UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

For the Transition Period from ____ to ____

Commission file number 1-7657

AMERICAN EXPRESS COMPANY
 (Exact name of registrant as specified in its charter)

New York
  
13-4922250
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
     
200 Vesey Street, New York, New York
  
10285
(Address of principal executive offices)
  
(Zip Code)
Registrant’s telephone number, including area code                                         (212) 640-2000        

None
Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes       No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes       No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
         Large accelerated filer
                         Accelerated filer
         Non-accelerated filer (Do not check if a smaller reporting company)
                         Smaller reporting company
                         Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes       No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
    
Outstanding at October 18, 2017
Common Shares (par value $0.20 per share)
    
867,996,250 Shares
 
 
 
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
 
Part I.
  
Page No.
 
Item 1.
      
       
1
       
2
       
3
       
4
       
5
       
6
 
Item 2.
    
30
 
Item 3.
    
61
 
Item 4.
    
61
Part II.
    
 
Item 1.
    
64
 
Item 1A.
    
65
 
Item 2.
    
66
 
Item 5.
    
67
 
Item 6.
    
67
       
68
       
E-1
 
 


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended September 30 (Millions, except per share amounts)
  
2017
    
2016
  
Revenues
            
Non-interest revenues
            
Discount revenue
  
$
4,772
    
$
4,516
  
Net card fees
    
786
      
747
  
Other fees and commissions
    
767
      
694
  
Other
    
436
      
483
  
Total non-interest revenues
    
6,761
      
6,440
  
Interest income
                
Interest on loans
    
2,129
      
1,690
  
Interest and dividends on investment securities
    
22
      
34
  
Deposits with banks and other
    
91
      
40
  
Total interest income
    
2,242
      
1,764
  
Interest expense
                
Deposits
    
213
      
150
  
Long-term debt and other
    
354
      
280
  
Total interest expense
    
567
      
430
  
Net interest income
    
1,675
      
1,334
  
Total revenues net of interest expense
    
8,436
      
7,774
  
Provisions for losses
                
Charge card
    
214
      
174
  
Card Member loans
    
531
      
319
  
Other
    
24
      
11
  
Total provisions for losses
    
769
      
504
  
Total revenues net of interest expense after provisions for losses
    
7,667
      
7,270
  
Expenses
                
Marketing and promotion
    
814
      
930
  
Card Member rewards
    
1,900
      
1,566
  
Card Member services and other
    
363
      
278
  
Salaries and employee benefits
    
1,265
      
1,263
  
Other, net
    
1,498
      
1,498
  
Total expenses
    
5,840
      
5,535
  
Pretax income
    
1,827
      
1,735
  
Income tax provision
    
471
      
593
  
Net income
  
$
1,356
    
$
1,142
  
Earnings per Common Share (Note 15): (a)
                
Basic
  
$
1.51
    
$
1.21
  
Diluted
  
$
1.50
    
$
1.20
  
Average common shares outstanding for earnings per common share:
                
Basic
    
878
      
920
  
Diluted
    
881
      
923
  
Cash dividends declared per common share
  
$
0.35
    
$
0.32
  
(a)
Represents net income less (i) earnings allocated to participating share awards of $11 million and $9 million for the three months ended September 30, 2017 and 2016, respectively, and (ii) dividends on preferred shares of $21 million for both the three months ended September 30, 2017 and 2016.


 
See Notes to Consolidated Financial Statements.
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30 (Millions, except per share amounts)
  
2017
    
2016
  
Revenues
            
Non-interest revenues
            
Discount revenue
  
$
14,106
    
$
13,983
  
Net card fees
    
2,305
      
2,161
  
Other fees and commissions
    
2,232
      
2,076
  
Other
    
1,284
      
1,514
  
Total non-interest revenues
    
19,927
      
19,734
  
Interest income
                
Interest on loans
    
5,936
      
5,446
  
Interest and dividends on investment securities
    
68
      
104
  
Deposits with banks and other
    
233
      
104
  
Total interest income
    
6,237
      
5,654
  
Interest expense
                
Deposits
    
538
      
450
  
Long-term debt and other
    
994
      
841
  
Total interest expense
    
1,532
      
1,291
  
Net interest income
    
4,705
      
4,363
  
Total revenues net of interest expense
    
24,632
      
24,097
  
Provisions for losses
                
Charge card
    
590
      
496
  
Card Member loans
    
1,272
      
831
  
Other
    
64
      
74
  
Total provisions for losses
    
1,926
      
1,401
  
Total revenues net of interest expense after provisions for losses
    
22,706
      
22,696
  
Expenses
                
Marketing and promotion
    
2,344
      
2,445
  
Card Member rewards
    
5,633
      
5,035
  
Card Member services and other
    
1,033
      
841
  
Salaries and employee benefits
    
3,822
      
4,052
  
Other, net
    
4,281
      
3,388
  
Total expenses
    
17,113
      
15,761
  
Pretax income
    
5,593
      
6,935
  
Income tax provision
    
1,660
      
2,352
  
Net income
  
$
3,933
    
$
4,583
  
Earnings per Common Share (Note 15): (a)
                
Basic
  
$
4.32
    
$
4.77
  
Diluted
  
$
4.30
    
$
4.76
  
Average common shares outstanding for earnings per common share:
                
Basic
    
889
      
940
  
Diluted
    
892
      
943
  
Cash dividends declared per common share
  
$
0.99
    
$
0.90
  
(a)
Represents net income less (i) earnings allocated to participating share awards of $32 million and $37 million for the nine months ended September 30, 2017 and 2016, respectively, and (ii) dividends on preferred shares of $61 million for both the nine months ended September 30, 2017 and 2016.
 
See Notes to Consolidated Financial Statements.


AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
(Millions)
  
2017
    
2016
    
2017
    
2016
  
Net income
  
$
1,356
    
$
1,142
    
$
3,933
    
$
4,583
  
Other comprehensive income (loss):
                                
Net unrealized securities (losses) gains, net of tax
    
(2
)
    
(15
)
    
4
      
(8
)
Foreign currency translation adjustments, net of tax
    
107
      
11
      
456
      
(115
)
Net unrealized pension and other postretirement benefits, net of tax
    
7
      
7
      
8
      
39
  
Other comprehensive income (loss)
    
112
      
3
      
468
      
(84
)
Comprehensive income
  
$
1,468
    
$
1,145
    
$
4,401
    
$
4,499
  
 
See Notes to Consolidated Financial Statements.
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited) 
   
September 30,
    
December 31,
  
 (Millions, except share data)
  
2017
    
2016
  
Assets
            
Cash and cash equivalents
            
Cash and due from banks
  
$
2,820
    
$
3,278
  
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2017, $86; 2016, $115)
    
22,059
      
20,779
  
Short-term investment securities
    
1,289
      
1,151
  
Total cash and cash equivalents
    
26,168
      
25,208
  
Accounts receivable
                
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2017, $7,825; 2016, $8,874), less reserves: 2017, $512; 2016, $467
    
51,002
      
46,841
  
Other receivables, less reserves: 2017, $32; 2016, $45
    
2,701
      
3,232
  
Loans
                
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2017, $24,249; 2016, $26,129), less reserves: 2017, $1,502; 2016, $1,223
    
66,376
      
64,042
  
Other loans, less reserves: 2017, $64; 2016, $42
    
2,268
      
1,419
  
Investment securities
    
3,250
      
3,157
  
Premises and equipment, less accumulated depreciation and amortization: 2017, $5,797; 2016, $5,145
    
4,367
      
4,433
  
Other assets (includes restricted cash of consolidated variable interest entities: 2017, $1,816; 2016, $38)
    
12,445
      
10,561
  
Total assets
  
$
168,577
    
$
158,893
  
Liabilities and Shareholders’ Equity
                
Liabilities
                
Customer deposits
  
$
61,290
    
$
53,042
  
Travelers Cheques and other prepaid products
    
2,366
      
2,812
  
Accounts payable
    
12,240
      
11,190
  
Short-term borrowings
    
2,352
      
5,581
  
Long-term debt (includes debt issued by consolidated variable interest entities: 2017, $15,026; 2016, $15,113)
    
48,762
      
46,990
  
Other liabilities
    
20,482
      
18,777
  
Total liabilities
    
147,492
      
138,392
  
Contingencies (Note 8)
                
Shareholders’ Equity
                
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of September 30, 2017 and December 31, 2016
    
―
      
―
  
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 871 million shares as of September 30, 2017 and 904 million shares as of December 31, 2016
    
175
      
181
  
Additional paid-in capital
    
12,318
      
12,733
  
Retained earnings
    
10,908
      
10,371
  
Accumulated other comprehensive loss
                
Net unrealized securities gains, net of tax of: 2017, $7; 2016, $5
    
11
      
7
  
Foreign currency translation adjustments, net of tax of: 2017, $(486); 2016, $24
    
(1,806
)
    
(2,262
)
Net unrealized pension and other postretirement benefits, net of tax of: 2017, $(196); 2016, $(186)
    
(521
)
    
(529
)
Total accumulated other comprehensive loss
    
(2,316
)
    
(2,784
)
Total shareholders’ equity
    
21,085
      
20,501
  
Total liabilities and shareholders’ equity
  
$
168,577
    
$
158,893
  
 
See Notes to Consolidated Financial Statements.
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30 (Millions)
  
2017
    
2016
  
Cash Flows from Operating Activities
            
Net income
  
$
3,933
    
$
4,583
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Provisions for losses
    
1,926
      
1,401
  
Depreciation and amortization
    
953
      
810
  
Deferred taxes and other
    
(61
)
    
(1,076
)
Stock-based compensation
    
212
      
190
  
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
                
Other receivables
    
1,043
      
485
  
Other assets
    
(137
)
    
115
  
Accounts payable and other liabilities
    
1,197
      
(963
)
Travelers Cheques and other prepaid products
    
(485
)
    
(594
)
Net cash provided by operating activities
    
8,581
      
4,951
  
Cash Flows from Investing Activities
                
Sales of available-for-sale investment securities
    
1
      
51
  
Maturities and redemptions of available-for-sale investment securities
    
2,198
      
1,209
  
Purchases of investments
    
(2,339
)
    
(1,355
)
Net (increase) decrease in Card Member receivables and loans, including held for sale(a)
    
(7,535
)
    
11,818
  
Purchase of premises and equipment, net of sales: 2017, $1; 2016, $2
    
(812
)
    
(975
)
Acquisitions/dispositions, net of cash acquired
    
(210
)
    
(191
)
Net increase in restricted cash
    
(1,773
)
    
(427
)
Net cash (used in) provided by investing activities
    
(10,470
)
    
10,130
  
Cash Flows from Financing Activities
                
Net increase (decrease)  in customer deposits
    
8,219
      
(1,499
)
Net decrease in short-term borrowings
    
(3,232
)
    
(2,040
)
Issuance of long-term debt
    
19,875
      
5,926
  
Principal payments on long-term debt
    
(18,349
)
    
(9,349
)
Issuance of American Express common shares
    
82
      
78
  
Repurchase of American Express common shares
    
(3,087
)
    
(3,542
)
Dividends paid
    
(925
)
    
(892
)
Net cash provided by (used in) financing activities
    
2,583
      
(11,318
)
Effect of foreign currency exchange rates on cash and cash equivalents
    
266
      
(5
)
Net increase in cash and cash equivalents
    
960
      
3,758
  
Cash and cash equivalents at beginning of period
    
25,208
      
22,762
  
Cash and cash equivalents at end of period
  
$
26,168
    
$
26,520
  
(a)
Refer to Note 2 for additional information.
 
See Notes to Consolidated Financial Statements.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.  Basis of Presentation

The Company

American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company’s 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). The Company’s 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.

The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the Annual Report). If not materially different, certain footnote disclosures included therein have been omitted from this Quarterly Report on Form 10-Q.

The interim consolidated financial information in this report has not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial information, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.
Certain reclassifications of prior period amounts have been made to conform to the current period presentation.


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 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.
Upon adoption of the new revenue recognition guidance, the Company will use the full retrospective method, which applies the new standard to each prior reporting period presented. The Company has made significant progress in determining the impact on its Consolidated Financial Statements and underlying operational processes. The most significant changes will be reclassifications from discount revenue to expenses related to Card Member cash-back reward costs and statement credits, as well as corporate incentive payments and net payments to third-party card issuing partners. These reclassifications will have a significant impact on the affected line items of the Consolidated Statements of Income, but will have no impact to net income. There will also be changes to the recognition timing of certain revenues; however, the impact of these changes to net income upon adoption will not be material. Similarly, upon adoption of the new standard, the impact on the Consolidated Balance Sheets and Consolidated Statements of Cash Flows will not be material. The Company is in the process of implementing changes to its accounting policies, business processes, systems and internal controls to support the recognition, measurement 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. In the ordinary course of business, the Company makes investments in non-public companies currently recognized under the cost method of accounting. Under the new guidance, these investments will be prospectively adjusted for observable price changes upon the identification of identical or similar transactions of the same issuer. The Company expects that adopting this guidance will have an immaterial impact on its financial position, results of operations and cash flows, as well as on its accounting policies, business processes, systems and internal controls.
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 will adopt 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 upgrading its existing lease administration software for new lease accounting functionality, business processes and internal controls in preparation for the adoption. Specifically, the Company is currently reviewing its lease portfolio and is evaluating and interpreting the requirements under the guidance, including the available accounting policy elections, in order to determine the impacts to the Company’s financial position, results of operations and cash flows upon adoption.
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. The guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. 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 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 increases to the Company’s credit reserves as the new guidance involves earlier recognition of expected losses for the life of the assets.  The Company has established an enterprise-wide, cross-discipline governance structure to implement the new standard. The Company is currently identifying key interpretive issues, and is evaluating existing credit loss forecasting models and processes in relation to the new guidance to determine what modifications may be required.
In August 2017, the FASB issued new accounting guidance providing targeted improvements to the accounting for hedging activities, which is effective January 1, 2019, with early adoption permitted in any interim period or fiscal year before the effective date. The guidance introduces a number of amendments, several of which are optional, that are designed to simplify the application of hedge accounting, improve financial statement transparency and more closely align hedge accounting with an entity’s risk management strategies. The Company is evaluating the impact this guidance will have on its financial position, results of operations and cash flows, as well as the impact the standard will have on its accounting policies, business processes, systems and internal controls.





2.  Business Events

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.

During the first half of 2016, the Company completed the sales of substantially all of its outstanding Card Member loans and receivables HFS and recognized gains, as an expense reduction, in Other expenses, of $127 million and $1.1 billion during the three months ended March 31, 2016 and June 30, 2016, respectively. The impact of the sales, including the recognition of the proceeds received and the reclassification of the retained Card Member loans and receivables, is reported within the investing section of the Consolidated Statements of Cash Flows as a net decrease in Card Member receivables and loans, including HFS.

From the point of classification as HFS through the sale completion dates, the Company continued to recognize discount revenue, interest income, 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.
 
 

 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 3.  Loans and Accounts Receivable

The Company’s lending and charge payment card products result in the generation of Card Member loans and Card Member receivables, respectively.

Card Member loans by segment and Other loans as of September 30, 2017 and December 31, 2016 consisted of:

(Millions)
  
2017
    
2016
  
U.S. Consumer Services(a)
  
$
49,326
    
$
48,758
  
International Consumer and Network Services
    
7,823
      
6,971
  
Global Commercial Services
    
10,729
      
9,536
  
Card Member loans
    
67,878
      
65,265
  
Less: Reserve for losses
    
1,502
      
1,223
  
Card Member loans, net
  
$
66,376
    
$
64,042
  
Other loans, net(b)
  
$
2,268
    
$
1,419
  
(a)
Includes approximately $24.2 billion and $26.1 billion of gross Card Member loans available to settle obligations of a consolidated variable interest entity (VIE) as of September 30, 2017 and December 31, 2016, respectively.
(b)
Other loans primarily represent personal and commercial financing products. Other loans are presented net of reserves for losses of $64 million and $42 million as of September 30, 2017 and December 31, 2016, respectively.

Card Member accounts receivable by segment and Other receivables as of September 30, 2017 and December 31, 2016 consisted of:

(Millions)
  
2017
    
2016
  
U.S. Consumer Services (a)
  
$
11,192
    
$
12,302
  
International Consumer and Network Services
    
6,512
      
5,966
  
Global Commercial Services
    
33,810
      
29,040
  
Card Member receivables
    
51,514
      
47,308
  
Less: Reserve for losses
    
512
      
467
  
Card Member receivables, net
  
$
51,002
    
$
46,841
  
Other receivables, net (b)
  
$
2,701
    
$
3,232
  
(a)
Includes $7.8 billion and $8.9 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of September 30, 2017 and December 31, 2016, respectively.
(b)
Other receivables primarily represent amounts related to (i) Global Network Services partner banks for items such as royalty and franchise fees, (ii) tax-related receivables, (iii) certain merchants for billed discount revenue, and (iv) loyalty coalition partners for points issued, as well as program participation and servicing fees. Other receivables are presented net of reserves for losses of $32 million and $45 million as of September 30, 2017 and December 31, 2016, respectively.
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Card Member Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of September 30, 2017 and December 31, 2016:

2017  (Millions)
  
Current
    
30-59 Days Past Due
    
60-89 Days Past Due
    
90+ Days Past Due
    
Total
  
Card Member Loans:
                              
  U.S. Consumer Services
  
$
48,707
    
$
183
    
$
128
    
$
308
    
$
49,326
  
  International Consumer and Network Services
    
7,698
      
39
      
27
      
59
      
7,823
  
  Global Commercial Services
                                        
      Global Small Business Services
    
10,556
      
36
      
24
      
59
      
10,675
  
      Global Corporate Payments(a)
  
(b)
    
(b)
    
(b)
      
―
      
54
  
Card Member Receivables:
                                        
  U.S. Consumer Services
    
11,055
      
51
      
26
      
60
      
11,192
  
  International Consumer and Network Services
    
6,424
      
28
      
18
      
42
      
6,512
  
  Global Commercial Services
                                        
      Global Small Business Services
  
$
15,651
    
$
75
    
$
50
    
$
102
    
$
15,878
  
      Global Corporate Payments(a)
  
(b)
    
(b)
    
(b)
    
$
153
    
$
17,932
  
                                         
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
  
(a)
For Global Corporate Payments (GCP) Card Member loans and receivables in Global Commercial Services (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 Member’s 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. See also (b).
(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.

 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the nine months ended September 30:
     
2017
  
2016
  
     
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
  
1.7
%
2.0
%
1.3
%
1.5
%
1.8
%
1.1
%
 
International Consumer and Network Services
  
2.1
%
2.6
%
1.6
%
2.0
%
2.5
%
1.7
%
 
Global Small Business Services
  
1.6
%
1.9
%
1.1
%
1.4
%
1.7
%
1.1
%
Card Member Receivables:
                          
 
U.S. Consumer Services
  
1.3
%
1.5
%
1.2
%
1.4
%
1.6
%
1.4
%
 
International Consumer and Network Services
  
2.1
%
2.2
%
1.4
%
2.1
%
2.3
%
1.5
%
 
Global Small Business Services
  
1.6
%
1.8
%
1.4
%
1.6
%
1.8
%
1.5
%
                             
             
2017
  
2016
  
             
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
0.10
%
0.9
%
0.09
%
0.8
%
(a)
The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented.

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. In certain cases, these Card Member loans and receivables are included in one of the Company’s various Troubled Debt Restructuring (TDR) modification programs.

 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following tables provide additional information with respect to the Company’s impaired Card Member loans and receivables. Impaired Card Member receivables are not significant for International Consumer and Network Services (ICNS) as of September 30, 2017 and December 31, 2016; therefore, this segment’s receivables are not included in the following tables.
   
As of September 30, 2017
  
                                           
               
Accounts Classified as a TDR(c)
                    
2017 (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
  
$
206
    
$
158
    
$
162
    
$
131
    
$
657
    
$
593
    
$
48
  
International Consumer and Network Services
    
59
      
―
      
―
      
―
      
59
      
58
      
―
  
Global Commercial Services
    
37
      
32
      
28
      
26
      
123
      
113
      
9
  
Card Member Receivables:
                                                        
U.S. Consumer Services
    
―
      
―
      
12
      
9
      
21
      
21
      
4
  
Global Commercial Services
    
―
      
―
      
31
      
16
      
47
      
47
      
8
  
Total
  
$
302
    
$
190
    
$
233
    
$
182
    
$
907
    
$
832
    
$
69
  

   
As of December 31, 2016
  
                                           
               
Accounts Classified as a TDR(c)
                    
2016 (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
  
(a)
The Company’s 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 $15 million and $20 million that are over 90 days past due and accruing interest and $6 million and $11 million that are non-accruals as of September 30, 2017 and December 31, 2016, respectively.
(d)
In Program TDRs include Card Member accounts that are currently enrolled in a modification program.
(e)
Out of Program TDRs include $139 million and $132 million of Card Member accounts that have successfully completed a modification program and $43 million and $39 million of Card Member accounts that were not in compliance with the terms of the modification programs as of September 30, 2017 and December 31, 2016, respectively.
 

 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table provides information with respect to the Company’s average balances of, and interest income recognized from, impaired Card Member loans and the average balances of impaired Card Member receivables for the three and nine months ended September 30:
 
Three Months Ended
September 30, 2017
  
Nine Months Ended
September 30, 2017
  
(Millions)
  
Average Balance
    
Interest Income Recognized
    
Average Balance
    
Interest Income Recognized
  
Card Member Loans:
                        
U.S. Consumer Services
  
$
636
    
$
17
    
$
626
    
$
49
  
International Consumer and Network Services
    
59
      
4
      
56
      
12
  
Global Commercial Services
    
122
      
5
      
119
      
13
  
Card Member Receivables:
                                
U.S. Consumer Services
    
20
      
―
      
19
      
―
  
Global Commercial Services
    
44
      
―
      
42
      
―
  
Total
  
$
881
    
$
26
    
$
862
    
$
74
  
                                 
 
Three Months Ended
September 30, 2016
  
Nine Months Ended
September 30, 2016
  
(Millions)
  
Average Balance
    
Interest Income Recognized
    
Average Balance
    
Interest Income Recognized
  
Card Member Loans:
                                
U.S. Consumer Services
  
$
587
    
$
14
    
$
555
    
$
38
  
International Consumer and Network Services
    
53
      
4
      
52
      
12
  
Global Commercial Services
    
111
      
4
      
102
      
10
  
Card Member Receivables:
                                
U.S. Consumer Services
    
13
      
―
      
13
      
―
  
Global Commercial Services
    
29
      
―
      
24
      
―
  
Total
  
$
793
    
$
22
    
$
746
    
$
60
  
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Receivables Modified as TDRs


The following table provides additional information with respect to the U.S. Consumer Services (USCS) and GCS Card Member loans and receivables modified as TDRs for the three and nine months ended September 30, 2017 and 2016. The ICNS Card Member loans and receivables modifications were not significant; therefore, this segment is not included in the following TDR disclosures.

   
Three Months Ended
    
Nine Months Ended
  
   
September 30, 2017
    
September 30, 2017
  
   
Number of Accounts (in thousands)
  
Outstanding Balances
($ in millions)(a)
    
Average Interest Rate Reduction
(% Points)
    
Average Payment Term Extension (# of Months)
    
Number of Accounts (in thousands)
  
Outstanding Balances
($ in millions)(a)
    
Average Interest Rate Reduction (% Points)
    
Average Payment Term Extension (# of Months)
  
Troubled Debt Restructurings:
                                                
Card Member Loans
    
8
    
$
57
      
9
    
(b)
      
23
    
$
160
      
10
    
(b)
  
Card Member Receivables
    
1
      
18
    
(c)
      
31
      
4
      
64
    
(c)
      
27
  
Total
    
9
    
$
75
                      
27
    
$
224
                  
                                                                 
   
Three Months Ended
    
Nine Months Ended
  
   
September 30, 2016
    
September 30, 2016
  
   
Number of Accounts (in thousands)
  
Outstanding Balances
($ in millions)(a)
    
Average Interest Rate Reduction
(% Points)
    
Average Payment Term Extension (# of Months)
    
Number of Accounts (in thousands)
  
Outstanding Balances
($ in millions)(a)
    
Average Interest Rate Reduction (% Points)
    
Average Payment Term Extension (# of Months)
  
Troubled Debt Restructurings:
                                                                
Card Member Loans
    
8
    
$
56
      
9
    
(b)
      
23
    
$
163
      
10
    
(b)
  
Card Member Receivables
    
2
      
29
    
(c)
      
19
      
7
      
94
    
(c)
      
17
  
Total
    
10
    
$
85
                      
30
    
$
257
                  
(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.
(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.

 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table provides information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification, for the three and nine months ended September 30, 2017 and 2016. A Card Member is considered in default of a modification program after one and up to two missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables.
 
Three Months Ended
  
Nine Months Ended
  
 
September 30, 2017
  
September 30, 2017
  
   
Number of Accounts
(in thousands)
  
Aggregated Outstanding Balances Upon Default
($ in millions)(a)
    
Number of Accounts
(in thousands)
  
Aggregated Outstanding Balances Upon Default
($ in millions)(a)
  
Troubled Debt Restructurings That Subsequently Defaulted:
                        
Card Member Loans
    
2
    
$
9
      
5
    
$
30
  
Card Member Receivables
    
1
      
2
      
3
      
4
  
Total
    
3
    
$
11
      
8
    
$
34
  
                                 
                                 
 
Three Months Ended
  
Nine Months Ended
  
 
September 30, 2016
  
September 30, 2016
  
   
Number of Accounts
(in thousands)
  
Aggregated Outstanding Balances Upon Default
($ in millions)(a)
    
Number of Accounts
(in thousands)
  
Aggregated Outstanding Balances Upon Default
($ in millions)(a)
  
Troubled Debt Restructurings That Subsequently Defaulted:
                                
Card Member Loans
    
3
    
$
12
      
5
    
$
30
  
Card Member Receivables
    
1
      
1
      
3
      
3
  
Total
    
4
    
$
13
      
8
    
$
33
  
(a)
The outstanding balances upon default include principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables.



AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.  Reserves for Losses

Reserves for losses relating to Card Member loans and receivables represent management’s best estimate of the probable inherent losses in the Company’s outstanding portfolio of loans and receivables as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments.

Changes in Card Member Loans Reserve for Losses

The following table presents changes in the Card Member loans reserve for losses for the nine months ended September 30:

(Millions)
  
2017
    
2016
  
Balance, January 1
  
$
1,223
    
$
1,028
  
Provisions(a)
    
1,272
      
831
  
Net write-offs(b)
                
Principal
    
(856
)
    
(687
)
Interest and fees
    
(163
)
    
(128
)
Other(c)
    
26
      
70
  
Balance, September 30
  
$
1,502
    
$
1,114
  
(a)
Provisions for principal, interest and fee reserve components.
(b)
Principal write-offs are presented less recoveries of $307 million and $280 million, and include net write-offs from TDRs of $25 million and $24 million, for the nine months ended September 30, 2017 and 2016, respectively. Recoveries of interest and fees were de minimis.
(c)
Includes foreign currency translation adjustments of $14 million and $(3) million and other adjustments of $12 million and $6 million for the nine months ended September 30, 2017 and 2016, respectively. The nine months ended September 30, 2016 also includes reserves of $67 million associated with $265 million of retained Card Member loans reclassified from HFS to held for investment as a result of retaining certain loans in connection with the respective sales of JetBlue and Costco cobrand card portfolios.

Card Member Loans Evaluated Individually and Collectively for Impairment
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of September 30, 2017 and December 31, 2016:
(Millions)
  
2017
    
2016
  
Card Member loans evaluated individually for impairment(a)
  
$
347
    
$
346
  
Related reserves (a)
  
$
57
    
$
60
  
Card Member loans evaluated collectively for impairment(b)
  
$
67,531
    
$
64,919
  
Related reserves (b)
  
$
1,445
    
$
1,163
  
(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.
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Changes in Card Member Receivables Reserve for Losses
The following table presents changes in the Card Member receivables reserve for losses for the nine months ended September 30:

(Millions)
  
2017
    
2016
  
Balance, January 1
  
$
467
    
$
462
  
Provisions(a)
    
590
      
496
  
Net write-offs(b)
    
(548
)
    
(518
)
Other(c)
    
3
      
(3
)
Balance, September 30
  
$
512
    
$
437
  
(a)
Provisions for principal and fee reserve components.
(b)
Principal and fee write-offs are presented less recoveries of $271 million and $301 million, including net write-offs from TDRs of $2 million and $16 million, for the nine months ended September 30, 2017 and 2016, respectively.
(c)
Includes foreign currency translation adjustments of $18 million and nil and other adjustments of $(15) million and $(3) million for the nine months ended September 30, 2017 and 2016, respectively.

Card Member Receivables Evaluated Individually and Collectively for Impairment
The following table presents Card Member receivables evaluated individually and collectively for impairment, and related reserves, as of September 30, 2017 and December 31, 2016:
(Millions)
  
2017
    
2016
  
Card Member receivables evaluated individually for impairment(a)
  
$
68
    
$
55
  
Related reserves (a)
  
$
12
    
$
28
  
Card Member receivables evaluated collectively for impairment
  
$
51,446
    
$
47,253
  
Related reserves (b)
  
$
500
    
$
439
  
(a)
Represents receivables modified as a TDR and related reserves.
(b)
The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are collectively evaluated for impairment.


5.  Investment Securities

Investment securities principally include debt securities the Company classifies as available-for-sale and carries at fair value on the Consolidated Balance Sheets, with unrealized gains and losses recorded in accumulated other comprehensive income (loss) (AOCI), net of income taxes. Realized gains and losses are recognized upon disposition of the securities using the specific identification method.

The following is a summary of investment securities as of September 30, 2017 and December 31, 2016:

   
2017
    
2016
  
         
Gross
    
Gross
    
Estimated
          
Gross
    
Gross
    
Estimated
  
         
Unrealized
    
Unrealized
    
Fair
          
Unrealized
    
Unrealized
    
Fair
  
Description of Securities (Millions)
  
Cost
    
Gains
    
Losses
    
Value
    
Cost
    
Gains
    
Losses
    
Value
  
State and municipal obligations
  
$
1,412
    
$
17
    
$
(2
)
  
$
1,427
    
$
2,019
    
$
28
    
$
(11
)
  
$
2,036
  
U.S. Government agency obligations
    
12
      
―
      
―
      
12
      
12
      
―
      
―
      
12
  
U.S. Government treasury obligations
    
1,115
      
8
      
(5
)
    
1,118
      
465
      
3
      
(8
)
    
460
  
Corporate debt securities
    
28
      
―
      
―
      
28
      
19
      
―
      
―
      
19
  
Mortgage-backed securities (a)
    
74
      
2
      
―
      
76
      
92
      
3
      
―
      
95
  
Equity securities
    
1
      
―
      
―
      
1
      
1
      
―
      
―
      
1
  
Foreign government bonds and obligations
    
539
      
1
      
―
      
540
      
486
      
1
      
(1
)
    
486
  
Other (b)
    
50
      
―
      
(2
)
    
48
      
50
      
―
      
(2
)
    
48
  
Total
  
$
3,231
    
$
28
    
$
(9
)
  
$
3,250
    
$
3,144
    
$
35
    
$
(22
)
  
$
3,157
  
(a)
Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
(b)
Other comprises investments in various mutual funds.
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table provides information about the Company’s investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017 and December 31, 2016:
   
2017
    
2016
  
   
Less than 12 months
    
12 months or more
    
Less than 12 months
    
12 months or more
  
         
Gross
          
Gross
          
Gross
          
Gross
  
Description of Securities (Millions)
  
Estimated Fair Value
    
Unrealized Losses
    
Estimated Fair Value
    
Unrealized Losses
    
Estimated Fair Value
    
Unrealized Losses
    
Estimated Fair Value
    
Unrealized Losses
  
State and municipal obligations
  
$
101
    
$
(2
)
  
$
―
    
$
―
    
$
153
    
$
(11
)
  
$
―
    
$
―
  
U.S. Government treasury obligations
    
366
      
(5
)
    
―
      
―
      
298
      
(8
)
    
―
      
―
  
Other
    
―
      
―
      
32
      
(2
)
    
―
      
―
      
32
      
(2
)
Total
  
$
467
    
$
(7
)
  
$
32
    
$
(2
)
  
$
451
    
$
(19
)
  
$
32
    
$
(2
)

The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of September 30, 2017 and December 31, 2016:

   
Less than 12 months
    
12 months or more
    
Total
  
Ratio of Fair Value to
              
Gross
                
Gross
                
Gross
  
Amortized Cost
  
Number of
    
Estimated
    
Unrealized
    
Number of
    
Estimated
    
Unrealized
    
Number of
    
Estimated
    
Unrealized
  
(Dollars in millions)
  
Securities
    
Fair Value
    
Losses
    
Securities
    
Fair Value
    
Losses
    
Securities
    
Fair Value
    
Losses
  
2017:
                                                      
90%–100%
    
22
    
$
467
    
$
(7
)
    
6
    
$
32
    
$
(2
)
    
28
    
$
499
    
$
(9
)
Total as of September 30, 2017
    
22
    
$
467
    
$
(7
)
    
6
    
$
32
    
$
(2
)
    
28
    
$
499
    
$
(9
)
                                                                         
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
)

The gross unrealized losses are attributed to overall 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.

Contractual maturities for investment securities with stated maturities as of September 30, 2017 were as follows:

         
Estimated
  
(Millions)
  
Cost
   
Fair Value
  
Due within 1 year
  
$
648
    
$
648
  
Due after 1 year but within 5 years
    
998
      
1,000
  
Due after 5 years but within 10 years
    
268
      
272
  
Due after 10 years
    
1,267
      
1,282
  
Total
  
$
3,181
    
$
3,202
  

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.
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.  Asset Securitizations

The Company periodically securitizes Card Member loans and receivables arising from its card businesses through the transfer of those assets to securitization trusts. The trusts then issue debt securities collateralized by the transferred assets to third-party investors.

The following table provides information on the restricted cash held by the American Express Credit Account Master Trust (the Lending Trust) and the American Express Issuance Trust II (the Charge Trust, collectively the Trusts) as of September 30, 2017 and December 31, 2016, included in Other assets on the Consolidated Balance Sheets:

(Millions)
  
2017
    
2016
  
Lending Trust
  
$
1,814
    
$
35
  
Charge Trust
    
2
      
3
  
Total
  
$
1,816
    
$
38
  

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.

The Company performs the servicing and key decision making for the Trusts, and therefore has the power to direct the activities that most significantly impact the Trusts’ economic performance, which are the collection of the underlying Card Member loans and receivables. In addition, the Company holds all of the variable interests in both Trusts, with the exception of the debt securities issued to third-party investors. As of September 30, 2017, the Company’s ownership of variable interests was $10.7 billion for the Lending Trust and $6.5 billion for the Charge Trust. These variable interests held by the Company 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, the Company is the primary beneficiary of both Trusts and therefore consolidates both Trusts.

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 nine months ended September 30, 2017 and the year ended December 31, 2016, no such triggering events occurred.
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
7.  Customer Deposits

As of September 30, 2017 and December 31, 2016, customer deposits were categorized as interest bearing or non-interest bearing as follows:

(Millions)
  
2017
    
2016
  
U.S.:
            
Interest bearing
  
$
60,573
    
$
52,316
  
Non-interest bearing (includes Card Member credit balances of: 2017, $300 million; 2016, $331 million)
    
337
      
367
  
Non-U.S.:
                
Interest bearing
    
32
      
58
  
Non-interest bearing (includes Card Member credit balances of: 2017, $334 million; 2016, $285 million)
    
348
      
301
  
Total customer deposits
  
$
61,290
    
$
53,042
  

Customer deposits by deposit type as of September 30, 2017 and December 31, 2016 were as follows:

(Millions)
  
2017
    
2016
  
U.S. retail deposits:
            
Savings accounts – Direct
  
$
30,780
    
$
30,980
  
Certificates of deposit:(a)
                
Direct
    
290
      
291
  
Third-party (brokered)
    
17,229
      
11,925
  
Sweep accounts – Third-party (brokered)
    
12,274
      
9,120
  
Other deposits:
                
U.S. non-interest bearing deposits
    
37
      
36
  
Non-U.S. deposits
    
46
      
74
  
Card Member credit balances ― U.S. and non-U.S.
    
634
      
616
  
Total customer deposits
  
$
61,290
    
$
53,042
  
(a)
The weighted average remaining maturity and weighted average interest rate at issuance on the total portfolio of U.S. retail certificates of deposit issued through direct and third-party programs were 44 months and 2.10 percent, respectively, as of September 30, 2017.
The scheduled maturities of certificates of deposit as of September 30, 2017 were as follows:
(Millions)
  
U.S.
    
Non-U.S.
    
Total
  
2017
  
$
1,450
    
$
3
    
$
1,453
  
2018
    
5,160
      
16
      
5,176
  
2019
    
4,252
      
―
      
4,252
  
2020
    
3,511
      
―
      
3,511
  
2021
    
1,234
      
―
      
1,234
  
After 5 years
    
1,912
      
―
      
1,912
  
Total
  
$
17,519
    
$
19
    
$
17,538
  

As of September 30, 2017 and December 31, 2016, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:

(Millions)
  
2017
    
2016
  
U.S.
  
$
113
    
$
117
  
Non-U.S.
    
8
      
7
  
Total
  
$
121
    
$
124
  

 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.  Contingencies

In the ordinary course of business, the Company and its subsidiaries are subject to various 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 II, Item 1. “Legal Proceedings” in this Quarterly Report on Form 10-Q and Part I, Item 3. “Legal Proceedings” in the Annual Report.


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 Company’s 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 protect