
|
|
|
|
|
|
|
24
|
|
|
|
5.62
|
|
|
|
|
|
|
|
29
|
|
|
|
5.62
|
|
|
|
|
|
Floating Rate Borrowings
|
|
|
|
|
2017-2019
|
|
|
|
|
|
|
|
247
|
|
|
|
0.44
|
|
|
|
|
%
|
|
|
244
|
|
|
|
0.66
|
|
|
|
%
|
|
Unamortized Underwriting Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
(71)
|
|
|
|
|
|
|
|
|
|
|
|
(96)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,990
|
|
|
|
2.39
|
%
|
|
|
|
|
|
$
|
48,061
|
|
|
|
2.44
%
|
|
|
|
|
|
|
|
(a)
|
The outstanding balances include (i) unamortized discount and premium, (ii) the impact of movements in exchange rates on foreign currency denominated debt and (iii) the impact of fair value hedge
accounting on certain fixed-rate notes that have been swapped to floating rate through the use of interest rate swaps. Under fair value hedge accounting, the outstanding balances on these fixed-rate notes are adjusted to reflect the impact of
changes in fair value due to changes in interest rates. Refer to Note 14 for more details on the Companys treatment of fair value hedges.
|
(b)
|
For floating-rate issuances, the stated and effective interest rates are weighted based on the outstanding balances and rates in effect as of December 31, 2016 and 2015.
|
(c)
|
Effective interest rates are only presented when swaps are in place to hedge the underlying debt.
|
(d)
|
Includes $24 million and $29 million as of December 31, 2016 and 2015, respectively, related to capitalized lease transactions.
|
As of December 31, 2015, the Company had $750 million principal outstanding of Subordinated Debentures that accrued interest at an annual rate of
6.8 percent. At the Companys option, these Subordinated Debentures were redeemed for cash on September 1, 2016 at 100 percent of the principal amount.
102
Aggregate annual maturities on long-term debt obligations (based on contractual maturity or anticipated redemption dates) as
of December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
American Express Company (Parent Company only)
|
|
|
|
$
|
1,500
|
|
|
$
|
3,850
|
|
|
$
|
641
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,147
|
|
|
$
|
9,138
|
|
American Express Credit Corporation
|
|
|
|
|
4,900
|
|
|
|
3,624
|
|
|
|
5,150
|
|
|
|
4,150
|
|
|
|
2,794
|
|
|
|
|
|
|
|
20,618
|
|
American Express Centurion Bank
|
|
|
|
|
1,300
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,425
|
|
American Express Bank, FSB
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
American Express Lending Trust
|
|
|
|
|
6,639
|
|
|
|
2,886
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,842
|
|
American Express Charge Trust II
|
|
|
|
|
|
|
|
|
4,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,287
|
|
Other
|
|
|
|
|
85
|
|
|
|
127
|
|
|
|
35
|
|
|
|
|
|
|
|
13
|
|
|
|
11
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,724
|
|
|
$
|
14,899
|
|
|
$
|
7,143
|
|
|
$
|
4,150
|
|
|
$
|
2,807
|
|
|
$
|
3,158
|
|
|
$
|
47,881
|
|
|
|
|
|
|
|
|
Unamortized Underwriting Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71)
|
|
Unamortized Discount and Premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(844)
|
|
Impacts due to Fair Value Hedge Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,990
|
|
|
|
The Company maintained a $3.0 billion bank line of credit, with $3.0 billion undrawn as of December 31, 2016 and 2015.
These undrawn amounts support contingent funding needs. The availability of the credit line is subject to the Companys compliance with certain financial covenants, principally the maintenance by American Express Credit Corporation (Credco) of
a 1.25 ratio of combined earnings and fixed charges, to fixed charges. As of December 31, 2016 and 2015, the Company was not in violation of any of its debt covenants.
Additionally, the Company maintained a
3-year
committed, revolving, secured borrowing facility that gives the Company the right
to sell up to $3.0 billion face amount of eligible notes issued from the Charge Trust at any time through July 16, 2018. As of December 31, 2016 and 2015, $3.0 billion and $1.0 billion, respectively, were drawn on this
facility.
The Company paid $11.5 million and $35.1 million in fees to maintain these lines in 2016 and 2015, respectively. These committed facilities do
not contain material adverse change clauses, which might otherwise preclude borrowing under the credit facilities, nor are they dependent on the Companys credit rating.
The Company paid total interest, primarily related to short- and long-term debt, corresponding interest rate swaps and customer deposits, of $1.7 billion,
$1.6 billion and $1.7 billion in 2016, 2015 and 2014, respectively.
NOTE 10
OTHER LIABILITIES
The following is a summary
of Other liabilities as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
Membership Rewards liability
|
|
|
|
|
|
$
|
7,060
|
|
|
|
|
|
|
$
|
6,721
|
|
Employee-related liabilities
(a)
|
|
|
|
|
|
|
2,055
|
|
|
|
|
|
|
|
2,097
|
|
Card Member rebate and reward accruals
(b)
|
|
|
|
|
|
|
1,382
|
|
|
|
|
|
|
|
2,238
|
|
Deferred card and other fees, net
|
|
|
|
|
|
|
1,411
|
|
|
|
|
|
|
|
1,343
|
|
Book overdraft balances
|
|
|
|
|
|
|
2,255
|
|
|
|
|
|
|
|
409
|
|
Other
(c)
|
|
|
|
|
|
|
4,614
|
|
|
|
|
|
|
|
4,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
18,777
|
|
|
|
|
|
|
$
|
17,572
|
|
|
|
(a)
|
Employee-related liabilities include employee benefit plan obligations and incentive compensation.
|
(b)
|
Card Member rebate and reward accruals include payments to third-party reward partners and cash-back rewards.
|
(c)
|
Other includes accruals for general operating expenses, client incentives, merchant rebates, payments to third-party card-issuing partners, advertising and promotion, restructuring and reengineering reserves, QAH
unfunded commitments and derivatives.
|
MEMBERSHIP REWARDS
The Membership Rewards program allows enrolled Card Members to earn points that can be redeemed for a broad range of rewards including travel, entertainment, retail
certificates and merchandise. The Company records a balance sheet liability that represents managements best estimate of the cost of points earned that are expected to be redeemed in the future. The weighted average cost (WAC) per point and
the Ultimate Redemption Rate (URR) are key assumptions used to estimate the Membership Rewards liability.
103
The expense for Membership Rewards points is included in Card Member rewards expense. The Company periodically evaluates its
liability estimation process and assumptions based on developments in redemption patterns, cost per point redeemed, partner contract changes and other factors.
DEFERRED CARD AND OTHER FEES, NET
The carrying amount of deferred card and other fees, net of deferred direct acquisition costs and
reserves for membership cancellations as of December 31, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
Deferred card and other fees
(a)
|
|
|
|
|
|
$
|
1,767
|
|
|
|
|
|
|
$
|
1,652
|
|
Deferred direct acquisition costs
|
|
|
|
|
|
|
(204)
|
|
|
|
|
|
|
|
(173)
|
|
Reserves for membership cancellations
|
|
|
|
|
|
|
(152)
|
|
|
|
|
|
|
|
(136)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred card and other fees, net
|
|
|
|
|
|
$
|
1,411
|
|
|
|
|
|
|
$
|
1,343
|
|
|
|
(a) Includes deferred fees for Membership Rewards program participants.
NOTE 11
STOCK PLANS
STOCK OPTION AND AWARD PROGRAMS
Under the 2016 Incentive Compensation Plan and previously under the 2007 Incentive Compensation Plan, awards may be granted to employees and other key individuals who
perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, restricted stock awards or units (RSAs), portfolio grants (PGs) or other incentives, and similar awards designed to meet the
requirements of
non-U.S.
jurisdictions.
For the Companys Incentive Compensation Plans, there were a total of
17 million, 33 million and 35 million common shares unissued and available for grant as of December 31, 2016, 2015, and 2014, respectively, as authorized by the Companys Board of Directors and shareholders.
A summary of stock option and RSA activity as of December 31, 2016 and changes during the year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
RSAs
|
|
(Shares in thousands)
|
|
|
|
|
Shares
|
|
|
|
|
|
Weighted-
Average Exercise
Price
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Weighted-
Average
Grant
Price
|
|
Outstanding as of December 31, 2015
|
|
|
|
|
|
|
10,820
|
|
|
|
|
|
|
$
|
44.60
|
|
|
|
|
|
|
|
7,433
|
|
|
|
|
|
|
$
|
74.67
|
|
Granted
|
|
|
|
|
|
|
2,920
|
|
|
|
|
|
|
|
63.89
|
|
|
|
|
|
|
|
4,062
|
|
|
|
|
|
|
|
55.55
|
|
Exercised/vested
|
|
|
|
|
|
|
(3,396)
|
|
|
|
|
|
|
|
51.40
|
|
|
|
|
|
|
|
(3,128)
|
|
|
|
|
|
|
|
63.93
|
|
Forfeited
|
|
|
|
|
|
|
(67)
|
|
|
|
|
|
|
|
66.02
|
|
|
|
|
|
|
|
(867)
|
|
|
|
|
|
|
|
70.99
|
|
Expired
|
|
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
51.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
|
|
|
|
10,272
|
|
|
|
|
|
|
|
47.68
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
$
|
69.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of December 31, 2016
|
|
|
|
|
|
|
10,031
|
|
|
|
|
|
|
|
47.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of December 31, 2016
|
|
|
|
|
|
|
6,963
|
|
|
|
|
|
|
$
|
38.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes the cost of employee stock awards granted in exchange for employee services based on the grant-date fair value of
the award, net of expected forfeitures. Those costs are recognized ratably over the vesting period.
STOCK OPTIONS
Each stock option has an exercise price equal to the market price of the Companys common stock on the date of grant and a contractual term of 10 years from the
date of grant. Stock options generally vest 100 percent on the third anniversary of the grant date.
104
The weighted-average remaining contractual life and the aggregate intrinsic value (the amount by which the fair value of the
Companys stock exceeds the exercise price of the option) of the stock options outstanding, exercisable, vested, and expected to vest as of December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
Vested and
Expected to Vest
|
|
Weighted-average remaining contractual life
(in years)
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
4.7
|
|
Aggregate intrinsic value
(millions)
|
|
|
|
|
|
$
|
277
|
|
|
|
|
|
|
$
|
248
|
|
|
|
|
|
|
$
|
275
|
|
|
|
The intrinsic value of options exercised during 2016, 2015 and 2014 was $51 million, $87 million and $245 million,
respectively, (based upon the fair value of the Companys stock price at the date of exercise). Cash received from the exercise of stock options in 2016, 2015 and 2014 was $175 million, $146 million and $283 million,
respectively. The tax benefit realized from income tax impacts of stock option exercises, which was recorded in additional
paid-in
capital, in 2016, 2015 and 2014 was $4 million, $18 million and
$54 million, respectively.
The fair value of each option is estimated on the date of grant using a Black-Scholes-Merton option-pricing model. The following
weighted-average assumptions were used for options granted in 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Dividend yield
|
|
|
|
|
|
|
1.9
|
%
|
|
|
1.1
|
%
|
|
|
1.1%
|
|
Expected volatility
(a)
|
|
|
|
|
|
|
25
|
%
|
|
|
37
|
%
|
|
|
38%
|
|
Risk-free interest rate
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
2.2%
|
|
Expected life of stock option (
in
years
)
(b)
|
|
|
|
|
|
|
6.3
|
|
|
|
6.7
|
|
|
|
6.7
|
|
Weighted-average fair value per option
|
|
|
|
|
|
$
|
13.67
|
|
|
$
|
29.20
|
|
|
$
|
32.36
|
|
|
|
(a) The expected volatility is based on both weighted historical and implied volatilities of the Companys common stock price.
(b) The expected life of stock options was determined using both historical data and expectations of option exercise behavior.
RESTRICTED STOCK AWARDS
RSAs are valued based
on the stock price on the date of grant and contain either a) service conditions or b) both service and performance conditions. RSAs containing only service conditions generally vest 25 percent per year beginning with the first anniversary of
the grant date. RSAs containing both service and performance conditions generally vest on the third anniversary of the grant date, and the number of shares earned depends on the achievement of predetermined Company metrics. All RSA holders receive
non-forfeitable
dividends or dividend equivalents. The total fair value of shares vested during 2016, 2015 and 2014, was $171 million, $247 million and $298 million, respectively (based upon the
Companys stock price at the vesting date).
The weighted-average grant date fair value of RSAs granted in 2016, 2015 and 2014, was $55.55, $81.99 and $86.65,
respectively.
LIABILITY-BASED AWARDS
Certain employees are awarded PGs and other incentive awards that can be settled with cash or equity shares at the Companys discretion and final Compensation and
Benefits Committee payout approval. These awards earn value based on performance, market and service conditions, and vest over periods of one to three years.
PGs
and other incentive awards are generally settled with cash and thus are classified as liabilities; therefore, the fair value is determined at the date of grant and remeasured quarterly as part of compensation expense over the vesting period. Cash
paid upon vesting of these awards in 2016, 2015 and 2014 was $41 million, $74 million and $62 million, respectively.
SUMMARY OF STOCK PLAN EXPENSE
The components of
the Companys total stock-based compensation expense (net of forfeitures) for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
|
|
|
|
2014
|
|
Restricted stock awards
(a)
|
|
|
|
$
|
|
|
178
|
|
|
|
|
|
|
$
|
|
|
190
|
|
|
|
|
|
|
$
|
|
|
193
|
|
Stock options
(a)
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
13
|
|
Liability-based awards
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
(b)
|
|
|
|
$
|
|
|
252
|
|
|
|
|
|
|
$
|
|
|
234
|
|
|
|
|
|
|
$
|
|
|
290
|
|
|
|
|
|
(a)
|
As of December 31, 2016, the total unrecognized compensation cost related to unvested RSAs and options of $189 million and $24 million, respectively, will be recognized ratably over the weighted-average
remaining vesting period of 2.0 years and 2.1 years, respectively.
|
(b)
|
The total income tax benefit recognized in the Consolidated Statements of Income for stock-based compensation arrangements for the years ended December 31, 2016, 2015 and 2014 was $89 million, $83 million
and $104 million, respectively.
|
105
NOTE 12
RETIREMENT PLANS
DEFINED CONTRIBUTION RETIREMENT PLANS
The
Company sponsors defined contribution retirement plans, the principal plan being the Retirement Savings Plan (RSP), a 401(k) savings plan with a profit-sharing component. The RSP is a
tax-qualified
retirement
plan subject to the Employee Retirement Income Security Act of 1974 and covers most employees in the United States. The total expense for all defined contribution retirement plans globally was $234 million, $224 million and
$272 million in 2016, 2015 and 2014, respectively.
DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Companys primary defined benefit pension plans that cover certain employees in the United States and United Kingdom are closed to new entrants and existing
participants do not accrue any additional benefits. Most employees outside the United States and United Kingdom are covered by local retirement plans, some of which are funded, while other employees receive payments at the time of retirement or
termination under applicable labor laws or agreements. The Company complies with minimum funding requirements in all countries. The Company sponsors unfunded other postretirement benefit plans that provide health care and life insurance to certain
retired U.S. employees. The total expense for these plans was $24 million, $23 million and $24 million in 2016, 2015 and 2014, respectively.
The
Company recognizes the funded status of its defined benefit pension plans and other postretirement benefit plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the Consolidated Balance
Sheets. As of December 31, 2016 and 2015, the funded status related to the defined benefit pension plans and other postretirement benefit plans was underfunded by $700 million and $770 million, respectively, and is recorded in Other
liabilities.
NOTE 13
CONTINGENCIES AND COMMITMENTS
CONTINGENCIES
In the ordinary course of business, the Company and its subsidiaries are subject to various pending and potential legal
actions, arbitration proceedings, claims, investigations, examinations, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings). The Company discloses its
material legal proceedings under Part I, Legal Proceedings.
In addition to the matters disclosed under Legal Proceedings, the Company is
being challenged in a number of countries regarding its application of value-added taxes (VAT) to certain of its international transactions, which are in various stages of audit, or are being contested in legal actions (collectively, VAT matters).
While the Company believes it has complied with all applicable tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that the Company owes additional VAT. In certain jurisdictions where the Company is
contesting the assessments, it was required to pay the VAT assessments prior to contesting.
The Companys legal proceedings range from cases brought by a
single plaintiff to class actions with millions of putative class members. These legal proceedings involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, application of tax
laws, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff or class, many seek an
unspecified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet
progressed sufficiently through discovery and/or development of important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss, while other matters have progressed sufficiently such
that the Company is able to estimate an amount of loss or a range of possible loss.
The Company has recorded reserves for certain of its outstanding legal
proceedings. A reserve is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the recorded reserve. The Company
evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as
applicable.
106
For those disclosed material legal proceedings and VAT matters where a loss is reasonably possible in future periods,
whether in excess of a related reserve for legal or tax contingencies or where there is no such reserve, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $440 million in excess of
any reserves related to those matters. This range represents managements estimate based on currently available information and does not represent the Companys maximum loss exposure; actual results may vary significantly. As such legal
proceedings evolve, the Company may need to increase its range of possible loss or reserves.
Based on its current knowledge, and taking into consideration its
litigation-related liabilities, the Company believes it is not a party to, nor are any of its properties the subject of, any legal proceeding that would have a material adverse effect on the Companys consolidated financial condition or
liquidity. However, in light of the uncertainties involved in such matters, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims, could have a material impact on the Companys results of
operations.
COMMITMENTS
The Company also
has obligations to make payments under contractual agreements with certain cobrand partners. The Company expects to fully satisfy these obligations over the remaining term of these agreements as part of the ongoing operations of its business.
As of December 31, 2016, the obligations under such arrangements were as follows:
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
|
|
2017
|
|
|
|
$
|
72
|
|
2018
|
|
|
|
|
58
|
|
2019
|
|
|
|
|
46
|
|
2020
|
|
|
|
|
33
|
|
2021
|
|
|
|
|
169
|
|
Thereafter
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
388
|
|
|
|
The Company leases certain facilities and equipment under
non-cancelable
and cancelable
agreements, for which total rental expense was $169 million, $187 million and $237 million in 2016, 2015 and 2014, respectively.
As of
December 31, 2016, the minimum aggregate rental commitment under all
non-cancelable
operating leases (net of subleases of $17 million) was as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
$
|
127
|
|
2018
|
|
|
|
|
|
|
108
|
|
2019
|
|
|
|
|
|
|
91
|
|
2020
|
|
|
|
|
|
|
69
|
|
2021
|
|
|
|
|
|
|
49
|
|
Thereafter
|
|
|
|
|
|
|
788
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,232
|
|
|
|
As of December 31, 2016, the Companys future minimum lease payments under capital leases or other similar arrangements is
approximately $4 million per annum in 2017 through 2020, $1 million in 2021 and $10 million in aggregate thereafter.
NOTE 14
DERIVATIVES AND HEDGING ACTIVITIES
The Company uses derivative financial instruments (derivatives) to manage exposures to various
market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rates, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets.
These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Companys market risk management. The Company does not transact in derivatives for trading
purposes.
Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. The Companys market risk exposures
include:
|
|
|
Interest rate risk due to changes in the relationship between interest rates on the Companys assets (such as loans, receivables and investment securities) and interest rates on the Companys liabilities (such
as debt and deposits); and
|
107
|
|
|
Foreign exchange risk related to earnings, funding, transactions and investments in currencies other than the U.S. dollar.
|
The Company centrally monitors market risks using market risk limits and escalation triggers as defined in its Asset/Liability Management Policy. The Companys
market exposures are in large part byproducts of the delivery of its products and services.
Interest rate risk primarily arises through the funding of Card Member
receivables and fixed-rate loans with variable-rate borrowings, as well as through the risk to net interest margin from changes in the relationship between benchmark rates such as Prime and LIBOR. Interest rate exposure within the Companys
charge card and fixed-rate lending products is managed by varying the proportion of total funding provided by short-term and variable-rate debt and deposits compared to fixed-rate debt and deposits. In addition, interest rate swaps are used from
time to time to economically convert fixed-rate debt obligations to variable-rate obligations, or to convert variable-rate debt obligations to fixed-rate obligations. The Company may change the mix between variable-rate and fixed-rate funding based
on changes in business volumes and mix, among other factors.
Foreign exchange risk is generated by Card Member cross-currency charges, foreign currency balance
sheet exposures, foreign subsidiary equity and foreign currency earnings in entities outside the United States. The Companys foreign exchange risk is managed primarily by entering into agreements to buy and sell currencies on a spot basis or
by hedging this market exposure, to the extent it is economically justified, through various means, including the use of derivatives such as foreign exchange forwards and cross-currency swap contracts.
In addition to the exposures mentioned previously, effective August 1, 2011, the Company entered into a total return contract (TRC) to hedge its exposure to changes
in the fair value of its equity investment in the Industrial and Commercial Bank of China (ICBC) in local currency. Under the terms of the TRC, the Company received from the TRC counterparty an amount equivalent to any reduction in the fair value of
its investment in ICBC in local currency, and the Company paid to the TRC counterparty an amount equivalent to any increase in the fair value of its investment in local currency, along with all dividends paid by ICBC, as well as ongoing hedge costs.
The TRC was fully unwound on July 18, 2014 upon the sale of the remaining underlying ICBC shares.
Derivatives may give rise to counterparty credit risk, which
is the risk that a derivative counterparty will default on, or otherwise be unable to perform pursuant to, an uncollateralized derivative exposure. The Company manages this risk by considering the current exposure, which is the replacement cost of
contracts on the measurement date, as well as estimating the maximum potential value of the contracts over the next 12 months, considering such factors as the volatility of the underlying or reference index. To mitigate derivative credit risk,
counterparties are required to be
pre-approved
by the Company and rated as investment grade, and counterparty risk exposures are centrally monitored.
Additionally, in order to mitigate the bilateral counterparty credit risk associated with derivatives, the Company has in certain instances entered into master netting
agreements with its derivative counterparties, which provide a right of offset for certain exposures between the parties. A majority of the Companys derivative assets and liabilities as of December 31, 2016 and 2015 are subject to such
master netting agreements with its derivative counterparties, and there are no instances in which management makes an accounting policy election to not net assets and liabilities subject to an enforceable master netting agreement on the
Companys Consolidated Balance Sheets. To further mitigate bilateral counterparty credit risk, the Company exercises its rights under executed credit support agreements with certain of its derivative counterparties. These agreements require
that, in the event the fair value change in the net derivatives position between the two parties exceeds certain dollar thresholds, the party in the net liability position posts collateral to its counterparty. All derivative contracts cleared
through a central clearinghouse are collateralized to the full amount of the fair value of the contracts.
In relation to the Companys credit risk, under the
terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event.
Based on its assessment of the credit risk of the Companys derivative counterparties as of December 31, 2016 and 2015, no adjustment to the derivative portfolio was required.
The Companys derivatives are carried at fair value on the Consolidated Balance Sheets. The accounting for changes in fair value depends on the instruments
intended use and the resulting hedge designation, if any, as discussed below. Refer to Note 15 for a description of the Companys methodology for determining the fair value of derivatives.
108
The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets Fair Value
|
|
|
Other Liabilities Fair Value
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges - Interest rate contracts
|
|
$
|
111
|
|
|
$
|
236
|
|
|
$
|
69
|
|
|
$
|
9
|
|
Net investment hedges - Foreign exchange contracts
|
|
|
347
|
|
|
|
191
|
|
|
|
35
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
458
|
|
|
|
427
|
|
|
|
104
|
|
|
|
66
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts, including certain embedded derivatives
(a)
|
|
|
308
|
|
|
|
117
|
|
|
|
176
|
|
|
|
135
|
|
Total derivatives, gross
|
|
|
766
|
|
|
|
544
|
|
|
|
280
|
|
|
|
201
|
|
Less: Cash collateral netting on interest rate contracts
(b)
|
|
|
(54)
|
|
|
|
(155)
|
|
|
|
(68)
|
|
|
|
|
|
Derivative asset and derivative liability netting
(c)
|
|
|
(157)
|
|
|
|
(107)
|
|
|
|
(157)
|
|
|
|
(107)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, net
(d)
|
|
$
|
555
|
|
|
$
|
282
|
|
|
$
|
55
|
|
|
$
|
94
|
|
|
|
(a)
|
Includes foreign currency derivatives embedded in certain operating agreements.
|
(b)
|
Represents the offsetting of derivatives and the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivatives executed with the same counterparty under
an enforceable master netting arrangement. The Company received
non-cash
collateral from a counterparty in the form of security interests in U.S. Treasury securities, with a fair value of $18 million as
of December 31, 2016, none of which was sold or repledged. Such
non-cash
collateral economically reduced the Companys risk exposure to $537 million, but did not reduce the net exposure on the
Companys Consolidated Balance Sheets. The Company did not have any such
non-cash
collateral as of December 31, 2015. Additionally, the Company posted $169 million and $149 million as of
December 31, 2016 and 2015, respectively, as initial margin on its centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Consolidated Balance Sheets and are not netted against the derivative balances.
|
(c)
|
Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.
|
(d)
|
The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and net derivative liabilities are
presented within Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets.
|
DERIVATIVE FINANCIAL
INSTRUMENTS THAT QUALIFY FOR HEDGE ACCOUNTING
Derivatives executed for hedge accounting purposes are documented and designated as such when the Company
enters into the contracts. In accordance with its risk management policies, the Company structures its hedges with terms similar to those of the item being hedged. The Company formally assesses, at inception of the hedge accounting relationship and
on a quarterly basis, whether derivatives designated as hedges are highly effective in offsetting the fair value or cash flows of the hedged items. These assessments usually are made through the application of a regression analysis method. If it is
determined that a derivative is not highly effective as a hedge, the Company will discontinue the application of hedge accounting.
FAIR
VALUE HEDGES
A fair value hedge involves a derivative designated to hedge the Companys exposure to future changes in the fair value of an asset or
a liability, or an identified portion thereof, that is attributable to a particular risk.
Interest Rate Contracts
The Company is exposed to interest rate risk associated with its fixed-rate long-term debt obligations. At the time of issuance, certain fixed-rate debt obligations are
designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest rate. The Company has $17.7 billion and $18.8 billion of fixed-rate debt obligations
designated as fair value hedges as of December 31, 2016 and 2015, respectively.
To the extent the fair value hedge is effective, the gain or loss on the
hedging instrument offsets the loss or gain on the hedged item attributable to the hedged risk. Any difference between the changes in the fair value of the derivative and the changes in the hedged item is referred to as hedge ineffectiveness and is
reported as a component of Other expenses. Hedge ineffectiveness may be caused by differences between a debt obligations interest rate and the benchmark rate, primarily due to credit spreads at inception of the hedging relationship that are
not reflected in the fair value of the interest rate swap. Furthermore, hedge ineffectiveness may be caused by changes in
1-month
LIBOR,
3-month
LIBOR and the overnight
indexed swap rate, as spreads between these rates impact the fair value of the interest rate swap without causing an exact offsetting impact to the fair value of the hedged debt.
For the periods presented, the Company considers all fair value hedges to be highly effective and did not
de-designate
any fair
value hedge relationships.
The Company also recognized a net reduction in interest expense on long-term debt of $224 million, $284 million and
$283 million for the years ended December 31, 2016, 2015 and 2014, respectively, primarily related to the net settlements (interest accruals) on the Companys interest rate derivatives designated as fair value hedges.
109
The following table summarizes the impact on the Consolidated Statements of Income associated with the Companys fair
value hedges of its fixed-rate long-term debt for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
|
$
|
(184)
|
|
|
$
|
(83)
|
|
|
$
|
(143)
|
|
Hedged items
|
|
|
163
|
|
|
|
93
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net hedge ineffectiveness (losses) gains
|
|
$
|
(21)
|
|
|
$
|
10
|
|
|
$
|
5
|
|
|
|
|
|
|
Total Return Contract
The Company hedged its
exposure to changes in the fair value of its equity investment in ICBC in local currency. The Company used a TRC to transfer its exposure to its derivative counterparty. On July 18, 2014, the Company sold its remaining shares in ICBC for a loss
of $11 million, which was fully offset by the termination of the TRC which resulted in a gain of $11 million.
NET INVESTMENT
HEDGES
A net investment hedge is used to hedge future changes in currency exposure of a net investment in a foreign operation. The Company primarily
designates foreign currency derivatives, typically foreign exchange forwards, and on occasion foreign currency denominated debt, as hedges of net investments in certain foreign operations. These instruments reduce exposure to changes in currency
exchange rates on the Companys investments in
non-U.S.
subsidiaries. The effective portion of the gain or loss on net investment hedges, net of taxes, recorded in AOCI as part of the cumulative
translation adjustment, were gains of $281 million, $577 million and $455 million for the years ended December 31, 2016, 2015 and 2014, respectively, with any ineffective portion recognized in Other expenses during the period of
change. Specifically, the net hedge ineffectiveness recognized was nil for the year ended December 31, 2016, a gain of $1 million for the year ended December 31, 2015, and nil for the year ended December 31, 2014. Other amounts
related to foreign exchange contracts reclassified from AOCI into Other expenses was a gain of $5 million for the year ended December 31, 2016, nil for the year ended December 31, 2015, and a gain of $10 million for the year
December 31, 2014.
DERIVATIVES NOT DESIGNATED AS HEDGES
The Company has derivatives that act as economic hedges, but are not designated as such for hedge accounting purposes. Foreign currency transactions and
non-U.S.
dollar cash flow exposures from time to time may be partially or fully economically hedged through foreign currency contracts, primarily foreign exchange forwards, options and cross-currency swaps. These
hedges generally mature within one year. Foreign currency contracts involve the purchase and sale of designated currencies at an agreed upon rate for settlement on a specified date. The changes in the fair value of derivatives that are not
designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in
net gains of $1 million, $83 million and $66 million for the years ended December 31, 2016, 2015 and 2014, respectively, and are recognized in Other expenses. From time to time, the Company also may enter into interest rate swaps
to specifically manage funding costs related to its proprietary card business.
Related to its derivatives not designated as hedges, the Company previously disclosed
in Note 14 to the Consolidated Financial Statements in its Annual Reports on Form
10-K
for the years ended December 31, 2015 and 2014, a loss of $39 million and a gain of
$194 million, respectively. These amounts should have been disclosed as a gain of $366 million and a gain of $712 million, respectively, which are the amounts used to calculate the above-referenced net gains of $83 million and
$66 million. These changes to the previously disclosed amounts have no impact on the Consolidated Statements of Income, Balance Sheets or Cash Flows.
The
changes in the fair value of an embedded derivative resulted in gains of $9 million, $5 million, and $4 million for the years ended December 31, 2016, 2015 and 2014, respectively, and are recognized in Card Member services and
other expense.
The Company also has certain operating agreements containing payments that may be linked to a market rate or price, primarily foreign currency rates.
The payment components of these agreements may meet the definition of an embedded derivative, in which case the embedded derivative is accounted for separately and is classified as a foreign exchange contract based on its primary risk exposure.
110
NOTE 15
FAIR VALUES
Fair value is defined as the price
that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Companys principal or, in the absence of a principal, most advantageous market
for the specific asset or liability.
GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
|
|
|
Level 1 Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.
|
|
|
|
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability,
including:
|
|
-
|
Quoted prices for similar assets or liabilities in active markets;
|
|
-
|
Quoted prices for identical or similar assets or liabilities in markets that are not active;
|
|
-
|
Inputs other than quoted prices that are observable for the asset or liability; and
|
|
-
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
Level 3 Inputs that are unobservable and reflect the Companys own estimates about the estimates market participants would use in pricing the asset or liability based on the best information available in the
circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). The Company did not measure any financial instruments presented on the Consolidated Balance Sheets at fair value on a recurring basis
using significant unobservable inputs (Level 3) during the years ended December 31, 2016 and 2015, although the disclosed fair value of certain assets that are not carried at fair value, as presented later in this Note, are classified within
Level 3.
|
The Company monitors the market conditions and evaluates the fair value hierarchy levels at least quarterly. For any transfers in and
out of the levels of the fair value hierarchy, the Company discloses the fair value measurement at the beginning of the reporting period during which the transfer occurred. For the years ended December 31, 2016 and 2015, there were no
significant transfers between levels.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT FAIR VALUE
The following table summarizes the Companys financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAPs fair
value hierarchy (as described in the preceding paragraphs), as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(Millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities and other
|
|
$
|
49
|
|
|
$
|
1
|
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
1
|
|
|
$
|
48
|
|
|
$
|
|
|
Debt securities
|
|
|
3,108
|
|
|
|
460
|
|
|
|
2,648
|
|
|
|
|
|
|
|
3,710
|
|
|
|
409
|
|
|
|
3,301
|
|
|
|
|
|
Derivatives
(a)
|
|
|
765
|
|
|
|
|
|
|
|
765
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
3,922
|
|
|
|
461
|
|
|
|
3,461
|
|
|
|
|
|
|
|
4,303
|
|
|
|
410
|
|
|
|
3,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
(a)
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
280
|
|
|
$
|
|
|
|
$
|
280
|
|
|
$
|
|
|
|
$
|
201
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
(a)
|
Refer to Note 5 for the fair values of investment securities and to Note 14 for the fair values of derivative assets and liabilities, on a further disaggregated basis.
|
111
VALUATION TECHNIQUES USED IN THE FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES CARRIED AT FAIR VALUE
For the financial assets and liabilities measured at fair value on a recurring basis (categorized in the valuation
hierarchy table above) the Company applies the following valuation techniques:
Investment Securities
When available, quoted prices of identical investment securities in active markets are used to estimate fair value. Such investment securities are classified within
Level 1 of the fair value hierarchy.
When quoted prices of identical investment securities in active markets are not available, the fair values for the
Companys investment securities are obtained primarily from pricing services engaged by the Company, and the Company receives one price for each security. The fair values provided by the pricing services are estimated using pricing models,
where the inputs to those models are based on observable market inputs or recent trades of similar securities. Such investment securities are classified within Level 2 of the fair value hierarchy. The inputs to the valuation techniques applied
by the pricing services vary depending on the type of security being priced but are typically benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades and broker-dealer quotes, all with reasonable levels of
transparency. The pricing services did not apply any adjustments to the pricing models used. In addition, the Company did not apply any adjustments to prices received from the pricing services.
The Company reaffirms its understanding of the valuation techniques used by its pricing services at least annually. In addition, the Company corroborates the prices
provided by its pricing services by comparing them to alternative pricing sources. In instances where price discrepancies are identified between different pricing sources, the Company evaluates such discrepancies to ensure that the prices used for
its valuation represent the fair value of the underlying investment securities. Refer to Note 5 for additional fair value information.
Derivative Financial
Instruments
The fair value of the Companys derivative financial instruments is estimated by third-party proprietary pricing models, where the inputs to
those models are readily observable in actively quoted markets. The pricing models used are consistently applied and reflect the contractual terms of the derivatives as described below. The Company reaffirms its understanding of the valuation
techniques used by the third-party valuation services at least annually. The Companys derivative instruments are classified within Level 2 of the fair value hierarchy.
The fair value of the Companys interest rate swaps is determined based on a discounted cash flow method using the following significant inputs: the contractual
terms of the swap such as the notional amount, fixed coupon rate, floating coupon rate (based on interbank rates consistent with the frequency and currency of the interest cash flows) and tenor, as well as discount rates consistent with the
underlying economic factors of the currency in which the cash flows are denominated.
The fair value of foreign exchange forward contracts is determined based on a
discounted cash flow method using the following significant inputs: the contractual terms of the forward contracts such as the notional amount, maturity dates and contract rate, as well as relevant foreign currency forward curves, and discount rates
consistent with the underlying economic factors of the currency in which the cash flows are denominated.
Credit valuation adjustments are necessary when the market
parameters, such as a benchmark curve, used to value derivatives are not indicative of the credit quality of the Company or its counterparties. The Company considers the counterparty credit risk by applying an observable forecasted default rate to
the current exposure. Refer to Note 14 for additional fair value information.
112
FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT OTHER THAN FAIR VALUE
The following table summarizes the estimated fair values of the Companys financial assets and financial liabilities that are not required to be carried at fair
value on a recurring basis, as of December 31, 2016 and 2015. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2016 and 2015, and require managements
judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Corresponding Fair Value Amount
|
|
2016
(Billions)
|
|
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets for which carrying values equal or approximate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(a)
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
22
|
|
|
$
|
3
|
|
|
$
|
|
|
|
|
|
|
|
|
Other financial assets
(b)
|
|
|
51
|
|
|
|
51
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
(c)
|
|
|
65
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities for which carrying values equal or approximate fair value
|
|
|
67
|
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
(d)
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
(c)
|
|
$
|
47
|
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
48
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Corresponding Fair Value Amount
|
|
2015
(Billions)
|
|
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets for which carrying values equal or approximate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(a)
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
22
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
|
|
|
Other financial assets
(b)
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Member loans and receivables HFS
(e)
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
Loans, net
(c)
|
|
|
59
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities for which carrying values equal or approximate fair value
|
|
|
67
|
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities carried at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
(d)
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
(c)
|
|
$
|
48
|
|
|
$
|
49
|
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
|
|
|
|
(a)
|
Level 2 amounts reflect time deposits and short-term investments.
|
(b)
|
Includes Card Member receivables (including fair values of Card Member receivables of $8.8 billion and $6.7 billion held by a consolidated VIE as of December 31, 2016 and 2015, respectively), Other
receivables, restricted cash and other miscellaneous assets.
|
(c)
|
Balances include amounts held by a consolidated VIE for which the fair values of Card Member loans were $26.0 billion and $23.5 billion as of December 31, 2016 and 2015, respectively, and the fair values
of long-term debt were $15.2 billion and $13.6 billion as of December 31, 2016 and 2015, respectively.
|
(d)
|
Presented as a component of customer deposits on the Consolidated Balance Sheets.
|
(e)
|
Does not include any fair value associated with the Card Member account relationships. Refer to Note 2 for additional information.
|
The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2016, and require management
judgment. These figures may not be indicative of future fair values. The fair value of the Company cannot be reliably estimated by aggregating the amounts presented.
113
VALUATION TECHNIQUES USED IN THE FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES CARRIED AT OTHER THAN FAIR VALUE
For the financial assets and liabilities that are not required to be carried at fair value on a recurring
basis (categorized in the valuation hierarchy table) the Company applies the following valuation techniques to measure fair value:
Financial Assets For Which
Carrying Values Equal Or Approximate Fair Value
Financial assets for which carrying values equal or approximate fair value include cash and cash equivalents,
Card Member receivables, accrued interest and certain other assets. For these assets, the carrying values approximate fair value because they are short term in duration, have no defined maturity or have a market-based interest rate.
Financial Assets Carried At Other Than Fair Value
Card Member loans and
receivables HFS
Card Member loans and receivables HFS are recorded at the lower of cost or fair value on the Consolidated Balance Sheets. As a result, the
estimation of fair value included in the previous table does not reflect any fair value associated with the Card Member account relationships and follows the technique described under
Loans, net
below.
Loans, net
Loans are recorded at historical cost, less reserves, on the
Consolidated Balance Sheets. In estimating the fair value for the Companys loans the Company uses a discounted cash flow model. Due to the lack of a comparable whole loan sales market for similar credit card loans and the lack of observable
pricing inputs thereof, the Company uses various inputs derived from an equivalent securitization market to estimate fair value. Such inputs include projected income (inclusive of future interest payments and late fee revenue), estimated
pay-down
rates, discount rates and relevant credit costs. The valuation does not include economic value attributable to future receivables generated by the accounts associated with the loans.
Financial Liabilities For Which Carrying Values Equal Or Approximate Fair Value
Financial liabilities for which carrying values equal or approximate fair value include accrued interest, customer deposits (excluding certificates of deposit, which are
described further below), Travelers Cheques and other prepaid products outstanding, accounts payable, short-term borrowings and certain other liabilities for which the carrying values approximate fair value because they are short term in duration,
have no defined maturity or have a market-based interest rate.
Financial Liabilities Carried At Other Than Fair Value
Certificates of Deposit
Certificates of deposit (CDs) are recorded at their
historical issuance cost on the Consolidated Balance Sheets. Fair value is estimated using a discounted cash flow methodology based on the future cash flows and the discount rate that reflects the Companys current rates for similar types of
CDs within similar markets.
Long-term Debt
Long-term debt is recorded at
historical issuance cost on the Consolidated Balance Sheets adjusted for the impact of fair value hedge accounting on certain fixed-rate notes and current translation rates for foreign-denominated debt. The fair value of the Companys long-term
debt is measured using quoted offer prices when quoted market prices are available. If quoted market prices are not available, the fair value is determined by discounting the future cash flows of each instrument at rates currently observed in
publicly-traded debt markets for debt of similar terms and credit risk. For long-term debt, where there are no rates currently observable in publicly traded debt markets of similar terms and comparable credit risk, the Company uses market interest
rates and adjusts those rates for necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Company considers credit default swap spreads, bond yields of other long-term debt offered by
the Company, and interest rates currently offered to the Company for similar debt instruments of comparable maturities.
NONRECURRING FAIR
VALUE MEASUREMENTS
The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at
fair value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the year ended December 31, 2016, the Company did not have any material assets that were measured at fair value due to impairment.
During the fourth quarter of 2015, the Company recorded a $384 million impairment charge, consisting of a $219 million write-down of the entire balance of goodwill in the Prepaid Services business and a $165 million write-down of
technology and other assets, to fair value, which was insignificant for the year ended December 31, 2015. Refer to Note 2 for a description of the Companys 2015 impairment charges.
114
NOTE 16
GUARANTEES
The Company provides Card Member
protection plans that cover losses associated with purchased products, as well as certain other guarantees and indemnifications in the ordinary course of business. For the Company, guarantees primarily consist of card and travel protection programs,
including:
|
|
|
Return Protection refunds the price of qualifying purchases made with the eligible cards where the merchant will not accept the return for up to 90 days from the date of purchase; and
|
|
|
|
Merchant Protection protects Card Members primarily against
non-delivery
of goods and services, usually in the event of bankruptcy or liquidation of a merchant. When this
occurs, the Card Member may dispute the transaction for which the Company will generally credit the Card Members account. If the Company is unable to collect the amount from the merchant, it will bear the loss for the amount credited to the
Card Member. The largest component of the maximum potential future payments relates to Card Member transactions associated with travel-related merchants, primarily through business arrangements where the Company has remitted payment to such
merchants for a Card Member travel purchase that has not yet been used or flown.
|
In relation to its maximum potential undiscounted future
payments as shown in the table that follows, to date the Company has not experienced any significant losses related to guarantees or indemnifications. The Companys initial recognition of these instruments is at fair value. In addition, the
Company establishes reserves when a loss is probable and the amount can be reasonably estimated.
The following table provides information related to such guarantees
and indemnifications as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum potential
undiscounted future payments
(Billions)
(a)
|
|
|
|
|
|
Related liability
(Millions)
(b)
|
|
Type of Guarantee
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Return and Merchant Protection
|
|
|
|
$
|
42
|
|
|
$
|
42
|
|
|
|
|
|
|
$
|
37
|
|
|
$
|
49
|
|
Other
(c)
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
49
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
|
|
|
|
$
|
86
|
|
|
$
|
86
|
|
|
|
(a)
|
Represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed or indemnified parties. The maximum potential undiscounted future payments for
Merchant Protection are measured using managements best estimate of the maximum exposure, which is based on all eligible claims in relation to annual billed business volumes.
|
(b)
|
Included in Other liabilities on the Consolidated Balance Sheets.
|
(c)
|
Primarily includes guarantees related to the Companys purchase protection, real estate and business dispositions.
|
115
NOTE 17
COMMON AND PREFERRED SHARES
The following
table shows authorized shares and provides a reconciliation of common shares issued and outstanding for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except where indicated)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Common shares authorized
(billions)
(a)
|
|
|
3.6
|
|
|
|
3.6
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding at beginning of year
|
|
|
969
|
|
|
|
1,023
|
|
|
|
1,064
|
|
Repurchases of common shares
|
|
|
(70)
|
|
|
|
(59)
|
|
|
|
(49)
|
|
Other, primarily stock option exercises and restricted stock awards granted
|
|
|
5
|
|
|
|
5
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding as of December 31
|
|
|
904
|
|
|
|
969
|
|
|
|
1,023
|
|
|
|
(a)
|
Of the common shares authorized but unissued as of December 31, 2016, approximately 35 million shares are reserved for issuance under employee stock and employee benefit plans.
|
On September 26, 2016 the Board of Directors authorized the repurchase of 150 million of common shares over time in accordance with the Companys capital
distribution plans submitted to the Board of Governors of the Federal Reserve System (the Federal Reserve) and subject to market conditions. This authorization replaces all prior repurchase authorizations. During 2016, 2015 and 2014, the Company
repurchased 70 million common shares with a cost basis of $4.4 billion, 59 million common shares with a cost basis of $4.5 billion, and 49 million common shares with a cost basis of $4.4 billion, respectively. The cost
basis includes commissions paid of $1.2 million, $1.1 million and $1.0 million in 2016, 2015 and 2014, respectively. As of December 31, 2016, the Company had approximately 135 million common shares remaining under the Board
share repurchase authorization. Such authorization does not have an expiration date.
Common shares are generally retired by the Company upon repurchase (except for
3.0 million, 3.0 million and 3.2 million shares held as treasury shares as of December 31, 2016, 2015 and 2014, respectively); retired common shares and treasury shares are excluded from the shares outstanding in the table above.
The treasury shares, with a cost basis of $197 million, $242 million and $280 million as of December 31, 2016, 2015 and 2014, respectively, are included as a reduction to additional
paid-in
capital in shareholders equity on the Consolidated Balance Sheets.
PREFERRED SHARES
The Board of Directors is authorized to permit the Company to issue up to 20 million Preferred Shares at a par value of $1.66
2/3
without further shareholder approval. The Company has the following perpetual Fixed Rate/Floating Rate Noncumulative Preferred Share series issued and outstanding as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
Series C
|
|
Issuance date
|
|
November 10, 2014
|
|
March 2, 2015
|
Securities issued
|
|
750 Preferred Shares; represented by 750,000 depositary shares
|
|
850 Preferred Shares; represented by 850,000 depositary shares
|
Aggregate liquidation preference
|
|
$750 million
|
|
$850 million
|
Fixed dividend rate per annum
|
|
5.20%
|
|
4.90%
|
Semi-annual fixed dividend payment dates
|
|
Beginning May 15, 2015
|
|
Beginning September 15, 2015
|
Floating dividend rate per annum
|
|
3 month LIBOR+ 3.428%
|
|
3 month LIBOR+ 3.285%
|
Quarterly floating dividend payment dates
|
|
Beginning February 15, 2020
|
|
Beginning June 15, 2020
|
Fixed to floating rate conversion
date
(a)
|
|
November 15, 2019
|
|
March 15, 2020
|
|
(a)
|
The date on which dividends convert from a fixed-rate calculation to a floating rate calculation.
|
In the event of the
voluntary or involuntary liquidation, dissolution or winding up of the Company, the preferred stock then outstanding takes precedence over the Companys common stock for the payment of dividends and the distribution of assets out of funds
legally available for distribution to shareholders. Each outstanding series of Preferred Shares has a liquidation price of $1 million per Preferred Share, plus any accrued but unpaid dividends. The Company may redeem these Preferred Shares at
$1 million per Preferred Share (equivalent to $1,000 per depositary share) plus any declared but unpaid dividends in whole or in part, from time to time, on any dividend payment date on or after the respective fixed to floating rate conversion
date, or in whole, but not in part, within 90 days of certain bank regulatory changes.
There were no warrants issued and outstanding as of December 31, 2016,
2015 and 2014.
116
NOTE 18
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME
AOCI is a balance sheet item in the Shareholders Equity section of the Companys Consolidated Balance Sheets. It is comprised of items that have not been
recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component for the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
, net of
tax
(a)
|
|
|
|
Net Unrealized
Gains (Losses) on
Investment
Securities
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Net Unrealized
Pension and Other
Postretirement
Benefit Gains
(Losses)
|
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
|
Balances as of December 31, 2013
|
|
|
|
$
|
63
|
|
|
$
|
(1,090)
|
|
|
$
|
(399)
|
|
|
$
|
(1,426)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
Decrease due to amounts reclassified into earnings
|
|
|
|
|
(71)
|
|
|
|
5
|
|
|
|
|
|
|
|
(66)
|
|
Net translation loss of investments in foreign operations
|
|
|
|
|
|
|
|
|
(869)
|
|
|
|
|
|
|
|
(869)
|
|
Net gains related to hedges of investments in foreign operations
|
|
|
|
|
|
|
|
|
455
|
|
|
|
|
|
|
|
455
|
|
Pension and other postretirement benefit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
(117)
|
|
|
|
(117)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive income (loss)
|
|
|
|
|
33
|
|
|
|
(409)
|
|
|
|
(117)
|
|
|
|
(493)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2014
|
|
|
|
|
96
|
|
|
|
(1,499)
|
|
|
|
(516)
|
|
|
|
(1,919)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses
|
|
|
|
|
(37)
|
|
|
|
|
|
|
|
|
|
|
|
(37)
|
|
Decrease due to amounts reclassified into earnings
|
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
(2)
|
|
Net translation loss of investments in foreign operations
|
|
|
|
|
|
|
|
|
(1,122)
|
|
|
|
|
|
|
|
(1,122)
|
|
Net gains related to hedges of investments in foreign operations
|
|
|
|
|
|
|
|
|
578
|
|
|
|
|
|
|
|
578
|
|
Pension and other postretirement benefit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
(32)
|
|
|
|
(32)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
|
|
|
|
(38)
|
|
|
|
(545)
|
|
|
|
(32)
|
|
|
|
(615)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2015
|
|
|
|
|
58
|
|
|
|
(2,044)
|
|
|
|
(548)
|
|
|
|
(2,534)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses
|
|
|
|
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
(45)
|
|
Decrease due to amounts reclassified into earnings
|
|
|
|
|
(6)
|
|
|
|
4
|
|
|
|
|
|
|
|
(2)
|
|
Net translation loss of investments in foreign operations
|
|
|
|
|
|
|
|
|
(503)
|
|
|
|
|
|
|
|
(503)
|
|
Net gains related to hedges of investment in foreign operations
|
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
|
|
281
|
|
Pension and other postretirement benefit gains
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive (loss) income
|
|
|
|
|
(51)
|
|
|
|
(218)
|
|
|
|
19
|
|
|
|
(250)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2016
|
|
|
|
$
|
7
|
|
|
$
|
(2,262)
|
|
|
$
|
(529)
|
|
|
$
|
(2,784)
|
|
|
|
(a)
|
The following table shows the tax impact for the three years ended December 31 for the changes in each component of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit)
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Investment securities
|
|
$
|
(27)
|
|
|
$
|
(20)
|
|
|
$
|
19
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(15)
|
|
|
|
(124)
|
|
|
|
(64)
|
|
|
|
|
|
Net investment hedges
|
|
|
139
|
|
|
|
340
|
|
|
|
273
|
|
|
|
|
|
Pension and other postretirement benefit losses
|
|
|
37
|
|
|
|
|
|
|
|
(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax impact
|
|
$
|
134
|
|
|
$
|
196
|
|
|
$
|
182
|
|
|
|
117
The following table presents the effects of reclassifications out of AOCI and into the Consolidated Statements of Income for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in earnings
|
|
Description
(Millions)
|
|
|
|
Income Statement Line Item
|
|
|
|
2016
|
|
|
2015
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications for previously unrealized net gains on investment securities
|
|
|
|
Other non-interest revenues
|
|
|
|
$
|
9
|
|
|
$
|
1
|
|
Related income tax expense
|
|
|
|
Income tax provision
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to net income related to
available-for-sale
securities
|
|
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of realized losses on translation adjustments and related net investment hedges
|
|
|
|
Other expenses
|
|
|
|
|
(4)
|
|
|
|
1
|
|
Related income tax expense
|
|
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to net income related to foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
NOTE 19
NON-INTEREST
REVENUE AND EXPENSE DETAIL
The following is a detail of Other fees and commissions for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Foreign currency conversion fee revenue
|
|
$
|
809
|
|
|
$
|
852
|
|
|
$
|
877
|
|
Delinquency fees
|
|
|
762
|
|
|
|
788
|
|
|
|
722
|
|
Loyalty coalition-related fees
|
|
|
410
|
|
|
|
379
|
|
|
|
383
|
|
Travel commissions and fees
|
|
|
338
|
|
|
|
349
|
|
|
|
1,118
|
|
Service fees
|
|
|
291
|
|
|
|
361
|
|
|
|
366
|
|
Other
(a)
|
|
|
143
|
|
|
|
137
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other fees and commissions
|
|
$
|
2,753
|
|
|
$
|
2,866
|
|
|
$
|
3,626
|
|
|
|
(a)
|
Other primarily includes revenues from fees related to Membership Rewards programs.
|
The following is a detail of Other
revenues for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Gain on sale of investment in Concur Technologies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
744
|
|
Global Network Services partner revenues
|
|
|
654
|
|
|
|
640
|
|
|
|
694
|
|
Gross realized gains on sale of investment securities
|
|
|
9
|
|
|
|
1
|
|
|
|
100
|
|
Other
(a)
|
|
|
1,366
|
|
|
|
1,392
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other revenues
|
|
$
|
2,029
|
|
|
$
|
2,033
|
|
|
$
|
2,989
|
|
|
|
(a)
|
Other includes revenues arising from net revenue earned on cross-border Card Member spending, insurance premiums earned from Card Member travel and other insurance programs, merchant-related fees, Prepaid card and
Travelers Cheque-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.
|
The following is a detail of Other expenses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Professional services
|
|
$
|
2,583
|
|
|
$
|
2,750
|
|
|
$
|
3,008
|
|
Occupancy and equipment
|
|
|
1,838
|
|
|
|
1,854
|
|
|
|
1,807
|
|
Communications
|
|
|
302
|
|
|
|
345
|
|
|
|
383
|
|
Card and merchant-related fraud losses
(a)
|
|
|
223
|
|
|
|
308
|
|
|
|
369
|
|
Goodwill and long-lived asset impairment
|
|
|
|
|
|
|
384
|
|
|
|
|
|
Gain on business travel joint venture transaction
|
|
|
|
|
|
|
|
|
|
|
(630)
|
|
Gain on sale of HFS portfolios
(b)
|
|
|
(1,218)
|
|
|
|
|
|
|
|
|
|
Other
(c)
|
|
|
1,434
|
|
|
|
1,152
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other expenses
|
|
$
|
5,162
|
|
|
$
|
6,793
|
|
|
$
|
6,089
|
|
|
|
(a)
|
Beginning January 1, 2015, merchant-related fraud losses are reported within Other expenses.
|
(b)
|
Refer to Note 2 for additional information.
|
(c)
|
Other expense primarily includes general operating expenses, gains and losses on sales of assets or businesses not classified as discontinued operations, regulatory and litigation-related costs, certain Card Member
reimbursements, insurance costs, certain loyalty coalition-related expenses, and foreign currency-related gains and losses (including the favorable impact from the reassessment of the functional currency of certain UK legal entities in the year
ended December 31, 2015). In addition, effective December 1, 2015, Other expenses includes the valuation allowance adjustment associated with loans and receivables HFS.
|
118
NOTE 20
RESTRUCTURING
The Company initiates
restructuring programs to support new business strategies and to enhance its overall effectiveness and efficiency. In connection with these programs, the Company typically will incur severance and other exit costs.
The following table summarizes the Companys restructuring reserves activity for the years ended December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Severance
|
|
|
Other
(a)
|
|
|
Total
|
|
Liability balance as of December 31, 2013
|
|
$
|
196
|
|
|
$
|
37
|
|
|
$
|
233
|
|
Restructuring charges, net of $35 in
revisions
(b)
|
|
|
383
|
|
|
|
28
|
|
|
|
411
|
|
Payments
|
|
|
(93)
|
|
|
|
(22)
|
|
|
|
(115)
|
|
Other
non-cash
(c)
|
|
|
(51)
|
|
|
|
(8)
|
|
|
|
(59)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance as of December 31, 2014
|
|
|
435
|
|
|
|
35
|
|
|
|
470
|
|
Restructuring charges, net of $61 in
revisions
(b)
|
|
|
(33)
|
|
|
|
7
|
|
|
|
(26)
|
|
Payments
|
|
|
(141)
|
|
|
|
(14)
|
|
|
|
(155)
|
|
Other
non-cash
(d)
|
|
|
(23)
|
|
|
|
(5)
|
|
|
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance at December 31, 2015
|
|
|
238
|
|
|
|
23
|
|
|
|
261
|
|
Restructuring charges, net of $81 in
revisions
(b)
|
|
|
305
|
|
|
|
24
|
|
|
|
329
|
|
Payments
|
|
|
(171)
|
|
|
|
(21)
|
|
|
|
(192)
|
|
Other
non-cash
(d)
|
|
|
(12)
|
|
|
|
(3)
|
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance as of December 31,
2016
(e)
|
|
$
|
360
|
|
|
$
|
23
|
|
|
$
|
383
|
|
|
|
(a)
|
Other primarily includes facility exit and contract termination costs.
|
(b)
|
Revisions primarily relate to higher than anticipated redeployments of displaced employees to other positions within the Company, business changes and modifications to existing initiatives.
|
(c)
|
Consists of $42 million reserve transferred to the GBT JV in the second quarter of 2014 as part of the GBT sale and $17 million of foreign exchange and other
non-cash
charges.
|
(d)
|
Consists primarily of foreign exchange impacts and other
non-cash
charges.
|
(e)
|
The majority of cash payments related to the remaining restructuring liabilities are expected to be completed in 2017, and to a lesser extent certain contractual long-term severance arrangements and lease obligations
are expected to be completed in 2018 and 2023, respectively.
|
Restructuring charges related to severance obligations are included in salaries and
employee benefits in the Companys Consolidated Statements of Income, while charges pertaining to other exit costs are included in occupancy and equipment and other expenses.
The following table summarizes the Companys restructuring charges, net of revisions, by reportable operating segment and Corporate & Other for the year
ended December 31, 2016, and the cumulative amounts relating to the restructuring programs that were in progress during 2016 and initiated at various dates between 2011 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
Cumulative Restructuring Expense Incurred To Date On
In-Progress Restructuring Programs
|
|
(Millions)
|
|
|
|
Total Restructuring
Charges, net
revisions
|
|
|
Severance
|
|
|
Other
|
|
|
Total
|
|
USCS
|
|
|
|
$
|
21
|
|
|
$
|
101
|
|
|
$
|
|
|
|
$
|
101
|
|
ICNS
|
|
|
|
|
27
|
|
|
|
216
|
|
|
|
|
|
|
|
216
|
|
GCS
|
|
|
|
|
49
|
|
|
|
116
|
|
|
|
|
|
|
|
116
|
|
GMS
|
|
|
|
|
14
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
Corporate & Other
|
|
|
|
|
218
|
|
|
|
282
|
|
|
|
117
|
|
|
|
399
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
329
|
|
|
$
|
758
|
|
|
$
|
117
|
|
|
$
|
875
|
(b)
|
|
|
(a)
|
Corporate & Other includes certain severance and other charges of $322 million related to Companywide support functions which were not allocated to the Companys reportable operating segments, as
these were corporate initiatives, which is consistent with how such charges were reported internally.
|
(b)
|
As of December 31, 2016, the total expenses to be incurred for previously approved restructuring activities that were in progress are not expected to be materially different than the cumulative expenses incurred to
date for these programs.
|
119
NOTE 21
INCOME TAXES
The components of income tax
expense for the years ended December 31 included in the Consolidated Statements of Income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
2,179
|
|
|
$
|
2,107
|
|
|
$
|
2,136
|
|
U.S. state and local
|
|
|
272
|
|
|
|
335
|
|
|
|
264
|
|
Non-U.S.
|
|
|
342
|
|
|
|
416
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax expense
|
|
|
2,793
|
|
|
|
2,858
|
|
|
|
2,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(45)
|
|
|
|
(23)
|
|
|
|
352
|
|
U.S. state and local
|
|
|
(8)
|
|
|
|
(5)
|
|
|
|
39
|
|
Non-U.S.
|
|
|
(52)
|
|
|
|
(55)
|
|
|
|
(97)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax (benefit) expense
|
|
|
(105)
|
|
|
|
(83)
|
|
|
|
294
|
|
Total income tax expense
|
|
$
|
2,688
|
|
|
$
|
2,775
|
|
|
$
|
3,106
|
|
|
|
A reconciliation of the U.S. federal statutory rate of 35 percent to the Companys actual income tax rate for the years ended
December 31 on continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
(Decrease) increase in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
income
|
|
|
(1.7)
|
|
|
|
(1.7)
|
|
|
|
(1.5)
|
|
State and local income taxes, net of federal benefit
|
|
|
2.7
|
|
|
|
2.8
|
|
|
|
2.7
|
|
Non-U.S.
subsidiaries earnings
(a)
|
|
|
(2.0)
|
|
|
|
(1.8)
|
|
|
|
(2.2)
|
|
Tax settlements
(b)
|
|
|
(0.6)
|
|
|
|
(0.2)
|
|
|
|
(0.5)
|
|
Non deductible expenses
(c)
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Other
|
|
|
(0.2)
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax rates
(a)
|
|
|
33.2
|
%
|
|
|
35.0
|
%
|
|
|
34.5
|
%
|
|
|
(a)
|
Results for all years primarily included tax benefits associated with the undistributed earnings of certain
non-U.S.
subsidiaries that were deemed to be reinvested indefinitely.
|
(b)
|
Relates to the resolution of tax matters in various jurisdictions.
|
(c)
|
Relates to the nondeductible portion of the Prepaid Services goodwill impairment in 2015.
|
The Company records a deferred
income tax (benefit) provision when there are differences between assets and liabilities measured for financial reporting and for income tax return purposes. These temporary differences result in taxable or deductible amounts in future years and are
measured using the tax rates and laws that will be in effect when such differences are expected to reverse.
The significant components of deferred tax assets and
liabilities as of December 31 are reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves not yet deducted for tax purposes
|
|
$
|
3,889
|
|
|
$
|
3,771
|
|
Employee compensation and benefits
|
|
|
595
|
|
|
|
648
|
|
Other
|
|
|
592
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
5,076
|
|
|
|
4,939
|
|
Valuation allowance
|
|
|
(54)
|
|
|
|
(58)
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets after valuation allowance
|
|
|
5,022
|
|
|
|
4,881
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles and fixed assets
|
|
|
1,691
|
|
|
|
1,547
|
|
Deferred revenue
|
|
|
441
|
|
|
|
509
|
|
Deferred interest
|
|
|
305
|
|
|
|
323
|
|
Investment in joint ventures
|
|
|
209
|
|
|
|
231
|
|
Other
|
|
|
121
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
2,767
|
|
|
|
2,730
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,255
|
|
|
$
|
2,151
|
|
|
|
A valuation allowance is established when management determines that it is more likely than not that all or some portion of the benefit
of the deferred tax assets will not be realized. The valuation allowances as of December 31, 2016 and 2015 are associated with net operating losses and other deferred tax assets in certain
non-U.S.
operations of the Company.
120
Accumulated earnings of certain
non-U.S.
subsidiaries, which totaled approximately
$10.4 billion as of December 31, 2016, are intended to be permanently reinvested outside the United States. The Company does not provide for federal income taxes on foreign earnings intended to be permanently reinvested outside the United
States. Accordingly, federal taxes, which would have aggregated approximately $3.2 billion as of December 31, 2016, have not been provided on such earnings.
Net income taxes paid by the Company during 2016, 2015 and 2014, were approximately $3.0 billion, $3.4 billion and $2.5 billion, respectively. These
amounts include estimated tax payments and cash settlements relating to prior tax years.
The Company is subject to the income tax laws of the United States, its
states and municipalities and those of the foreign jurisdictions in which the Company operates. These tax laws are complex, and the manner in which they apply to the taxpayers facts is sometimes open to interpretation. Given these inherent
complexities, the Company must make judgments in assessing the likelihood that a tax position will be sustained upon examination by the taxing authorities based on the technical merits of the tax position. A tax position is recognized only when,
based on managements judgment regarding the application of income tax laws, it is more likely than not that the tax position will be sustained upon examination. The amount of benefit recognized for financial reporting purposes is based on
managements best judgment of the largest amount of benefit that is more likely than not to be realized on ultimate settlement with the taxing authority given the facts, circumstances and information available at the reporting date. The Company
adjusts the level of unrecognized tax benefits when there is new information available to assess the likelihood of the outcome.
The Company is under continuous
examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The IRS has
completed its field examination of the Companys federal tax returns for years through 2007; however, refund claims for certain years continue to be reviewed by the IRS. In addition, the Company is currently under examination by the IRS for the
years 2008 through 2014.
The following table presents changes in unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, January 1
|
|
$
|
870
|
|
|
$
|
909
|
|
|
$
|
1,044
|
|
Increases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year tax positions
|
|
|
167
|
|
|
|
81
|
|
|
|
4
|
|
Tax positions related to prior years
|
|
|
117
|
|
|
|
177
|
|
|
|
111
|
|
Decreases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax positions related to prior years
|
|
|
(81)
|
|
|
|
(256)
|
|
|
|
(181)
|
|
Settlements with tax authorities
|
|
|
(76)
|
|
|
|
(15)
|
|
|
|
(67)
|
|
Lapse of statute of limitations
|
|
|
(22)
|
|
|
|
(26)
|
|
|
|
(1)
|
|
Effects of foreign currency translations
|
|
|
(1)
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
974
|
|
|
$
|
870
|
|
|
$
|
909
|
|
|
|
Included in the unrecognized tax benefits of $1.0 billion, $0.9 billion and $0.9 billion for December 31, 2016, 2015
and 2014, respectively, are approximately $516 million, $502 million and $412 million, respectively, that, if recognized, would favorably affect the effective tax rate in a future period.
The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $449 million,
principally as a result of potential resolutions of prior years tax items with various taxing authorities. The prior years tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the
attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $449 million of unrecognized tax benefits, approximately $309 million relates to amounts that, if recognized, would be recorded in shareholders
equity and would not impact the Companys results of operations or its effective tax rate. In January 2017, the Company reached resolution with the IRS on an item comprising approximately $289 million of the $309 million referenced
above. As a result, $289 million will be recognized in shareholders equity in the first quarter of 2017.
Interest and penalties relating to unrecognized
tax benefits are reported in the income tax provision. For the years ended December 31, 2016 and 2015, the Company recognized approximately $9 million and $38 million, respectively, in expenses for interest and
penalties. For the year ended December 31, 2014, the Company recognized benefits of approximately $19 million of interest and penalties. The Company had approximately $173 million and $164 million accrued for the payment of
interest and penalties as of December 31, 2016 and 2015, respectively.
121
NOTE 22
EARNINGS PER COMMON SHARE (EPS)
The
computations of basic and diluted EPS for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except per share
amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,408
|
|
|
$
|
5,163
|
|
|
$
|
5,885
|
|
Preferred dividends
|
|
|
(80)
|
|
|
|
(62)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
|
5,328
|
|
|
|
5,101
|
|
|
|
5,885
|
|
Earnings allocated to participating share
awards
(a)
|
|
|
(43)
|
|
|
|
(38)
|
|
|
|
(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
shareholders
|
|
$
|
5,285
|
|
|
$
|
5,063
|
|
|
$
|
5,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: Weighted-average common stock
|
|
|
933
|
|
|
|
999
|
|
|
|
1,045
|
|
Add: Weighted-average stock options
(b)
|
|
|
2
|
|
|
|
4
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
935
|
|
|
|
1,003
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
5.67
|
|
|
$
|
5.07
|
|
|
$
|
5.58
|
|
Diluted EPS
|
|
$
|
5.65
|
|
|
$
|
5.05
|
|
|
$
|
5.56
|
|
|
|
(a)
|
The Companys unvested restricted stock awards, which include the right to receive
non-forfeitable
dividends or dividend equivalents, are considered participating securities.
Calculations of EPS under the
two-class
method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating
securities. The related participating securities are similarly excluded from the denominator.
|
(b)
|
The dilutive effect of unexercised stock options excludes from the computation of EPS 2.4 million, 0.5 million and 0.2 million of options for the years ended December 31, 2016, 2015 and 2014,
respectively, because inclusion of the options would have been anti-dilutive.
|
NOTE 23
REGULATORY MATTERS AND CAPITAL ADEQUACY
The Company is supervised and regulated by the Federal Reserve and is subject to the Federal Reserves requirements for risk-based capital and leverage ratios. The
Companys two U.S. bank operating subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank) (together, the Banks), are subject to supervision and regulation, including similar
regulatory capital requirements by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), respectively.
Under the
risk-based capital guidelines of the Federal Reserve, the Company is required to maintain minimum ratios of Common Equity Tier 1 (CET1), Tier 1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets, as well as a minimum leverage ratio (Tier
1 capital to average adjusted
on-balance
sheet assets).
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional, discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Companys and the Banks operating activities.
As of December 31, 2016 and 2015, the Company and the Banks met all capital requirements to which each was subject and maintained regulatory capital ratios in
excess of those required to qualify as well capitalized.
122
The following table presents the regulatory capital ratios for the Company and the Banks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
CET
1
capital
|
|
|
Tier 1
capital
|
|
|
Total
capital
|
|
|
CET 1
Capital ratio
|
|
|
Tier 1
capital ratio
|
|
|
Total capital
ratio
|
|
|
Tier 1
leverage ratio
|
|
|
|
December 31, 2016:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Express Company
|
|
$
|
16,134
|
|
|
$
|
17,665
|
|
|
$
|
19,893
|
|
|
|
12.3
|
%
|
|
|
13.5
|
%
|
|
|
15.2
|
%
|
|
|
11.6
|
%
|
|
|
American Express Centurion Bank
|
|
|
6,134
|
|
|
|
6,134
|
|
|
|
6,600
|
|
|
|
16.5
|
|
|
|
16.5
|
|
|
|
17.8
|
|
|
|
16.2
|
|
|
|
American Express Bank, FSB
|
|
|
6,681
|
|
|
|
6,681
|
|
|
|
7,194
|
|
|
|
16.3
|
|
|
|
16.3
|
|
|
|
17.5
|
|
|
|
13.9
|
|
|
|
December 31, 2015:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Express Company
|
|
$
|
16,747
|
|
|
$
|
18,265
|
|
|
$
|
20,551
|
|
|
|
12.4
|
%
|
|
|
13.5
|
%
|
|
|
15.2
|
%
|
|
|
11.7
|
%
|
|
|
American Express Centurion Bank
|
|
|
6,013
|
|
|
|
6,013
|
|
|
|
6,460
|
|
|
|
16.9
|
|
|
|
16.9
|
|
|
|
18.2
|
|
|
|
17.7
|
|
|
|
American Express Bank, FSB
|
|
|
6,927
|
|
|
|
6,927
|
|
|
|
7,601
|
|
|
|
13.7
|
|
|
|
13.7
|
|
|
|
15.1
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-capitalized ratios
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.5
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
|
|
5.0
|
%
(c)
|
|
|
Minimum capital ratios
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
%
|
|
|
6.0
|
%
|
|
|
8.0
|
%
|
|
|
4.0
|
%
|
|
|
|
(a)
|
As a Basel III advanced approaches institution in parallel run, capital ratios are reported using Basel III capital definitions, inclusive of transition provisions, and risk-weighted assets using the Basel III
standardized approach.
|
(b)
|
As defined by the regulations issued by the Federal Reserve, OCC and FDIC for the year ended December 31, 2016.
|
(c)
|
Represents requirements for banking subsidiaries to be considered well-capitalized pursuant to regulations issued under the Federal Deposit Insurance Corporation Improvement Act. There is no CET1 capital
ratio or Tier 1 leverage ratio requirement for a bank holding company to be considered well-capitalized.
|
RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain of
the Companys subsidiaries are subject to restrictions on the transfer of net assets under debt agreements and regulatory requirements. These restrictions have not had any effect on the Companys shareholder dividend policy and management
does not anticipate any impact in the future. Procedures exist to transfer net assets between the Company and its subsidiaries, while ensuring compliance with the various contractual and regulatory constraints. As of December 31, 2016, the
aggregate amount of net assets of subsidiaries that are restricted to be transferred to the Company was approximately $7.8 billion.
BANK HOLDING COMPANY DIVIDEND RESTRICTIONS
The
Company is limited in its ability to pay dividends by the Federal Reserve, which could prohibit a dividend that would be considered an unsafe or unsound banking practice. It is the policy of the Federal Reserve that bank holding companies generally
should pay dividends on preferred and common stock only out of net income available to common shareholders generated over the past year, and only if prospective earnings retention is consistent with the organizations current and expected
future capital needs, asset quality and overall financial condition. Moreover, bank holding companies are required by statute to be a source of strength to their insured depository institution subsidiaries and should not maintain dividend levels
that undermine their ability to do so. On an annual basis, the Company is required to develop and maintain a capital plan, which includes planned dividends over a
two-year
horizon. We may be limited in our
ability to pay dividends if the Federal Reserve objects to our capital plan.
In addition, the Capital Rules include a capital conservation buffer which is being
phased in from January 1, 2016 through January 1, 2019. The Capital Rules also include a countercyclical capital buffer, which is currently set at zero but which could be increased by the Federal Reserve in the future. These buffers can be
satisfied only with CET1 capital. If our risk-based capital ratios were to fall below the applicable buffer levels, we would face graduated constraints on dividends, stock repurchases and other capital distributions based on the amount of the
shortfall.
BANKS DIVIDEND RESTRICTIONS
In the year ended December 31, 2016, Centurion Bank and American Express Bank paid dividends from retained earnings to their parent of $1.6 billion and
$3.2 billion, respectively.
The Banks are limited in their ability to pay dividends by banking statutes, regulations and supervisory policy. In general,
applicable federal and state banking laws prohibit, without first obtaining regulatory approval, insured depository institutions, such as Centurion Bank and American Express Bank from making dividend distributions if such distributions are not paid
out of available retained earnings or would cause the institution to fail to meet capital adequacy standards. The Banks must maintain a capital conservation buffer (and countercyclical buffer if in effect). If the Banks risk-based capital
ratios do not satisfy minimum requirements plus the combined capital conservation buffer (and the countercyclical capital buffer, if applicable), they will face graduated constraints on dividends and other capital distributions based on the amount
of the shortfall. As of December 31, 2016, the Banks aggregate retained earnings available for the payment of dividends was $6.0 billion. In determining the dividends to pay their parent, the Banks must also consider the effects on
applicable risk-based capital and leverage ratio requirements, as well as policy statements of the federal regulatory agencies. In addition, the Banks banking regulators have authority to limit or prohibit the payment of a dividend by the
Banks under a number of circumstances, including if, in the banking regulators opinion, payment of a dividend would constitute an unsafe or unsound banking practice in light of the financial condition of the banking organization.
123
NOTE 24
SIGNIFICANT CREDIT CONCENTRATIONS
Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is
material in relation to American Express total credit exposure. The Companys customers operate in diverse industries, economic sectors and geographic regions.
The following table details the Companys maximum credit exposure by category, including the credit exposure associated with derivative financial instruments, as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2016
|
|
|
2015
|
|
On-balance
sheet:
|
|
|
|
|
|
|
|
|
Individuals
(a)
|
|
$
|
98
|
|
|
$
|
104
|
|
Financial institutions
(b)
|
|
|
28
|
|
|
|
25
|
|
U.S. Government and agencies
(c)
|
|
|
3
|
|
|
|
4
|
|
All other
(d)
|
|
|
18
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total
on-balance
sheet
(e)
|
|
|
147
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Unused
lines-of-credit
(f) (g)
|
|
$
|
242
|
|
|
$
|
297
|
|
|
|
(a)
|
Individuals primarily include Card Member loans and receivables, including the HFS portfolios for 2015.
|
(b)
|
Financial institutions primarily include debt obligations of banks, broker-dealers, insurance companies and savings and loan associations.
|
(c)
|
U.S. Government and agencies represent debt obligations of the U.S. Government and its agencies, states and municipalities and government-sponsored entities.
|
(d)
|
All other primarily includes Card Member receivables from other corporate institutions.
|
(e)
|
Certain distinctions between categories require management judgment.
|
(f)
|
Because charge card products generally have no preset spending limit, the associated credit limit on charge products is not quantifiable. Therefore, the quantified unused
line-of-credit
amounts only include the approximate credit line available on lending products.
|
(g)
|
Primarily relates to established lending product agreements with individuals.
|
As of December 31, 2016 and 2015, the
Companys most significant concentration of credit risk was with individuals, including Card Member loans and receivables. These amounts are generally advanced on an unsecured basis. However, the Company reviews each potential customers
credit application and evaluates the applicants financial history and ability and willingness to repay. The Company also considers credit performance by customer tenure, industry and geographic location in managing credit exposure.
The following table details the Companys Card Member loans and receivables exposure (including unused
lines-of-credit)
in the United States and outside the United States as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2016
|
|
|
2015
|
|
On-balance
sheet:
|
|
|
|
|
|
|
|
|
U.S.
(a)
|
|
$
|
93
|
|
|
$
|
99
|
|
Non-U.S.
|
|
|
20
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
(b)(c)
|
|
|
113
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Unused
lines-of-credit:
(d)
|
|
|
|
|
|
|
|
|
U.S.
(a)
|
|
|
203
|
|
|
|
259
|
|
Non-U.S.
|
|
|
39
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Total unused
lines-of-credit
|
|
$
|
242
|
|
|
$
|
297
|
|
|
|
(a)
|
Includes
on-balance
sheet Card Member loans and receivables HFS and unused
lines-of-credit
for Card
Member loans HFS, for December 31, 2015.
|
(b)
|
Represents Card Member loans to individuals as well as receivables from individuals and corporate institutions as discussed in footnotes (a) and (d) from the previous table.
|
(c)
|
The remainder of the Companys
on-balance
sheet exposure includes cash, investments, other loans, other receivables and other assets including derivative financial
instruments. These balances are primarily within the United States.
|
(d)
|
Primarily relates to established lending product agreements with individuals.
|
124
NOTE 25
REPORTABLE OPERATING SEGMENTS AND GEOGRAPHIC OPERATIONS
REPORTABLE OPERATING SEGMENTS
The Company is a
global services company that is principally engaged in businesses comprising four reportable operating segments: USCS, ICNS, GCS and GMS.
The Company considers a
combination of factors when evaluating the composition of its reportable operating segments, including the results reviewed by the chief operating decision maker, economic characteristics, products and services offered, classes of customers, product
distribution channels, geographic considerations (primarily United States versus outside the United States), and regulatory environment considerations.
The
following is a brief description of the primary business activities of the Companys four reportable operating segments:
|
|
|
USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including consumer travel services.
|
|
|
|
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.
|
|
|
|
GCS issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products.
|
|
|
|
GMS operates a global payments network that processes and settles proprietary and
non-proprietary
card transactions. GMS acquires merchants and provides multi-channel marketing
programs and capabilities, services and data analytics, leveraging the Companys global closed-loop network. GMS also operates loyalty coalition businesses in certain countries around the world.
|
Corporate functions and certain other businesses and operations, including the Companys Prepaid Services business and the GBT operations up to June 30, 2014,
and subsequent activities related to the GBT JV, are included in Corporate & Other.
125
The following table presents certain selected financial information for the Companys reportable operating segments and
Corporate & Other as of or for the years ended December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except where indicated)
|
|
|
USCS
|
|
|
|
ICNS
|
|
|
|
GCS
|
|
|
|
GMS
|
|
|
|
Corporate &
Other
|
(a)
|
|
|
Consolidated
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
revenues
|
|
$
|
7,874
|
|
|
$
|
4,785
|
|
|
$
|
9,007
|
|
|
$
|
4,235
|
|
|
$
|
447
|
|
|
$
|
26,348
|
|
Interest income
|
|
|
5,082
|
|
|
|
922
|
|
|
|
1,209
|
|
|
|
1
|
|
|
|
261
|
|
|
|
7,475
|
|
Interest expense
|
|
|
536
|
|
|
|
219
|
|
|
|
401
|
|
|
|
(237)
|
|
|
|
785
|
|
|
|
1,704
|
|
Total revenues net of interest expense
|
|
|
12,420
|
|
|
|
5,488
|
|
|
|
9,815
|
|
|
|
4,473
|
|
|
|
(77)
|
|
|
|
32,119
|
|
Total provisions
(b)
|
|
|
1,065
|
|
|
|
325
|
|
|
|
604
|
|
|
|
25
|
|
|
|
7
|
|
|
|
2,026
|
|
Pretax income (loss) from continuing operations
|
|
|
3,881
|
|
|
|
818
|
|
|
|
2,945
|
|
|
|
2,295
|
|
|
|
(1,843)
|
|
|
|
8,096
|
|
Income tax provision (benefit)
|
|
|
1,368
|
|
|
|
163
|
|
|
|
1,036
|
|
|
|
837
|
|
|
|
(716)
|
|
|
|
2,688
|
|
Net income (loss)
|
|
|
2,513
|
|
|
|
655
|
|
|
|
1,909
|
|
|
|
1,458
|
|
|
|
(1,127)
|
|
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
$
|
87
|
|
|
$
|
36
|
|
|
$
|
47
|
|
|
$
|
24
|
|
|
$
|
(35)
|
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
7.2
|
|
|
$
|
2.5
|
|
|
$
|
7.0
|
|
|
$
|
2.5
|
|
|
$
|
1.3
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
revenues
|
|
$
|
8,479
|
|
|
$
|
4,627
|
|
|
$
|
8,930
|
|
|
$
|
4,471
|
|
|
$
|
389
|
|
|
$
|
26,896
|
|
Interest income
|
|
|
5,198
|
|
|
|
945
|
|
|
|
1,175
|
|
|
|
1
|
|
|
|
226
|
|
|
|
7,545
|
|
Interest expense
|
|
|
488
|
|
|
|
235
|
|
|
|
365
|
|
|
|
(211)
|
|
|
|
746
|
|
|
|
1,623
|
|
Total revenues net of interest expense
|
|
|
13,189
|
|
|
|
5,337
|
|
|
|
9,740
|
|
|
|
4,683
|
|
|
|
(131)
|
|
|
|
32,818
|
|
Total provisions
(b)
|
|
|
1,064
|
|
|
|
300
|
|
|
|
588
|
|
|
|
31
|
|
|
|
5
|
|
|
|
1,988
|
|
Pretax income (loss) from continuing operations
|
|
|
3,677
|
|
|
|
904
|
|
|
|
3,164
|
|
|
|
2,381
|
|
|
|
(2,188)
|
|
|
|
7,938
|
|
Income tax provision (benefit)
|
|
|
1,322
|
|
|
|
220
|
|
|
|
1,142
|
|
|
|
882
|
|
|
|
(791)
|
|
|
|
2,775
|
|
Net income (loss)
|
|
|
2,355
|
|
|
|
684
|
|
|
|
2,022
|
|
|
|
1,499
|
|
|
|
(1,397)
|
|
|
|
5,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
$
|
93
|
|
|
$
|
35
|
|
|
$
|
45
|
|
|
$
|
24
|
|
|
$
|
(36)
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
7.2
|
|
|
$
|
2.6
|
|
|
$
|
7.0
|
|
|
$
|
2.4
|
|
|
$
|
1.5
|
|
|
$
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
revenues
|
|
$
|
8,198
|
|
|
$
|
5,091
|
|
|
$
|
9,571
|
|
|
$
|
4,571
|
|
|
$
|
1,285
|
|
|
$
|
28,716
|
|
Interest income
|
|
|
4,821
|
|
|
|
1,088
|
|
|
|
1,026
|
|
|
|
2
|
|
|
|
242
|
|
|
|
7,179
|
|
Interest expense
|
|
|
453
|
|
|
|
325
|
|
|
|
409
|
|
|
|
(287)
|
|
|
|
807
|
|
|
|
1,707
|
|
Total revenues net of interest expense
|
|
|
12,566
|
|
|
|
5,854
|
|
|
|
10,188
|
|
|
|
4,860
|
|
|
|
720
|
|
|
|
34,188
|
|
Total provisions
|
|
|
1,030
|
|
|
|
354
|
|
|
|
569
|
|
|
|
79
|
|
|
|
12
|
|
|
|
2,044
|
|
Pretax income (loss) from continuing operations
|
|
|
3,502
|
|
|
|
887
|
|
|
|
3,723
|
|
|
|
2,330
|
|
|
|
(1,451)
|
|
|
|
8,991
|
|
Income tax provision (benefit)
|
|
|
1,283
|
|
|
|
194
|
|
|
|
1,381
|
|
|
|
872
|
|
|
|
(624)
|
|
|
|
3,106
|
|
Net income (loss)
|
|
|
2,219
|
|
|
|
693
|
|
|
|
2,342
|
|
|
|
1,458
|
|
|
|
(827)
|
|
|
|
5,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(billions)
|
|
$
|
90
|
|
|
$
|
31
|
|
|
$
|
44
|
|
|
$
|
18
|
|
|
$
|
(24)
|
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
7.6
|
|
|
$
|
2.6
|
|
|
$
|
6.9
|
|
|
$
|
2.1
|
|
|
$
|
1.5
|
|
|
$
|
20.7
|
|
|
|
(a)
|
Corporate & Other includes adjustments and eliminations for intersegment activity.
|
(b)
|
Beginning December 1, 2015 through to the sale completion dates, in the USCS and GCS segments, total provisions does not include credit costs related to Card Member loans and receivables HFS, which were reported in
Other expenses through a valuation allowance adjustment.
|
Total Revenues Net of Interest Expense
The Company allocates discount revenue and certain other revenues among segments using a transfer pricing methodology. Within the USCS, ICNS and GCS segments, discount
revenue reflects the issuer component of the overall discount revenue generated by each segments Card Members; within the GMS segment, discount revenue reflects the network and acquirer component of the overall discount revenue. Net card fees
and Other fees and commissions are directly attributable to the segment in which they are reported.
Interest and fees on loans and certain investment income is
directly attributable to the segment in which it is reported. Interest expense represents an allocated funding cost based on a combination of segment funding requirements and internal funding rates.
Provisions for Losses
The provisions for losses are directly attributable to
the segment in which they are reported.
Expenses
Marketing and
promotion expenses are included in each segment based on actual expenses incurred. Global brand advertising is primarily reflected in Corporate & Other and may be allocated to the segment based on the actual expense incurred. Rewards and
Card Member services expenses are included in each segment based on the actual expenses incurred within the segment.
Salaries and employee benefits and other
operating expenses includes expenses such as professional services, occupancy and equipment and communications incurred directly within each segment. In addition, expenses related to support services, such as
126
technology costs, are allocated to each segment primarily based on support service activities directly attributable to the segment. Other overhead expenses, such as staff group support functions,
are allocated from Corporate & Other to the other segments based on a mix of each segments direct consumption of services and relative level of pretax income.
Capital
Each business segment is allocated capital based on established
business model operating requirements, risk measures and regulatory capital requirements. The business model operating requirements include capital needed to support operations and specific balance sheet items. The risk measures include
considerations for credit, market and operational risk.
Income Taxes
An
income tax provision (benefit) is allocated to each business segment based on the effective tax rates applicable to various businesses that comprise the segment.
GEOGRAPHIC OPERATIONS
The following table presents the Companys total revenues net of interest expense and pretax income (loss)
from continuing operations in different geographic regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
|
United States
|
|
|
|
EMEA
|
(a)
|
|
|
JAPA
|
(a)
|
|
|
LACC
|
(a)
|
|
|
Other
Unallocated
|
(b)
|
|
|
Consolidated
|
|
2016
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
24,133
|
|
|
$
|
3,248
|
|
|
$
|
3,052
|
|
|
$
|
2,274
|
|
|
$
|
(588)
|
|
|
$
|
32,119
|
|
Pretax income (loss) from continuing operations
|
|
|
8,202
|
|
|
|
482
|
|
|
|
559
|
|
|
|
597
|
|
|
|
(1,744)
|
|
|
|
8,096
|
|
2015
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
24,927
|
|
|
$
|
3,293
|
|
|
$
|
2,791
|
|
|
$
|
2,412
|
|
|
$
|
(605)
|
|
|
$
|
32,818
|
|
Pretax income (loss) from continuing operations
|
|
|
7,500
|
|
|
|
544
|
|
|
|
587
|
|
|
|
693
|
|
|
|
(1,386)
|
|
|
|
7,938
|
|
2014
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
24,678
|
|
|
$
|
3,574
|
|
|
$
|
2,923
|
|
|
$
|
2,784
|
|
|
$
|
229
|
|
|
$
|
34,188
|
|
Pretax income (loss) from continuing operations
|
|
|
8,406
|
|
|
|
528
|
|
|
|
565
|
|
|
|
675
|
|
|
|
(1,183)
|
|
|
|
8,991
|
|
|
|
(a)
|
EMEA represents Europe, the Middle East and Africa; JAPA represents Japan, Asia/Pacific and Australia; and LACC represents Latin America, Canada and the Caribbean.
|
(b)
|
Other Unallocated includes net costs which are not directly allocable to specific geographic regions, including costs related to the net negative interest spread on excess liquidity funding and executive office
operations expenses.
|
(c)
|
The data in the above table is, in part, based upon internal allocations, which necessarily involve managements judgment.
|
127
NOTE 26
PARENT COMPANY
PARENT COMPANY CONDENSED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
99
|
|
Other
|
|
|
391
|
|
|
|
400
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
revenues
|
|
|
391
|
|
|
|
400
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
196
|
|
|
|
172
|
|
|
|
141
|
|
Interest expense
|
|
|
515
|
|
|
|
526
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
72
|
|
|
|
46
|
|
|
|
(33)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
388
|
|
|
|
341
|
|
|
|
275
|
|
Other
|
|
|
510
|
|
|
|
443
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
898
|
|
|
|
784
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
|
(826)
|
|
|
|
(738)
|
|
|
|
(665)
|
|
Income tax benefit
|
|
|
(327)
|
|
|
|
(268)
|
|
|
|
(249)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before equity in net income of subsidiaries and affiliates
|
|
|
(499)
|
|
|
|
(470)
|
|
|
|
(416)
|
|
Equity in net income of subsidiaries and affiliates
|
|
|
5,907
|
|
|
|
5,633
|
|
|
|
6,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,408
|
|
|
$
|
5,163
|
|
|
$
|
5,885
|
|
|
|
PARENT COMPANY CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As of December 31
(Millions)
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,229
|
|
|
$
|
6,400
|
|
Investment securities
|
|
|
1
|
|
|
|
1
|
|
Equity in net assets of subsidiaries and affiliates
|
|
|
20,522
|
|
|
|
19,856
|
|
Accounts receivable, less reserves
|
|
|
513
|
|
|
|
311
|
|
Premises and equipment, less accumulated depreciation: 2016, $96; 2015, $140
|
|
|
30
|
|
|
|
133
|
|
Loans to subsidiaries and affiliates
|
|
|
7,620
|
|
|
|
11,762
|
|
Due from subsidiaries and affiliates
|
|
|
867
|
|
|
|
896
|
|
Other assets
|
|
|
277
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
35,059
|
|
|
|
39,634
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
1,531
|
|
|
|
1,603
|
|
Due to subsidiaries and affiliates
|
|
|
619
|
|
|
|
716
|
|
Short-term debt of subsidiaries and affiliates
|
|
|
4,044
|
|
|
|
6,923
|
|
Long-term debt
|
|
|
8,364
|
|
|
|
9,719
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
14,558
|
|
|
|
18,961
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
181
|
|
|
|
194
|
|
Additional
paid-in
capital
|
|
|
12,733
|
|
|
|
13,348
|
|
Retained earnings
|
|
|
10,371
|
|
|
|
9,665
|
|
Accumulated other comprehensive loss
|
|
|
(2,784)
|
|
|
|
(2,534)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
20,501
|
|
|
|
20,673
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
35,059
|
|
|
$
|
39,634
|
|
|
|
128
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
(Millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,408
|
|
|
$
|
5,163
|
|
|
$
|
5,885
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of subsidiaries and affiliates
|
|
|
(5,903)
|
|
|
|
(5,633)
|
|
|
|
(6,301)
|
|
Dividends received from subsidiaries and affiliates
|
|
|
4,999
|
|
|
|
5,331
|
|
|
|
5,455
|
|
Gain on sale of securities
|
|
|
|
|
|
|
|
|
|
|
(99)
|
|
Other operating activities, primarily with subsidiaries and affiliates
|
|
|
(102)
|
|
|
|
332
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,402
|
|
|
|
5,193
|
|
|
|
5,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of
available-for-sale
investment securities
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Purchase of investments
|
|
|
|
|
|
|
(3)
|
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(1)
|
|
|
|
(29)
|
|
|
|
(39)
|
|
Loans to subsidiaries and affiliates
|
|
|
4,142
|
|
|
|
(3,952)
|
|
|
|
(2,574)
|
|
Investments in subsidiaries and affiliates
|
|
|
(25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
4,116
|
|
|
|
(3,984)
|
|
|
|
(2,502)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Principal payments on)/issuance of long-term debt
|
|
|
(1,350)
|
|
|
|
|
|
|
|
(655)
|
|
Short-term debt of subsidiaries and affiliates
|
|
|
(2,879)
|
|
|
|
986
|
|
|
|
5,118
|
|
Issuance of American Express preferred shares
|
|
|
|
|
|
|
841
|
|
|
|
742
|
|
Issuance of American Express common shares and other
|
|
|
176
|
|
|
|
192
|
|
|
|
362
|
|
Repurchase of American Express common shares
|
|
|
(4,430)
|
|
|
|
(4,480)
|
|
|
|
(4,389)
|
|
Dividends paid
|
|
|
(1,206)
|
|
|
|
(1,172)
|
|
|
|
(1,041)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(9,689)
|
|
|
|
(3,633)
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,171)
|
|
|
|
(2,424)
|
|
|
|
2,748
|
|
Cash and cash equivalents at beginning of year
|
|
|
6,400
|
|
|
|
8,824
|
|
|
|
6,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
5,229
|
|
|
$
|
6,400
|
|
|
$
|
8,824
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on business travel joint venture transaction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
630
|
|
129
NOTE 27
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
12/31
|
|
|
|
9/30
|
|
|
|
6/30
|
|
|
|
3/31
|
|
|
|
12/31
|
|
|
|
9/30
|
|
|
|
6/30
|
|
|
|
3/31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
8,022
|
|
|
$
|
7,774
|
|
|
$
|
8,235
|
|
|
$
|
8,088
|
|
|
$
|
8,391
|
|
|
$
|
8,193
|
|
|
$
|
8,284
|
|
|
$
|
7,950
|
|
Pretax income
|
|
|
1,161
|
|
|
|
1,735
|
|
|
|
3,016
|
|
|
|
2,184
|
|
|
|
1,454
|
|
|
|
1,938
|
|
|
|
2,230
|
|
|
|
2,316
|
|
Net income
|
|
|
825
|
|
|
|
1,142
|
|
|
|
2,015
|
|
|
|
1,426
|
|
|
|
899
|
|
|
|
1,266
|
|
|
|
1,473
|
|
|
|
1,525
|
|
Earnings Per Common Share Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
(a)
|
|
$
|
0.88
|
|
|
$
|
1.21
|
|
|
$
|
2.11
|
|
|
$
|
1.45
|
|
|
$
|
0.89
|
|
|
$
|
1.24
|
|
|
$
|
1.43
|
|
|
$
|
1.49
|
|
Earnings Per Common Share Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
(a)
|
|
|
0.88
|
|
|
|
1.20
|
|
|
|
2.10
|
|
|
|
1.45
|
|
|
|
0.89
|
|
|
|
1.24
|
|
|
|
1.42
|
|
|
|
1.48
|
|
Cash dividends declared per common share
|
|
|
0.32
|
|
|
|
0.32
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.26
|
|
Common share price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
75.74
|
|
|
|
66.71
|
|
|
|
67.34
|
|
|
|
68.18
|
|
|
|
77.85
|
|
|
|
81.66
|
|
|
|
81.92
|
|
|
|
93.94
|
|
Low
|
|
$
|
59.50
|
|
|
$
|
58.25
|
|
|
$
|
57.15
|
|
|
$
|
50.27
|
|
|
$
|
67.57
|
|
|
$
|
71.71
|
|
|
$
|
76.53
|
|
|
$
|
77.12
|
|
|
|
(a)
|
Represents net income, less (i) earnings allocated to participating share awards of $6 million, $9 million, $17 million and $11 million for the quarters ended December 31,
September 30, June 30 and March 31, 2016, respectively, and $6 million, $10 million, $11 million and $11 million for the quarters ended December 31, September 30, June 30 and March 31, 2015,
respectively, and (ii) dividends on preferred shares of $19 million, $21 million, $19 million and $21 million for the quarters ended December 31, September 30, June 30 and March 31, 2016, respectively,
and $20 million, $22 million, $20 million and nil for the quarters ended December 31, September 30, June 30 and March 31, 2015, respectively.
|
130