Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2015

or

  [  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from              to             

Commission file number 1-7657

AMERICAN EXPRESS COMPANY

(Exact name of registrant as specified in its charter)

 

New York

   

13-4922250

 

(State or other jurisdiction of

incorporation or organization)

    (I.R.S. Employer Identification No.)  

200 Vesey Street, New York, NY

   

10285

 
(Address of principal executive offices)     (Zip Code)  
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   X              No             

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   X              No             

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

  

Accelerated filer  ¨

Non-accelerated filer  ¨    (Do not check if a smaller reporting company)

  

Smaller reporting company  ¨                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                 No   X        

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

     

Outstanding at April 17, 2015

 
Common Shares (par value $0.20 per share)       1,015,795,685 shares  


Table of Contents

AMERICAN EXPRESS COMPANY

FORM 10-Q

INDEX

 

Part I.    Financial Information      Page No.   
  

Item 1.

  

Financial Statements

  
     

Consolidated Statements of Income – Three Months Ended March 31, 2015 and 2014

     1   
     

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2015 and 2014

     2   
     

Consolidated Balance Sheets – March 31, 2015 and December 31, 2014

     3   
     

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2015 and 2014

     4   
     

Notes to Consolidated Financial Statements

     5   
  

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     29   
  

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     67   
  

Item 4.

  

Controls and Procedures

     68   
Part II.    Other Information   
  

Item 1.

  

Legal Proceedings

     71   
  

Item 1A.

  

Risk Factors

     72   
  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     73   
  

Item 5.

  

Other Information

     74   
  

Item 6.

  

Exhibits

     74   
  

Signatures

     75   
  

Exhibit Index

     E-1   


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

                                             

 

Three Months Ended March 31 (Millions, except per share amounts)

       2015      

2014

Revenues

       

Non-interest revenues

       

Discount revenue

     $ 4,660       $             4,620

Net card fees

       667       674

Travel commissions and fees

       89       423

Other commissions and fees

       619       618

Other

       468       501
    

 

 

    

 

Total non-interest revenues

       6,503       6,836
    

 

 

    

 

Interest income

       

Interest on loans

       1,795       1,711

Interest and dividends on investment securities

       41       46

Deposits with banks and other

       21       19
    

 

 

    

 

Total interest income

       1,857       1,776
    

 

 

    

 

Interest expense

       

Deposits

       103       94

Long-term debt and other

       307       345
    

 

 

    

 

Total interest expense

       410       439
    

 

 

    

 

Net interest income

       1,447       1,337
    

 

 

    

 

Total revenues net of interest expense

       7,950       8,173
    

 

 

    

 

Provisions for losses

       

Charge card

       174       215

Card Member loans

       235       250

Other

       11       20
    

 

 

    

 

Total provisions for losses

       420       485
    

 

 

    

 

Total revenues net of interest expense after provisions for losses

       7,530       7,688
    

 

 

    

 

Expenses

       

Marketing and promotion

       609       587

Card Member rewards

       1,640       1,582

Card Member services and other

       261       222

Salaries and employee benefits

       1,305       1,540

Other, net

       1,399       1,549
    

 

 

    

 

Total expenses

       5,214       5,480
    

 

 

    

 

Pretax income

       2,316       2,208

Income tax provision

       791       776
    

 

 

    

 

Net income

     $ 1,525       $             1,432
    

 

 

    

 

Earnings per Common Share (Note 15):(a)

       

Basic

     $ 1.49       $               1.34

Diluted

     $ 1.48       $               1.33
    

 

 

    

 

Average common shares outstanding for earnings per common share:

       

Basic

       1,019       1,060

Diluted

       1,023       1,067

Cash dividends declared per common share

     $ 0.26       $               0.23

 

 

  (a)

Represents net income less earnings allocated to participating share awards of $11 million and $12 million for the three months ended March 31, 2015 and 2014, respectively.

See Notes to Consolidated Financial Statements.

 

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Table of Contents

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

                                             

 

Three Months Ended March 31 (Millions)

       2015      

2014

Net income

     $              1,525       $             1,432 

Other comprehensive (loss) income:

       

Net unrealized securities gains, net of tax of: 2015, nil; 2014, $23

             39 

Foreign currency translation adjustments, net of tax of: 2015, $88; 2014, $(23)

       (255    (34)

Net unrealized pension and other postretirement benefit gains, net of tax of: 2015, $19; 2014, $15

       23       27 
    

 

 

    

 

Other comprehensive (loss) income

       (232    32 
    

 

 

    

 

Comprehensive income

     $ 1,293       $             1,464 
    

 

 

    

 

 

See Notes to Consolidated Financial Statements.

 

2


Table of Contents

AMERICAN EXPRESS COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

                                             

 

(Millions, except share data)

      
 
March 31,
2015
  
  
  

December 31,

2014

Assets

       

Cash and cash equivalents

       

Cash and due from banks

     $ 2,286       $            2,628 

Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2015, $226; 2014, $204)

       20,933       19,190 

Short-term investment securities

       353       470 
    

 

 

    

 

Total cash and cash equivalents

       23,572       22,288 

Accounts receivable

       

Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2015, $6,067; 2014, $7,025), less reserves: 2015, $429; 2014, $465

       43,274       44,386 

Other receivables, less reserves: 2015, $56; 2014, $61

       2,354       2,614 

Loans

       

Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2015, $27,600; 2014, $30,115), less reserves: 2015, $1,130; 2014, $1,201

       65,705       69,184 

Other loans, less reserves: 2015, $13; 2014, $12

       951       920 

Investment securities

       4,417       4,431 

Premises and equipment, less accumulated depreciation and amortization: 2015, $6,369; 2014, $6,270

       3,940       3,938 

Other assets (includes restricted cash of consolidated variable interest entities: 2015, $54; 2014, $64)

       10,471       11,342 
    

 

 

    

 

Total assets

     $ 154,684       $        159,103 
    

 

 

    

 

Liabilities and Shareholders’ Equity

       

Liabilities

       

Customer deposits

     $ 44,928       $          44,171 

Travelers Cheques and other prepaid products

       3,364       3,673 

Accounts payable

       10,643       11,300 

Short-term borrowings

       2,361       3,480 

Long-term debt (includes debt issued by consolidated variable interest entities: 2015, $16,419; 2014, $19,516)

       54,712       57,955 

Other liabilities

       16,846       17,851 
    

 

 

    

 

Total liabilities

       132,854       138,430 
    

 

 

    

 

Contingencies (Note 8)

       

Shareholders’ Equity

       

Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of March 31, 2015 and 750 shares as of December 31, 2014

             — 

Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 1,016 million shares as of March 31, 2015 and 1,023 million shares as of December 31, 2014

       204       205 

Additional paid-in capital

       13,670       12,874 

Retained earnings

       10,107       9,513 

Accumulated other comprehensive loss

       

Net unrealized securities gains, net of tax: 2015, $51; 2014, $52

       96       96 

Foreign currency translation adjustments, net of tax: 2015, $(229); 2014, $(317)

       (1,754    (1,499)

Net unrealized pension and other postretirement benefit losses, net of tax: 2015, $(204); 2014, $(223)

       (493    (516)
    

 

 

    

 

Total accumulated other comprehensive loss

       (2,151    (1,919)
    

 

 

    

 

Total shareholders’ equity

       21,830       20,673 
    

 

 

    

 

Total liabilities and shareholders’ equity

     $ 154,684       $        159,103 
    

 

 

    

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

                                             

 

Three Months Ended March 31 (Millions)

       2015      

2014

Cash Flows from Operating Activities

       

Net income

     $ 1,525       $            1,432 

Adjustments to reconcile net income to net cash provided by operating activities:

       

Provisions for losses

       420       485 

Depreciation and amortization

       251       249 

Deferred taxes and other

       219       44 

Stock-based compensation

       71       88 

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:

       

Other receivables

       175       297 

Other assets

       957       478 

Accounts payable and other liabilities

       (1,230    607 

Travelers Cheques and other prepaid products

       (262    (395)
    

 

 

    

 

Net cash provided by operating activities

       2,126       3,285 
    

 

 

    

 

Cash Flows from Investing Activities

       

Sales of available-for-sale investment securities

             44 

Maturities and redemptions of available-for-sale investment securities

       439       354 

Purchase of investments

       (447    (71)

Net increase (decrease) in Card Member receivables/loans

       3,129       2,072 

Purchase of premises and equipment, net of sales: 2015, $17; 2014, $2

       (256    (226)

Business acquisitions, net of cash acquired

       (59    (6)

Net increase (decrease) in restricted cash

       15       (610)
    

 

 

    

 

Net cash provided by investing activities

       2,821       1,557 
    

 

 

    

 

Cash Flows from Financing Activities

       

Net increase in customer deposits

       784       918 

Net decrease in short-term borrowings

       (1,062    (2,245)

Issuance of long-term debt

             2,240 

Principal payments on long-term debt

       (3,100    (3,500)

Issuance of American Express preferred shares

       841       — 

Issuance of American Express common shares

       54       233 

Repurchase of American Express common shares

       (791    (961)

Dividends paid

       (268    (246)
    

 

 

    

 

Net cash used in financing activities

       (3,542    (3,561)
    

 

 

    

 

Effect of foreign currency exchange rates on cash and cash equivalents

       (121    (27)
    

 

 

    

 

Net increase in cash and cash equivalents

       1,284       1,254 

Cash and cash equivalents at beginning of period

       22,288       19,486 
    

 

 

    

 

Cash and cash equivalents at end of period

     $ 23,572       $          20,740 
    

 

 

    

 

 

See Notes to Consolidated Financial Statements

 

4


Table of Contents

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 (GBT JV). Prior to July 1, 2014, the business travel operations were wholly owned. The Company also focuses on generating alternative sources of revenue on a global basis in areas such as online and mobile payments and fee-based services. The 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, targeted direct and third-party sales forces and direct response advertising.

The accompanying Consolidated Financial Statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the Annual Report). If not materially different, certain footnote disclosures included in the Annual Report have been omitted from this Quarterly Report on Form 10-Q.

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

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.

Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Additionally, in the three months ended March 31, 2015, the Company changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. The misclassification in prior periods has been revised to conform to the current period presentation. None of the prior period financial statements were materially misstated from this misclassification.

Recently Issued Accounting Standards

Accounting Standards Update (ASU) No. 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Customers was issued on May 28, 2014. The guidance establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows. The guidance supersedes most of the current revenue recognition requirements, and as currently written will be effective January 1, 2017; however, the Financial Accounting Standards Board plans to publish an exposure draft proposing to extend the effective date to January 1, 2018. The Company continues to evaluate the impact this guidance, including the method of implementation, will have on its financial position, results of operations and cash flows, among other items.

 

5


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

ASU No. 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects was issued on January 15, 2014. Provided certain conditions are met, this standard permits entities to account for investments in Qualified Affordable Housing projects using the proportional amortization method. The standard also requires new disclosures about all investments in Qualified Affordable Housing projects irrespective of the method used to account for the investments. The Company has adopted this guidance in the first quarter of 2015 and has elected not to use the proportional amortization method, but continues to account for these investments using the equity method of accounting, which has been the Company’s historical practice.

During the three months ended March 31, 2015 and 2014, the Company recognized equity method losses related to Qualified Affordable Housing of $9 million and $8 million, respectively, which was recognized in Other, net expense, and associated tax credits of $12 million and $9 million, respectively, which was recognized within Income tax provision. The carrying value of these investments was $512 million and $522 million as of March 31, 2015 and December 31, 2014, respectively. In addition, the Company is contractually committed to provide additional funding related to certain of these investments resulting in a liability of $130 million for unfunded commitments, as of March 31, 2015, which is expected to be paid between 2015 and 2023.

 

2. Divestitures

On June 30, 2014, the Company completed a transaction to establish a non-consolidated joint venture comprising the former Global Business Travel (GBT) operations of the Company and an external cash investment. As a result of this transaction, the Company deconsolidated the GBT net assets, effective June 30, 2014, and began accounting for the GBT JV as an equity method investment reported in Other assets within the Consolidated Balance Sheet. Prior to the deconsolidation, the carrying amount of GBT’s assets and liabilities were not material to the Company’s financial position and its operations were reported within the Global Commercial Services (GCS) segment.

 

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Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3. Accounts Receivable and Loans

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

Accounts receivable by segment as of March 31, 2015 and December 31, 2014 consisted of:

 

                                             

 

(Millions)

       2015      

2014

U.S. Card Services(a)

     $ 21,501       $           22,468

International Card Services

       6,381       7,653

Global Commercial Services(b)

       15,697       14,583

Global Network & Merchant Services(c)

       124       147
    

 

 

    

 

Card Member receivables(d)

       43,703       44,851

Less: Reserve for losses

       429       465
    

 

 

    

 

Card Member receivables, net

     $ 43,274       $           44,386
    

 

 

    

 

Other receivables, net(e)

     $ 2,354       $             2,614
    

 

 

    

 

 

 

  (a)

Includes $6.1 billion and $7.0 billion of gross Card Member receivables available to settle obligations of a consolidated variable interest entity (VIE) as of March 31, 2015 and December 31, 2014, respectively.

 

  (b)

Includes $638 million and $636 million due from airlines, of which Delta Air Lines comprises $577 million and $606 million as of March 31, 2015 and December 31, 2014, respectively.

 

  (c)

Includes receivables primarily related to the Company’s International Currency Card portfolios.

 

  (d)

Includes approximately $12.0 billion and $13.3 billion of Card Member receivables outside the U.S. as of March 31, 2015 and December 31, 2014, respectively.

 

  (e)

Other receivables primarily represent amounts related to (i) certain merchants for billed discount revenue and (ii) Global Network Services (GNS) partner banks for items such as royalty and franchise fees. Other receivables are presented net of reserves for losses of $56 million and $61 million as of March 31, 2015 and December 31, 2014, respectively.

Loans by segment as of March 31, 2015 and December 31, 2014 consisted of:

 

                                             

 

(Millions)

       2015      

2014

U.S. Card Services(a)

     $ 59,929       $           62,592

International Card Services

       6,848       7,744

Global Commercial Services

       58       49
    

 

 

    

 

Card Member loans

       66,835       70,385

Less: Reserve for losses

       1,130       1,201
    

 

 

    

 

Card Member loans, net

     $ 65,705       $           69,184
    

 

 

    

 

Other loans, net(b)

     $ 951       $                920
    

 

 

    

 

 

 

  (a)

Includes approximately $27.6 billion and $30.1 billion of gross Card Member loans available to settle obligations of a consolidated VIE as of March 31, 2015 and December 31, 2014, respectively.

 

  (b)

Other loans primarily represent loans to merchants and a store card loan portfolio. Other loans are presented net of reserves for losses of $13 million and $12 million as of March 31, 2015 and December 31, 2014, respectively.

 

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Table of Contents

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 March 31, 2015 and December 31, 2014:

 

                                                                               

 

2015 (Millions)

       Current       
 
 
 
30-59
Days
Past
Due
  
  
  
  
   
 
 
 
60-89
Days
Past
Due
  
  
  
  
   
 
 
 
90+
Days
Past
Due
  
  
  
  
 

Total

Card Member Loans:

            

U.S. Card Services

     $ 59,356      $ 171      $ 126      $ 276      $    59,929

International Card Services

       6,728        40        26        54      6,848

Card Member Receivables:

            

U.S. Card Services

     $ 21,144      $ 124      $ 87      $ 146      $    21,501

International Card Services

       6,282        30        22        47      6,381

Global Commercial Services(a)

       (b     (b     (b     110      15,697

 

2014 (Millions)

       Current       
 
 
 
30-59
Days
Past
Due
  
  
  
  
   
 
 
 
60-89
Days
Past
Due
  
  
  
  
   
 
 
 
90+
Days
Past
Due
  
  
  
  
 

Total

Card Member Loans:

            

U.S. Card Services

     $ 61,995      $ 179      $ 128      $ 290      $    62,592

International Card Services

       7,621        39        27        57      7,744

Card Member Receivables:

            

U.S. Card Services

     $ 22,096      $ 129      $ 72      $ 171      $    22,468

International Card Services

       7,557        29        20        47      7,653

Global Commercial Services(a)

       (b     (b     (b     120      14,583

 

 

  (a)

For Card Member receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card 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 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.

 

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Table of Contents

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 three months ended March 31:

 

                                                                                                                                               

 

       2015        2014
       Net Write-Off Rate     

 
 
 
 

30+ Days
Past Due
as a % of
Total

  
  
  
  

    Net Write-Off Rate     

30+ Days

Past Due

as a % of

Total

 

      
 
Principal
Only
(a)
  
  
   
 
 
Principal,
Interest, &
Fees
(a)
  
  
  
     
 
Principal
Only
(a)
  
  
   
 
 
Principal,
Interest, &
Fees
(a)
  
  
  
 

Card Member Loans:

              

U.S. Card Services

       1.5%        1.7%        1.0%        1.7%        1.9%      1.1%

International Card Services

       2.0%        2.5%        1.8%        2.2%        2.7%      1.7%

Card Member Receivables:

              

U.S. Card Services

       2.2%        2.4%        1.7%        1.8%        2.0%      1.8%

International Card Services

       1.9%        2.0%        1.6%        1.9%        2.0%      1.4%

 

                                                                                               
       2015        2014

 

      
 
 
 
 
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 Commercial Services

       0.10%        0.7%        0.09%      0.7%

 

 

  (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 three months ended March 31, 2015, reflects 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.

Impaired Card Member Loans and Receivables

Impaired loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. In certain cases these Card Member loans and receivables are included in one of the Company’s various modification programs. Beginning January 1, 2015, on a prospective basis the Company will continue to classify Card Member accounts that have exited a modification program as a Troubled Debt Restructuring (TDR), with such accounts identified as “Out of Program TDRs.”

 

9


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides additional information with respect to the Company’s impaired Card Member loans (which are not significant for GCS) and impaired Card Member receivables (which are not significant for International Card Services (ICS) and GCS) as of March 31, 2015 and December 31, 2014:

 

                                                                                                                                    

 

       As of March 31, 2015
          

 

Accounts Classified

as a TDR(c)(d)

  

  

     

2015 (Millions)

      

 
 
 

Over 90 days

Past Due
& Accruing
Interest
(a)

  

  
  
  

   
 
Non-
Accruals
(b)
  
  
    In Program       
 
Out of
Program
  
  
   
 
 
Total
Impaired
Balance
  
  
  
   
 
 
Unpaid
Principal
Balance
  
  
  
 

Allowance

for TDRs

Card Member Loans:

                

U.S. Card Services

     $ 171      $ 220      $ 261      $ 44      $ 696      $ 650      $            65

International Card Services

       54                             54        54     

Card Member Receivables:

                

U.S. Card Services

                     27        1        28        26      17
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total

     $ 225      $ 220      $ 288      $ 45      $ 778      $ 730      $            82
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

                                                                                                                 
       As of December 31, 2014

2014 (Millions)

      
 

 
 

Over 90 days
Past Due

& Accruing
Interest
(a)

  
  

  
  

   
 
Non-
Accruals
(b)
  
  
   
 
In Program
TDRs
(c)
  
  
   
 
 
Total
Impaired
Balance
  
  
  
   
 
 
Unpaid
Principal
Balance
  
  
  
 

Allowance

for TDRs

Card Member Loans:

              

U.S. Card Services

     $ 161      $ 241      $ 286      $ 688      $ 646      $            67

International Card Services

       57                      57        56     

Card Member Receivables:

              

U.S. Card Services

                     48        48        48      35
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total

     $ 218      $ 241      $ 334      $ 793      $ 750      $          102
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  (a)

The Company’s policy is generally to accrue interest through the date of write-off (i.e., 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts presented exclude loans classified as a TDR.

 

  (b)

Non-accrual loans not in modification programs include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest.

 

  (c)

Accounts classified as a TDR includes $31 million and $34 million that are non-accrual and $18 million and $26 million that are past due 90 days and still accruing interest as of March 31, 2015 and December 31, 2014, respectively.

 

  (d)

In Program TDRs include Card Member accounts that are currently enrolled within a modification program. Out of Program TDRs include $34 million of Card Member accounts that have successfully completed a modification program and $11 million of Card Member accounts that were not in compliance with the terms of the modification programs.

The following table provides information with respect to the Company’s average balances of, and interest income recognized from, impaired Card Member loans (which is not significant for GCS) and average balance of impaired Card Member receivables (which is not significant for ICS and GCS) for the three months ended March 31:

 

                                                                                           

 

       2015        2014

(Millions)

      
 
 
 
Average
Balance of
Impaired
Loans
  
  
  
  
   
 
 
Interest
Income
Recognized
  
  
  
   
 
 
 
Average
Balance of
Impaired
Loans
  
  
  
  
 

Interest

Income

Recognized

Card Member Loans:

          

U.S. Card Services

     $ 692      $ 13      $ 793      $                 16

International Card Services

       56        4        63      4

Card Member Receivables:

          

U.S. Card Services

       38               50     
    

 

 

   

 

 

   

 

 

   

 

Total

     $ 786      $ 17      $ 906      $                 20
    

 

 

   

 

 

   

 

 

   

 

 

 

10


Table of Contents

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. Card Services (USCS) Card Member loans and receivables modified as TDRs for the three months ended March 31, 2015 and 2014. The ICS and GCS Card Member loans and receivables modifications were not significant.

 

                                                                                                                                   

 

      

 

Three Months Ended

March 31, 2015

 

      
 
 
Number of
Accounts
(in thousands)
  
  
  
   
 
 
Outstanding
Balances
(a)(b)
($ in millions)
  
  
  
   
 
 
Average Interest
Rate Reduction
(% points)
  
  
  
 

Average Payment

Term Extensions

(# of months)

Troubled Debt Restructurings:

          

Card Member Loans

       11      $ 80        12      (c)

Card Member Receivables

       3        40        (d)      12 
    

 

 

   

 

 

     

Total

       14      $ 120       
    

 

 

   

 

 

     

 

      

 

Three Months Ended

March 31, 2014

 

      
 
 
Number of
Accounts
(in thousands)
  
  
  
   
 
 
Outstanding
Balances
(a)(b)
($ in millions)
  
  
  
   
 
 
Average Interest
Rate Reduction
(% points)
  
  
  
 

Average Payment

Term Extensions

(# of months)

Troubled Debt Restructurings:

          

Card Member Loans

       12      $ 96        14      (c)

Card Member Receivables

       4        47        (d)      12 
    

 

 

   

 

 

     

Total

       16      $ 143       
    

 

 

   

 

 

     

 

 

  (a)

Represents the outstanding balance immediately prior to modification. Modifications did not reduce the aggregate principal balance.

 

  (b)

The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables.

 

  (c)

For Card Member loans, there have been no payment term extensions.

 

  (d)

The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.

The following table provides information for the three months ended March 31, 2015 and 2014, with respect to the USCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A Card Member is considered in default of a modification program after one and up to two consecutive missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables. The defaulted ICS Card Member loan and receivable modifications were not significant.

 

                                                                                   

 

       2015        2014

(Accounts in thousands, Dollars in millions)

      
 
Number of
Accounts
  
  
   
 
 
 
Aggregated
Outstanding
Balances
Upon Default
(a)
  
  
  
  
   
 
Number of
Accounts
  
  
 

Aggregated

Outstanding

Balances

Upon Default(a)

Troubled Debt Restructurings That Subsequently Defaulted:

          

Card Member Loans

       2      $ 10        2      $                  20

Card Member Receivables

       1        1        1      7
    

 

 

   

 

 

   

 

 

   

 

Total

       3      $ 11        3      $                  27
    

 

 

   

 

 

   

 

 

   

 

 

 

  (a)

The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables.

 

11


Table of Contents

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 Receivables Reserve for Losses

The following table presents changes in the Card Member receivables reserve for losses for the three months ended March 31:

 

                                             

 

(Millions)

       2015      

2014

Balance, January 1

     $ 465       $               386 

Provisions(a)

       174       215 

Net write-offs(b)

       (199    (170)

Other(c)

       (11    (17)
    

 

 

    

 

Balance, March 31

     $ 429       $               414 
    

 

 

    

 

 

 

  (a)

Provisions for principal and fee reserve components.

 

  (b)

Consists of principal and fee components, less recoveries of $99 million and $92 million, including net write-offs from TDRs of $31 million and $2 million, for the three months ended March 31, 2015 and 2014, respectively.

 

  (c)

Beginning in the first quarter 2014, reserves for card-related fraud losses of $(7) million are included in Other liabilities. Also includes foreign currency translation adjustments of $(7) million and nil for the three months ended March 31, 2015 and 2014, respectively, and other items of $(4) million and $(10) million for the three months ended March 31, 2015 and 2014, 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 March 31, 2015 and December 31, 2014:

 

                                             

 

(Millions)

       2015      

2014

Card Member receivables evaluated individually for impairment(a)

     $ 28       $                  48

Related reserves(a)

     $ 17       $                  35

 

Card Member receivables evaluated collectively for impairment

     $ 43,675       $           44,803

Related reserves(b)

     $ 412       $                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.

 

12


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Changes in Card Member Loans Reserve for Losses

The following table presents changes in the Card Member loans reserve for losses for the three months ended March 31:

 

                                             

 

(Millions)

       2015      

2014

Balance, January 1

     $ 1,201       $            1,261 

Provisions(a)

       235       250 

Net write-offs

       

Principal(b)

       (259    (280)

Interest and fees(b)

       (43    (42)

Other(c)

       (4   
    

 

 

    

 

Balance, March 31

     $ 1,130       $            1,191 
    

 

 

    

 

 

 

  (a)

Provisions for principal, interest and fee reserve components.

 

  (b)

Consists of principal write-offs, less recoveries of $103 million and $107 million, including net write-offs/(recoveries) from TDRs of $16 million and $(2) million, for the three months ended March 31, 2015 and 2014, respectively. Recoveries of interest and fees were de minimis.

 

  (c)

Beginning in the first quarter 2014, reserves for card related fraud losses of $(6) million are included in Other liabilities. Also includes foreign currency translation adjustments of $(7) million and $(1) million for the three months ended March 31, 2015 and 2014, respectively, and other items of $3 million and $9 million for the three months ended March 31, 2015 and 2014, respectively.

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 March 31, 2015 and December 31, 2014:

 

                                             

 

(Millions)

       2015      

2014

Card Member loans evaluated individually for impairment(a)

     $ 305       $               286

Related reserves(a)

     $ 65       $                 67

 

Card Member loans evaluated collectively for impairment(b)

     $ 66,530       $          70,099

Related reserves(b)

     $ 1,065       $            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.

 

13


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 (losses) recorded in Accumulated Other Comprehensive Income (AOCI), net of income taxes. Realized gains and losses are recognized on a trade-date basis in results of operations upon disposition of the securities using the specific identification method.

The following is a summary of investment securities as of March 31, 2015 and December 31, 2014:

 

                                                                                                                               

 

       2015        2014

Description of Securities (Millions)

       Cost       
 
 
Gross
Unrealized
Gains
  
  
  
   
 
 
Gross
Unrealized
Losses
  
  
  
   
 
Estimated
Fair Value
  
  
    Cost       
 
 
Gross
Unrealized
Gains
  
  
  
   
 
 
Gross
Unrealized
Losses
  
  
  
 

Estimated

Fair Value

State and municipal obligations

     $ 3,196     $ 126      $ (1   $ 3,321      $ 3,366      $ 129      $ (2   $      3,493

U.S. Government agency obligations

       2                     2        3                    3

U.S. Government treasury obligations

       346       6               352        346        4             350

Corporate debt securities

       35       2               37        37        3             40

Mortgage-backed securities(a)

       120       6               126        128        8             136

Equity securities

             1               1               1             1

Foreign government bonds and obligations

       518       11               529        350        9             359

Other(b)

       50              (1     49        50               (1   49
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total

     $ 4,267     $ 152      $ (2   $ 4,417      $ 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 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 March 31, 2015 and December 31, 2014:

 

                                                                                                                               

 

       2015        2014
       Less than 12 months        12 months or more        Less than 12 months        12 months or more

Description of Securities (Millions)

      
 
Estimated
Fair Value
  
  
   
 
 
Gross
Unrealized
Losses
  
  
  
   
 
Estimated
Fair Value
  
  
   
 
 
Gross
Unrealized
Losses
  
  
  
   
 
Estimated
Fair Value
  
  
   
 
 
Gross
Unrealized
Losses
  
  
  
   
 
Estimated
Fair Value
  
  
 

Gross

Unrealized

Losses

State and municipal obligations

     $      $      $ 40      $ (1   $      $      $ 72      $           (2)

Other

                     33        (1                   33      (1)
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total

     $      $      $ 73      $ (2   $      $      $ 105      $           (3)
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of March 31, 2015 and December 31, 2014:

 

                                                                                                                                               

 

       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

2015:

                    

90%–100%

            $      $        11      $ 73      $ (2     11      $ 73      $           (2)
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total as of March 31, 2015

            $      $        11      $ 73      $ (2     11      $ 73      $           (2)
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

2014:

                    

90%–100%

            $      $        15      $ 105      $ (3     15      $ 105      $           (3)
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total as of December 31, 2014

            $      $        15      $ 105      $ (3     15      $ 105      $           (3)
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

14


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The gross unrealized losses are attributed to overall wider credit spreads for state and municipal securities, wider credit spreads for specific issuers, adverse changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired.

Overall, for the investment securities in gross unrealized loss positions (i) the Company does not intend to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.

Supplemental Information

Gross realized gains on the sales of investment securities, included in Other revenues, were nil and $39 million for the three months ended March 31, 2015 and 2014, respectively. There were no realized losses for the three months ended March 31, 2015 or 2014.

Contractual maturities of investment securities with stated maturities as of March 31, 2015 were as follows:

 

                                             

 

(Millions)

       Cost    

Estimated Fair Value

Due within 1 year

     $ 736      $                737

Due after 1 year but within 5 years

       331      338

Due after 5 years but within 10 years

       239      255

Due after 10 years

       2,911      3,037
    

 

 

   

 

Total

     $ 4,217      $             4,367
    

 

 

   

 

 

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.

 

15


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6. Asset Securitizations

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

The following table provides information on the restricted cash held by the American Express Issuance Trust II (the Charge Trust) and the American Express Credit Account Master Trust (the Lending Trust) as of March 31, 2015 and December 31, 2014, included in Other assets on the Company’s Consolidated Balance Sheets:

 

                                             

 

(Millions)

       2015      

2014

Charge Trust

     $ 1       $                   2

Lending Trust

       53       62
    

 

 

    

 

Total

     $ 54       $                 64
    

 

 

    

 

 

These amounts relate to collections of Card Member receivables and loans to be used by the trusts to fund future expenses and obligations, including interest paid on investor securities, credit losses and upcoming debt maturities.

American Express Travel Related Services Company, Inc. (TRS), which is a consolidated subsidiary of the Company, is the primary beneficiary of both the trusts. Excluding its consolidated subsidiaries, TRS owns approximately $1.2 billion of subordinated securities issued by the Lending Trust as of March 31, 2015 and December 31, 2014.

Under the respective terms of the Charge Trust and the Lending Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each trust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of investor securities. During the three months ended March 31, 2015 and the year ended December 31, 2014, no such triggering events occurred.

 

16


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7. Customer Deposits

As of March 31, 2015 and December 31, 2014, customer deposits were categorized as interest bearing or non-interest bearing, as follows:

 

                                             

 

(Millions)

       2015      

2014

U.S.:

       

Interest bearing

     $ 44,142       $           43,279

Non-interest bearing (includes Card Member credit balances of: 2015, $317 million; 2014, $372 million)

       356       418

Non-U.S.:

       

Interest bearing

       113       115

Non-interest bearing (includes Card Member credit balances of: 2015, $306 million; 2014, $347 million)

       317       359
    

 

 

    

 

Total customer deposits

     $ 44,928       $           44,171
    

 

 

    

 

 

Customer deposits by deposit type as of March 31, 2015 and December 31, 2014 were as follows:

 

                                             

 

(Millions)

       2015      

2014

U.S. retail deposits:

       

Savings accounts – Direct

     $ 27,508       $           26,159

Certificates of deposit:

       

Direct

       317       333

Third-party

       7,384       7,838

Sweep accounts – Third-party

       8,933       8,949

Other retail deposits:

       

Non-U.S. deposits and U.S. non-interest bearing deposits

       163       173

Card Member credit balances — U.S. and non-U.S.

       623       719
    

 

 

    

 

Total customer deposits

     $ 44,928       $           44,171
    

 

 

    

 

 

The scheduled maturities of certificates of deposit as of March 31, 2015 were as follows:

 

                                                                    

 

(Millions)

       U.S.        Non-U.S.     

Total

2015

     $ 1,115      $ 21      $             1,136

2016

       2,159        1      2,160

2017

       1,493             1,493

2018

       1,535             1,535

2019

       1,327             1,327

After 5 years

       72             72
    

 

 

   

 

 

   

 

Total

     $ 7,701      $ 22      $             7,723
    

 

 

   

 

 

   

 

 

As of March 31, 2015 and December 31, 2014, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:

 

                                             

 

(Millions)

       2015     

2014

U.S.

     $ 109      $                111

Non-U.S.

       17      17
    

 

 

   

 

Total

     $ 126      $                128
    

 

 

   

 

 

 

17


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8. Contingencies

The Company is involved in a number of legal proceedings concerning matters arising out of the conduct of its business activities and is periodically subject to governmental and regulatory examinations, information gathering requests, subpoenas, inquiries and investigations (collectively, governmental examinations). As of March 31, 2015, the Company and various of its subsidiaries were named as a defendant or were otherwise involved in numerous legal proceedings and governmental examinations in various jurisdictions, both in and outside the U.S. The Company discloses its material legal proceedings and governmental examinations 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 (collectively, Legal Proceedings).

The Company has recorded liabilities for certain of its outstanding legal proceedings and governmental examinations. A liability is accrued 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 accrued liability. The Company evaluates, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause an increase or decrease in the amount of the liability that has been previously accrued or a revision to the disclosed estimated range of possible losses, as applicable.

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, as well as governmental examinations, involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff, 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 a range of possible loss.

Other matters have progressed sufficiently through discovery and/or development of important factual information and legal issues so that the Company is able to estimate a range of possible loss. Accordingly, for those legal proceedings and governmental examinations disclosed or referred to in Legal Proceedings where a loss is reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $360 million in excess of any accrued liability related to these matters. This aggregate range represents management’s estimate of possible loss with respect to these matters and is based on currently available information. This estimated range of possible loss does not represent the Company’s maximum loss exposure. The legal proceedings and governmental examinations underlying the estimated range will change from time to time and actual results may vary significantly from current estimates.

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 pending legal proceeding or governmental examination that would have a material adverse effect on the Company’s consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s earnings for that period.

 

18


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9. Derivatives and Hedging Activities

The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rate, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Company’s market risk management. The Company does not engage in derivatives for trading purposes.

In relation to the Company’s credit risk, under the terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on the assessment of credit risk of the Company’s derivative counterparties as of March 31, 2015 and December 31, 2014, the Company does not have derivative positions that warrant credit valuation adjustments.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of March 31, 2015 and December 31, 2014:

 

                                                                   

 

      
 
Other Assets
Fair Value
  
  
   

 

Other Liabilities

Fair Value

(Millions)

       2015        2014        2015     

2014

Derivatives designated as hedging instruments:

          

Interest rate contracts

          

Fair value hedges

     $ 372      $ 314      $      $             4 

Foreign exchange contracts

          

Net investment hedges

       408        492        115      46 
    

 

 

   

 

 

   

 

 

   

 

Total derivatives designated as hedging instruments

       780        806        115      50 

Derivatives not designated as hedging instruments:

          

Foreign exchange contracts, including certain embedded derivatives(a)

       152        185        148      114 
    

 

 

   

 

 

   

 

 

   

 

Total derivatives, gross

       932        991        263      164 

Less: Cash collateral netting(b)

       (233     (158          (4)

Derivative asset and derivative liability netting(c)

       (173     (122     (173   (122)
    

 

 

   

 

 

   

 

 

   

 

Total derivatives, net(d)

     $ 526      $ 711      $ 90      $           38 
    

 

 

   

 

 

   

 

 

   

 

 

 

  (a)

Includes foreign currency derivatives embedded in certain operating agreements.

 

  (b)

Represents the offsetting of derivative instruments and the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) executed with the same counterparty under an enforceable master netting arrangement. Additionally, 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 $43 million and $91 million as of March 31, 2015 and December 31, 2014, respectively, none of which was sold or repledged. Such non-cash collateral economically reduced the Company’s risk exposure to $483 million and $620 million as of March 31, 2015 and December 31, 2014, respectively, but did not reduce the net exposure on the Company’s Consolidated Balance Sheets. Additionally, the Company posted $111 million and $114 million as of March 31, 2015 and December 31, 2014, respectively, as initial margin on its centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Company’s Consolidated Balance Sheets and are not netted against the derivative balances.

 

  (c)

Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.

 

  (d)

The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and derivative liabilities are presented within Other assets and Other liabilities on the Company’s Consolidated Balance Sheets.

A majority of the Company’s derivative assets and liabilities as of March 31, 2015 and December 31, 2014 are subject to master netting agreements with its derivative counterparties. In addition, the Company has no derivative amounts subject to enforceable master netting arrangements that are not offset on the Company’s Consolidated Balance Sheets.

 

19


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Fair Value Hedges

Interest Rate Contracts

The Company is exposed to interest rate risk associated with its fixed-rate long-term debt. The Company uses interest rate swaps to economically convert certain fixed-rate debt obligations to floating-rate obligations at the time of issuance. As of both March 31, 2015 and December 31, 2014, the Company hedged $17.6 billion of its fixed-rate debt to floating-rate debt using interest rate swaps.

Total Return Contract

The Company hedged its exposure to changes in the fair value of its equity investment in Industrial and Commercial Bank of China (ICBC) in local currency. The Company used a total return contract (TRC) to transfer its exposure to its derivative counterparty. On July 18, 2014, the Company sold its remaining shares in ICBC and terminated the TRC.

The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s fair value hedges for the three months ended March 31:

 

                                                                                               

 

For the Three Months Ended March 31: (Millions)

  

Gains (losses) recognized in income

  

Derivative contract

  

 

Hedged item

  

   

 

Net hedge

ineffectiveness

Derivative relationship

  

Income Statement Line Item

     Amount     

Income Statement Line Item

       Amount     
        2015        2014             2015        2014        2015     

2014

Interest rate contracts

  

Other expenses

   $ 63      $ (51  

Other expenses

     $ (57   $ 51      $ 6      $        —

Total return contract

  

Other non-interest revenues

            13     

Other non-interest revenues

              (13         

 

The Company also recognized a net reduction in interest expense on long-term debt of $70 million and $69 million for the three months ended March 31, 2015 and 2014, respectively, primarily related to the net settlements (interest accruals) on the Company’s interest rate derivatives designated as fair value hedges.

Net Investment Hedges

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 was $195 million and $(17) million for the three months ended March 31, 2015 and 2014, respectively, with any ineffective portion recognized in Other expenses during the period of change. During the three months ended March 31, 2015 and 2014, the Company reclassified nil and $17 million, respectively, from AOCI to earnings as a component of Other expenses; no ineffectiveness was recognized in either of these two periods.

The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s derivatives not designated as hedges for the three months ended March 31:

 

                                                                    

 

    

Pretax gains (losses)

            Amount

Description (Millions)

    

Income Statement Line Item

       2015     

2014

Foreign exchange contracts(a)

     Other expenses        (45                     134
         

 

 

   

 

Total

          $ (45   $                  134
         

 

 

   

 

                       

 

  (a)

Foreign exchange contracts include forwards and embedded foreign currency derivatives. Gains (losses) on these embedded derivatives are included in Other expenses.

 

20


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10. Fair Values

Financial Assets and Financial Liabilities Carried at Fair Value

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s valuation hierarchy, as of March 31, 2015 and December 31, 2014:

 

                                                                                                                               

 

       2015        2014

(Millions)

       Total        Level 1        Level 2        Level 3        Total        Level 1        Level 2     

Level 3

Assets:

                  

Investment securities:(a)

                  

Equity securities

     $ 1      $ 1      $      $      $ 1      $ 1      $      $           —

Debt securities and other

       4,416        352        4,064               4,430        350        4,080     

Derivatives(a)

       932               932               991               991     
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total assets

       5,349        353        4,996               5,422        351        5,071     
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Liabilities:

                  

Derivatives(a)

       263               263               164               164     
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total liabilities

     $ 263      $      $ 263      $      $ 164      $      $ 164      $           —
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  (a)

Refer to Note 5 for the fair values of investment securities and to Note 9 for the fair values of derivative assets and liabilities, on a further disaggregated basis.

 

21


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes the estimated fair values of the Company’s financial assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of March 31, 2015 and December 31, 2014. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of March 31, 2015 and December 31, 2014, and require management judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be reliably estimated by aggregating the amounts presented.

 

                                                                               

 

      

 

Carrying

Value

  

  

    Corresponding Fair Value Amount

2015 (Billions)

         Total        Level 1        Level 2     

Level 3

Financial Assets:

            

Financial assets for which carrying values equal or approximate fair value

            

Cash and cash equivalents

     $ 24         $ 24      $ 23         $ 1 (a)    $           —

Other financial assets(b)

       46        46               46                 —

Financial assets carried at other than fair value

            

Loans, net

       67        67 (c)                             67

Financial Liabilities:

            

Financial liabilities for which carrying values equal or approximate fair value

       59        59               59                 —

Financial liabilities carried at other than fair value

            

Certificates of deposit(d)

       8        8               8                 —

Long-term debt

     $ 55      $ 57 (c)    $      $ 57      $           —

 

 

                                                                               

 

      

 

Carrying

Value

  

  

    Corresponding Fair Value Amount

2014 (Billions)

         Total        Level 1        Level 2     

Level 3

Financial Assets:

            

Financial assets for which carrying values equal or approximate fair value

            

Cash and cash equivalents

     $ 22         $ 22      $ 21         $ 1 (a)    $           —

Other financial assets(b)

       48        48               48                 —

Financial assets carried at other than fair value

            

Loans, net

       70        71 (c)                             71

Financial Liabilities:

            

Financial liabilities for which carrying values equal or approximate fair value

       61        61               61                 —

Financial liabilities carried at other than fair value

            

Certificates of deposit(d)

       8        8               8                 —

Long-term debt

     $ 58      $ 60 (c)    $      $ 60      $           —

 

 

  (a)

Reflects time deposits.

 

  (b)

Includes accounts receivable (including fair values of Card Member receivables of $6.0 billion and $7.0 billion held by consolidated VIEs as of March 31, 2015 and December 31, 2014, respectively), restricted cash and other miscellaneous assets.

 

  (c)

Includes fair values of loans of $27.5 billion and $29.9 billion, and long-term debt of $16.5 billion and $19.5 billion, held by consolidated VIEs as of March 31, 2015 and December 31, 2014, respectively.

 

  (d)

Presented as a component of customer deposits on the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements

The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the three months ended March 31, 2015 and during the year ended December 31, 2014, the Company did not have any material assets that were measured at fair value due to impairment.

 

22


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

11. Guarantees

The Company provides Card Member protection plans that cover losses associated with purchased products, as well as certain other guarantees and indemnifications in the ordinary course of business.

In relation to its maximum potential undiscounted future payments as shown in the table that follows, to date the Company has not experienced any significant losses related to guarantees or indemnifications. The Company’s 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 March 31, 2015 and December 31, 2014:

 

                                                                                           

 

      
 
 
 
Maximum potential
undiscounted future
payments
(a)
(Billions)
  
  
  
  
   
 
Related liability(b)
(Millions)

Type of Guarantee

       2015        2014        2015    

2014

Return and Merchant Protection

     $ 38      $ 37      $ 45     $                  44

Other(c)

       8        8        57     67
    

 

 

   

 

 

   

 

 

   

 

Total

     $ 46      $ 45      $ 102     $                111
    

 

 

   

 

 

   

 

 

   

 

 

 

  (a)

Represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed parties. The maximum potential undiscounted future payments for Merchant Protection are measured using management’s best estimate of maximum exposure based on all eligible claims in relation to annual billed business volumes.

 

  (b)

Included in Other liabilities on the Company’s Consolidated Balance Sheets.

 

  (c)

Primarily includes guarantees related to the Company’s purchase protection, business dispositions, and real estate.

 

23


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

12. Changes In Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component for the three months ended March 31, 2015 and 2014 were as follows:

 

                                                                                           

 

2015 (Millions), net of tax

      
 
 
 
Net Unrealized
Gains (Losses)
on Investment
Securities
  
  
  
  
   
 
 
Foreign Currency
Translation
Adjustments
  
  
  
   
 
 
 
Net Unrealized
Pension and Other
Postretirement
Gains (Losses)
  
  
  
  
 

Accumulated Other

Comprehensive

Loss

Balances as of December 31, 2014

     $ 96      $ (1,499   $ (516   $                  (1,919)
    

 

 

   

 

 

   

 

 

   

 

Net translation loss of investments in foreign operations

         (450     (450)

Net gains related to hedges of investments in foreign operations

         195        195 

Pension and other postretirement benefit gains

           23      23 
    

 

 

   

 

 

   

 

 

   

 

Net change in accumulated other comprehensive (loss) income

              (255     23      (232)
    

 

 

   

 

 

   

 

 

   

 

Balances as of March 31, 2015

     $ 96      $ (1,754   $ (493   $                  (2,151)
    

 

 

   

 

 

   

 

 

   

 

 

2014 (Millions), net of tax

      
 
 
 
Net Unrealized
Gains (Losses)
on Investment
Securities
  
  
  
  
   
 
 
Foreign Currency
Translation
Adjustments
  
  
  
   
 
 
 
Net Unrealized
Pension and Other
Postretirement
Gains (Losses)
  
  
  
  
 

Accumulated Other

Comprehensive

Loss

Balances as of December 31, 2013

     $     63      $ (1,090   $ (399   $                  (1,426)
    

 

 

   

 

 

   

 

 

   

 

Net unrealized gains

       68          68 

(Decrease) increase due to amounts reclassified into earnings

       (29     1        (28)

Net translation loss of investments in foreign operations

         (18     (18)

Net losses related to hedges of investments in foreign operations

         (17     (17)

Pension and other postretirement benefit gains

           27      27 
    

 

 

   

 

 

   

 

 

   

 

Net change in accumulated other comprehensive income (loss)

       39        (34     27      32 
    

 

 

   

 

 

   

 

 

   

 

Balances as of March 31, 2014

     $ 102      $ (1,124   $ (372   $                  (1,394)
    

 

 

   

 

 

   

 

 

   

 

 

The following table presents the effects of reclassifications out of AOCI and into the Consolidated Statements of Income for the three months ended March 31, 2015 and 2014:

 

        
     
           
 
Gains (losses)
recognized in earnings
     Income Statement        Amount

Description (Millions)

     Line Item        2015     

2014

Available-for-sale securities

           

Net gain in AOCI reclassifications for previously unrealized net gains on investment securities

     Other non-interest revenues      $             —      $            45 

Related income tax expense

     Income tax provision             (16)
         

 

 

   

 

Reclassification to net income related to available-for sale securities

                 29 

Foreign currency translation adjustments

           

Reclassification of realized losses on translation adjustments and related hedges

     Other expenses             (2)

Related income tax benefit

     Income tax provision            
         

 

 

   

 

Reclassification of foreign currency translation adjustments

                 (1)
         

 

 

   

 

Total

          $      $            28 
         

 

 

   

 

 

 

24


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

13. Non-Interest Revenue and Expense Detail

The following is a detail of Other commissions and fees for the three months ended March 31:

 

                                             

 

(Millions)

       2015     

2014

Foreign currency conversion fee revenue

     $ 211      $                   213

Delinquency fees

       195      181

Loyalty Partner-related fees

       91      91

Service fees

       87      90

Other(a)

       35      43
    

 

 

   

 

Total Other commissions and fees

     $ 619      $                   618
    

 

 

   

 

 

 

  (a)

Other primarily includes revenues from fees related to Membership Rewards programs.

The following is a detail of Other revenues for the three months ended March 31:

 

                                             

 

(Millions)

       2015     

2014

Global Network Services partner revenues

     $ 164      $                   158

Net realized gains on investment securities

           39

Other(a)

       304     304
    

 

 

   

 

Total Other revenues

     $ 468     $                   501
    

 

 

   

 

 

 

  (a)

Other includes revenues arising from net revenue earned on cross-border Card Member spending, merchant-related fees, insurance premiums earned from Card Member travel and other insurance programs, Travelers Cheques-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.

The following is a detail of Other, net expenses for the three months ended March 31:

 

                                             

 

(Millions)

       2015     

2014

Professional services

     $ 624      $                   692

Occupancy and equipment

       434      462

Card and merchant-related fraud losses(a)

       100      84

Communications

       88      93

Other(b)

       153      218
    

 

 

   

 

Total Other, net

     $ 1,399      $                1,549
    

 

 

   

 

 

 

  (a)

Beginning January 1, 2015, merchant-related fraud losses are reported within Other expenses.

 

  (b)

Other expense includes general operating expenses, gains (losses) on sale of assets or businesses not classified as discontinued operations, litigation, certain internal and regulatory review-related reimbursements and insurance costs or settlements, investment impairments, certain Loyalty Partner-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 three months ended March 31, 2015).

 

14. Income Taxes

The effective tax rate was 34.2 percent and 35.1 percent for the three months ended March 31, 2015 and 2014, respectively. The tax rates in both periods primarily reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business. Additionally, the effective tax rate in both periods reflected the resolution of certain prior years’ tax items.

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 Company’s federal tax returns for years through 2007; however, refund claims for certain years continue to be reviewed by the IRS. In addition, the Company is currently under examination by the IRS for the years 2008 through 2011.

 

25


Table of Contents

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $430 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 $430 million of unrecognized tax benefits, approximately $317 million relates to amounts that if recognized would be recorded to shareholders’ equity and would not impact the Company’s results of operations or its effective tax rate.

 

15. Earnings Per Common Share (EPS); Preferred Shares

EPS

The computations of basic and diluted EPS for the three months ended March 31 were as follows:

 

                                             

 

(Millions, except per share amounts)

       2015      

2014

Numerator:

       

Basic and diluted:

       

Net income

     $ 1,525       $            1,432 

Earnings allocated to participating share awards(a)

       (11    (12)
    

 

 

    

 

Net income attributable to common shareholders

     $ 1,514       $            1,420 
    

 

 

    

 

Denominator:(a)

       

Basic: Weighted-average common stock

     $ 1,019       1,060 

Add: Weighted-average stock options(b)

       4      
    

 

 

    

 

Diluted

     $ 1,023       1,067 
    

 

 

    

 

Basic EPS

     $ 1.49       $              1.34 

Diluted EPS

     $ 1.48       $              1.33 

 

 

  (a)

The Company’s 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 0.5 million and 0.2 million of options from the computation of EPS for the three months ended March 31, 2015 and 2014, respectively, because inclusion of the options would have been anti-dilutive.

For the three months ended March 31, 2015 and 2014, the Company met specified performance measures related to the $750 million of Subordinated Debentures issued in 2006, and maturing in 2036. If the performance measures were not achieved in any given quarter, the Company would be required to issue common shares and apply the proceeds to make interest payments.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Preferred Shares

The Board of Directors is authorized to permit the Company to issue up to 20 million Preferred Shares at a par value of $1.662/3 without further shareholder approval. The Company has the following perpetual Fixed Rate/Floating Rate Noncumulative Preferred Share series issued and outstanding as of March 31, 2015:

 

 

 

  

Series B

  

Series C

Issuance date

   November 10, 2014    March 2, 2015

Securities issued

   750 Preferred Shares; represented by 750,000 depositary shares    850 Preferred Shares; represented by 850,000 depositary shares

Aggregate liquidation preference

   $750 million    $850 million

Fixed dividend rate per annum

   5.20%    4.90%

Semi-annual fixed dividend payment dates

   Beginning May 15, 2015    Beginning September 15, 2015

Floating dividend rate per annum

   3 month LIBOR+ 3.428%    3 month LIBOR+ 3.285%

Quarterly floating dividend payment dates

   Beginning February 15, 2020    Beginning June 15, 2020

Fixed to floating rate conversion date(a)

   November 15, 2019    March 15, 2020

 

 

  (a)

The date on which dividends convert from a fixed rate calculation to a floating rate calculation.

The Company may redeem these Preferred Shares at $1 million per Preferred Share (equivalent to $1,000 per depositary share) plus any declared but unpaid dividends in whole or in part, from time to time, on any dividend payment date on or after the respective fixed to floating rate conversion date, or in whole, but not in part, within 90 days of certain bank regulatory changes.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

16. Reportable Operating Segments

The Company is a leading global payments and travel company that is principally engaged in businesses comprising four reportable operating segments: USCS, ICS, GCS and Global Network & Merchant Services (GNMS). Corporate functions and certain other businesses, including the Company’s Enterprise Growth Group, as well as other Company operations are included in Corporate & Other.

The following table presents certain selected financial information for the three months ended March 31:

 

                                             

 

(Millions)

       2015      

2014

Non-interest revenues:

       

USCS

     $ 3,148       $             2,991 

ICS

       1,061       1,157 

GCS

       871       1,249 

GNMS

       1,270       1,293 

Corporate & Other, including adjustments and eliminations(a)

       153       146 
    

 

 

    

 

Total

     $ 6,503       $             6,836 
    

 

 

    

 

Interest income:

       

USCS

     $ 1,529       $             1,423 

ICS

       244       277 

GCS

       4      

GNMS

       20       10 

Corporate & Other, including adjustments and eliminations(a)

       60       62 
    

 

 

    

 

Total

     $ 1,857       $             1,776 
    

 

 

    

 

Interest expense:

       

USCS

     $ 152       $                150 

ICS

       64       82 

GCS

       48       59 

GNMS

       (54    (62)

Corporate & Other, including adjustments and eliminations(a)

       200       210 
    

 

 

    

 

Total

     $ 410       $                439 
    

 

 

    

 

Total revenues net of interest expense:

       

USCS

     $ 4,525       $             4,264 

ICS

       1,241       1,352 

GCS

       827       1,194 

GNMS

       1,344       1,365 

Corporate & Other, including adjustments and eliminations(a)

       13       (2)
    

 

 

    

 

Total

     $ 7,950       $             8,173 
    

 

 

    

 

Net income:

       

USCS

     $ 934       $                876 

ICS

       134       159 

GCS

       180       184 

GNMS

       444       443 

Corporate & Other, including adjustments and eliminations (loss)(a)

       (167    (230)
    

 

 

    

 

Total

     $ 1,525       $             1,432 
    

 

 

    

 

 

 

  (a)

Corporate & Other includes adjustments and eliminations for intersegment activity.

 

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  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Introduction

When we use the terms “American Express,” “the Company,” “we,” “our” or “us,” we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.

We are a global services company with four reportable operating segments: U.S. Card Services (USCS), International Card Services (ICS), Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). We provide our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, the business travel operations were wholly owned. Our range of products and services includes:

 

   

charge and credit card products;

 

   

expense management products and services;

 

   

travel-related services;

 

   

stored-value/prepaid products;

 

   

network services;

 

   

merchant acquisition and processing, servicing and settlement, and point-of-sale, marketing and information products and services for merchants; and

 

   

fee services, including fraud prevention services and the design and operation of customized customer loyalty and rewards programs.

Our products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising.

We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, as well as evolving and growing alternative payment providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customers’ existing accounts and relationships to create payment or other fee-based solutions. We are transforming our existing businesses and creating new products and services for the digital marketplace as we seek to enhance our customers’ digital experiences and develop platforms for online and mobile commerce.

Our products and services generate the following types of revenue for the Company:

 

   

Discount revenue, our largest revenue source, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services at merchants on our network;

 

   

Net card fees, which represent revenue earned from annual card membership fees;

 

   

Travel commissions and fees, which are earned by charging a transaction or management fee to both customers and suppliers for travel-related transactions (business travel commissions and fees included through June 30, 2014);

 

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Other commissions and fees, which are earned on foreign exchange conversions, card-related fees, such as late fees and assessments, Loyalty Partner-related fees and other service fees;

 

   

Other revenue, which represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees), insurance premiums earned from Card Member travel and other insurance programs, prepaid card-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV after June 30, 2014) and other miscellaneous revenue and fees; and

 

   

Interest on loans, which principally represents interest income earned on outstanding balances.

Forward-Looking Statements and Non-GAAP Measures

Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the “Cautionary Note Regarding Forward-Looking Statements” section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-Q constitute non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.

Bank Holding Company

American Express Company is a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserve’s regulations, policies and minimum capital standards.

Current Business Environment/Outlook

Our results for the first quarter of 2015 reflected higher spending by our Card Members, growth in average Card Member loans, credit quality indicators near historical lows and continued control over operating expenses. Our results also reflected the adverse impact of a strengthening U.S. dollar. Our strong balance sheet allowed us to return a substantial amount of capital to our shareholders in the form of repurchases and dividends during the quarter.

Earnings per share growth for the first quarter of 2015 was higher than our full-year expectations, in part due to the timing of our spending on growth initiatives that we expect to ramp up over the course of the year, as well as some benefits in operating expenses and provision costs that are not expected to continue later this year. We also expect the remainder of the year to be adversely impacted by several challenges discussed further below.

In the first quarter of 2015, we continued to see an increase in Card Member billed business. The impact of changes in foreign exchange rates, lower gas prices, slower retail sales growth and a slowdown in spending by corporate customers in the U.S. led to a modest deceleration of the billed business growth rate in the first quarter. The termination of our relationship with Costco in Canada also had an impact on billed business.

The growth of worldwide Card Member loans during the first quarter of 2015 contributed to an increase in net interest income. Credit performance remained strong although we expect provision for losses to increase during the remainder of 2015.

Operating expenses for the first quarter of 2015 decreased on a reported basis, as well as after excluding business travel expenses incurred in the first quarter of 2014. Operating expenses benefited from the strengthening U.S. dollar in the quarter. We remain committed to containing operating expense growth in 2015.

 

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While our business is diversified by product and geography, including a range of consumer and commercial card offerings, a large international business and GNS partners around the world, which we believe provide a range of growth opportunities, as noted above, we continue to face a number of challenges in 2015.

Global economic growth remains uneven. In addition, our first quarter 2015 results were negatively impacted by the strengthening U.S. dollar, and we continue to expect foreign exchange will have an adverse impact for the remainder of 2015. Our results could also be adversely affected by increases in short-term interest rates or the failure of the U.S. Congress to continue the renewal of legislation regarding our active financing income, which could increase our effective tax rate and have an adverse impact on net income in 2015 and beyond.

Regulation of the payments industry has increased significantly in recent years and various governments around the world have established or are proposing to establish payment system regulatory regimes. See “Certain Legislative, Regulatory and Other Developments” for additional information on the legislative and regulatory environment, including the potential impacts of regulatory changes in the card payment sector in the European Union (EU).

Competition also remains extremely intense across the payments industry. Within the co-brand space, more intense competition has generally increased our cost of renewing and extending co-brand relationships. During the first quarter of 2015, Card Member rewards expense and cost of Card Member services grew, both reflecting a portion of the increased costs related to recently renewed co-brand relationships. For the remainder of 2015, we expect to see a continued impact of these renegotiated relationships.

As previously announced, our co-brand and merchant acceptance agreements with Costco in the U.S. will not be renewed and are set to expire on March 31, 2016. We have started to see some slowing of new Costco U.S. co-brand Card Member acquisitions, which, along with any future customer behavior changes we may experience, will likely begin to adversely impact our results in 2015. We intend to make investments to attract Card Members, including those from the Costco co-brand relationship, by offering them attractive products from our suite of proprietary offerings. We will also be making investments in other growth initiatives across our Company that we believe offer more attractive returns over time and position us for continued long-term growth. As a result, we expect annual marketing and promotion expenses in 2015 to be relatively similar to the elevated level of 2014.

In light of the overall impact of all of these challenges and our intent to invest aggressively to proactively prepare for the end of the Costco U.S. partnership in 2016, we expect full year 2015 earnings per share growth to be flat to modestly down. Additionally, as a result of the timing of our incremental spending on growth initiatives ramping up over the course of the year, along with the prior year benefits from the sale of our investment in Concur and the GBT JV transaction and other factors, it is also likely that quarterly earnings performance will be more uneven in 2015 than it has been historically while we go through this transitional period. In 2016, we expect to return to positive earnings per share growth and in 2017 and beyond, we expect to return to 12 to 15 percent earnings per share growth, within our target range.

As previously disclosed, on February 19, 2015, a trial court ruled in favor of the U.S. Department of Justice (DOJ) in a case challenging provisions in our Card acceptance agreements with merchants that prohibit merchants from discriminating against our Card products at the point of sale. See “Certain Legislative, Regulatory and Other Developments” for additional information on the potential impacts of an adverse decision on our business.

 

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American Express Company

Consolidated Results of Operations

Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms and related information appearing within this section.

As a result of the GBT JV transaction, we deconsolidated the Global Business Travel (GBT) net assets, effective June 30, 2014, resulting in a lack of comparability between the three months ended March 31, 2015 and March 31, 2014.

Table 1: Summary of Financial Performance

 

                                                                                           

 

      
 
Three Months Ended
March 31,
  
  
   

 

Change

2015 vs. 2014

(Millions, except percentages and per share amounts)

       2015        2014     

Total revenues net of interest expense

     $ 7,950      $ 8,173      $ (223        (3)%

Provisions for losses

       420        485        (65   (13)

Expenses

       5,214        5,480        (266    (5)

Net income

       1,525        1,432        93       6

Earnings per common share — diluted(a)

     $ 1.48      $ 1.33      $ 0.15           11 %

Return on average equity(b)

       29.0     28.3    

Return on average tangible common equity(c)

       36.2     35.4    

 

 

  (a)

Earnings per common share — diluted was reduced by the impact of earnings allocated to participating share awards and other items of $11 million and $12 million for three months ended March 31, 2015 and 2014, respectively.

 

  (b)

ROE is computed by dividing (i) one-year period net income ($6.0 billion and $5.5 billion for March 31, 2015 and 2014, respectively) by (ii) one-year average total shareholders’ equity ($20.6 billion and $19.4 billion for March 31, 2015 and 2014, respectively).

 

  (c)

Return on average tangible common equity, a non-GAAP measure, is computed in the same manner as ROE except the computation of average tangible common equity, a non-GAAP measure, excludes from average total shareholders’ equity, average goodwill and other intangibles of $3.8 billion and $4.0 billion as of March 31, 2015 and 2014, respectively, and average preferred shares of $350 million as of March 31, 2015. We believe return on average tangible common equity is a useful measure of the profitability of our business.

Table 2: Total Revenue Net of Interest Expense Summary

 

                                                                                           

 

      
 
Three Months Ended
March 31,
  
  
   

 

Change

2015 vs. 2014

(Millions, except percentages)

       2015        2014     

Discount revenue

     $ 4,660      $ 4,620      $ 40             1 %

Net card fees

       667        674        (7     (1)

Travel commissions and fees

       89        423        (334   (79)

Other commissions and fees

       619        618        1     

Other

       468        501        (33     (7)
    

 

 

   

 

 

   

 

 

   

Total non-interest revenues

       6,503        6,836        (333     (5)
    

 

 

   

 

 

   

 

 

   

Total interest income

       1,857        1,776        81        5

Total interest expense

       410        439        (29     (7)
    

 

 

   

 

 

   

 

 

   

Net interest income

       1,447        1,337        110        8
    

 

 

   

 

 

   

 

 

   

Total revenues net of interest expense

     $ 7,950      $ 8,173      $ (223         (3)%
    

 

 

   

 

 

   

 

 

   

 

 

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Total Revenues Net of Interest Expense

Discount revenue increased $40 million or 1 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, and excluding the impact of changes in foreign exchange rates, increased 4 percent.1 The increase was due to growth in billed business of 3 percent, which continued to outpace discount revenue, driven by a decrease in the average discount rate, faster growth in GNS billings than in overall Company billings, increases in cash incentives, and higher contra-revenues related to renewed co-brand relationship payments. Billed business increased 6 percent in the U.S. and decreased 3 percent outside the U.S., as compared to the same period in the prior year. Billed business outside the U.S. increased 8 percent when excluding the impact from foreign exchange rates.1

The average discount rate was 2.49 percent and 2.51 percent for the three months ended March 31, 2015 and 2014, respectively. The decrease in the average discount rate was driven by certain contract signings and payments to merchant partners, growth of the OptBlue program, and changes in industry mix, partially offset by the decline in Costco Canada merchant volume due to the expiration of our merchant agreement and changes in foreign exchange rates. Changes in the mix of spending by location and industry, volume-related pricing discounts, strategic investments, certain pricing initiatives, competition, pricing regulation (including regulation of competitors’ interchange rates) and other factors will likely result in continued erosion of our discount rate over time. See Tables 5 and 6 for more details on billed business performance and the average discount rate.

Net card fees decreased $7 million or 1 percent for the three months ended March 31, 2015 as compared to the same period in the prior year, and excluding the impact of changes in foreign exchange rates, increased 4 percent, primarily driven by higher basic cards-in-force in USCS.1

Travel commissions and fees decreased $334 million or 79 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, primarily due to the business travel joint venture transaction, resulting in a lack of comparability between periods.

Other commissions and fees remained flat for the three months ended March 31, 2015, as compared to the same period in the prior year, and excluding the impact of changes in foreign exchange rates, increased 9 percent, primarily driven by higher delinquency fees and higher revenue from our Loyalty Partner business.1

Other revenue decreased $33 million or 7 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, and excluding the impact of foreign exchange rates, was flat, primarily driven by a prior-year gain related to the sale of investment securities in the Industrial and Commercial Bank of China (ICBC), offset by revenues earned related to the GBT JV transition services agreement.1

Interest income increased $81 million or 5 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, primarily reflecting higher average Card Member loans.

Interest expense decreased $29 million or 7 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, primarily driven by a lower cost of funds, partially offset by higher average long-term debt.

 

 

  1

The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding year period against which such results are being compared). Certain amounts included in the calculations of foreign currency-adjusted revenues and expenses, which constitute non-GAAP measures, are subject to management allocations. We believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.

 

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Table 3: Provisions for Losses Summary

 

                                                                                           

 

      
 
Three Months Ended
March 31,
  
  
   

 

Change

2015 vs. 2014

(Millions, except percentages)

       2015        2014     

Charge card

     $ 174      $ 215      $ (41   (19)%

Card Member loans

       235        250        (15   (6)  

Other

       11        20        (9   (45)    
    

 

 

   

 

 

   

 

 

   

Total provisions for losses

     $ 420      $ 485      $ (65   (13)%
    

 

 

   

 

 

   

 

 

   

 

Provisions for Losses

Charge card provision for losses decreased $41 million or 19 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, primarily driven by a reserve release versus a reserve build in the prior year. Card Member loans provision for losses decreased $15 million or 6 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, driven primarily by lower net write-offs, partially offset by higher Card Member loan balances.

Table 4: Expenses Summary

 

                                                                                           

 

      
 
Three Months Ended
March 31,
  
  
   

 

Change

2015 vs. 2014

(Millions, except percentages)

       2015        2014     

Marketing and promotion

     $ 609      $ 587      $ 22         4 %

Card Member rewards

       1,640        1,582        58         4    

Card Member services and other

       261        222        39       18    

Salaries and employee benefits

       1,305        1,540        (235   (15)   

Other, net

       1,399        1,549        (150   (10)   
    

 

 

   

 

 

   

 

 

   

Total expenses

     $ 5,214      $ 5,480      $ (266     (5)%
    

 

 

   

 

 

   

 

 

   

 

Expenses

Marketing and promotion expense increased $22 million or 4 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, and excluding the impact of changes in foreign exchange rates, increased 9 percent, driven by higher investments in growth initiatives, predominantly within the USCS segment.2

Card Member rewards expense increased $58 million or 4 percent for the three months ended March 31, 2015, as compared to the same period in the prior year. The increase was primarily due to higher co-brand rewards expense of $71 million, driven by higher spending volumes and rate impacts, due, in part, to renewed co-brand partnerships. The increase in co-brand rewards expense was partially offset by lower Membership Rewards expense of $13 million driven by a decrease of $31 million as a result of slower growth in the Membership Rewards ultimate redemption rate (URR) and a decline in the weighted average cost per point for Membership Rewards, partially offset by an $18 million increase related to new points earned. The Membership Rewards URR for current program participants remained 95 percent (rounded up) at March 31, 2015, in line with December 31, 2014.

Card Member services and other expense increased $39 million or 18 percent for the three months ended March 31, 2015, as compared to the same period in the prior year. Excluding the impact of changes in foreign exchange rates, Card Member services and other expense increased 23 percent,2 primarily driven by higher costs related to renewed co-brand partnerships.

 

 

  2

Refer to footnote 1 on page 33 for details regarding foreign currency adjusted information.

 

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Salaries and employee benefits expense decreased $235 million or 15 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, primarily driven by the business travel joint venture transaction, resulting in a lack of comparability between periods.

Other expense decreased $150 million or 10 percent for the three months ended March 31, 2015, as compared to the same period in the prior year, primarily driven by the business travel joint venture transaction, resulting in a lack of comparability between periods, and a favorable impact from foreign currency net gains (including the favorable impact from the reassessment of the functional currency of certain UK legal entities in the three months ended March 31, 2015).

Income Taxes

The effective tax rate was 34.2 percent and 35.1 percent for the three months ended March 31, 2015, and 2014, respectively. The tax rates in both periods primarily reflected the level of pretax income in relation to permanent tax benefits and geographic mix of business. Additionally, the effective tax rates in both periods reflected the resolution of certain prior years’ tax items.

Table 5: Selected Statistical Information

 

                                                                    

 

 
      
 
Three Months Ended
March 31,
  
  
   

 

Change

2015 vs. 2014

  

  

 

       2015        2014     

Card billed business: (billions)

        

United States

     $ 169.2      $ 159.2           6 %   

Outside the United States

       76.4        78.9          (3)      
    

 

 

   

 

 

   

Total

     $ 245.6      $ 238.1           3       
    

 

 

   

 

 

   

Total cards-in-force: (millions)

        

United States

       54.8        53.5           2       

Outside the United States

       57.4        54.7           5       
    

 

 

   

 

 

   

Total

       112.2        108.2           4       
    

 

 

   

 

 

   

Basic cards-in-force: (millions)

        

United States

       42.4        41.5           2       

Outside the United States

       47.3        44.6           6       
    

 

 

   

 

 

   

Total

       89.7        86.1           4       
    

 

 

   

 

 

   

Average discount rate(a)

       2.49     2.51  

Average basic Card Member spending(b)

     $ 4,008      $ 3,991        —       

Average fee per card(b)

     $ 39      $ 40          (3)      

Average fee per card adjusted(b)

     $ 44      $ 45          (2)%   

 

 

 

  (a)

In the three months ended March 31, 2015, we changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. The misclassification in prior periods has been revised to conform to the current period presentation. Accordingly, the average discount rate for prior periods was also revised, resulting in a reduction of between zero and one basis point in any period from what was originally reported.

 

  (b)

Average basic Card Member spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees, including the amortization of deferred direct acquisition costs divided by average worldwide proprietary cards-in-force. The adjusted average fee per card, which is a non-GAAP measure, is computed in the same manner, but excludes amortization of deferred direct acquisition costs. The amount of amortization excluded was $83 million and $73 million for the three months ended March 31, 2015 and 2014, respectively. We present adjusted average fee per card because we believe this metric presents a useful indicator of card fee pricing across a range of our proprietary card products.

 

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Table 6: Selected Statistical Information

 

                                                                               

 

 
      

 

Three Months Ended

March 31, 2015

  

  

 

      

 
 

Percentage

Increase
(Decrease)

  

  
  

   
 
 
 
 
Percentage Increase
Assuming
No Changes in
Foreign Exchange
Rates
(a)
  
  
  
  
  

Worldwide(b)

      

Billed business

       3     7%   

Proprietary billed business

       2        5       

GNS billed business(c)

       7        16       

Airline-related volume (9% of worldwide billed business)

       (3     2       

United States(b)

      

Billed business

       6     

Proprietary consumer card billed business(d)

       6     

Proprietary small business billed business(d)

       7     

Proprietary corporate services billed business(e)

       4     

T&E-related volume (27% of U.S. billed business)

       5     

Non-T&E-related volume (73% of U.S. billed business)

       6     

Airline-related volume (9% of U.S. billed business)

           

Outside the United States(b)

      

Billed business

       (3     8       

Japan, Asia Pacific & Australia (JAPA) billed business

       6        16       

Latin America & Canada (LACC) billed business

       (14     (4)      

Europe, the Middle East & Africa (EMEA) billed business

       (7     8       

Proprietary consumer and small business billed business(f)

       (10     2       

JAPA billed business

       (2     10       

LACC billed business

       (26     (17)      

EMEA billed business

       (6     10       

Proprietary corporate services billed business(e)

       (10 )%      3%   

 

 

 

  (a)

The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding year period against which such results are being compared).

 

  (b)

Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data.

 

  (c)

Included in the GNMS segment.

 

  (d)

Included in the USCS segment.

 

  (e)

Included in the GCS segment.

 

  (f)

Included in the ICS segment.

 

36


Table of Contents

Table 7: Selected Statistical Information

 

                                                                    

 

      
 
 
As of or for the
Three Months Ended
March 31,
  
  
  
  Change
2015

vs.

2014

(Millions, except percentages and where indicated)

       2015        2014     

Worldwide Card Member receivables:

        

Total receivables (billions)

     $ 43.7      $ 44.7            (2)%

Loss reserves:

        

Beginning balance

     $ 465      $ 386       20

Provisions(a)

       174        215      (19)

Net write-offs(b)

       (199     (170   17

Other(c)

       (11     (17   (35)
    

 

 

   

 

 

   

Ending balance

     $ 429      $ 414        4
    

 

 

   

 

 

   

% of receivables

       1.0     0.9  

Net write-off rate — principal only — USCS/ICS(d)

       2.1     1.8  

Net write-off rate — principal and fees — USCS/ICS(d)

       2.3     2.0  

30 days past due as a % of total — USCS/ICS

       1.6     1.7  

Net loss ratio as a % of charge volume — GCS

       0.10     0.09  

90 days past billing as a % of total — GCS

       0.7     0.7  

Worldwide Card Member loans:

        

Total loans (billions)

     $ 66.8      $ 64.0        4

Loss reserves:

        

Beginning balance

     $ 1,201      $ 1,261        (5)

Provisions(a)

       235        250        (6)

Net write-offs — principal only(b)

       (259     (280     (8)

Net write-offs — interest and fees(b)

       (43     (42     2

Other(c)

       (4     2        #
    

 

 

   

 

 

   

Ending balance

     $ 1,130      $ 1,191        (5)
    

 

 

   

 

 

   

Ending reserves — principal

     $ 1,074      $ 1,135        (5)

Ending reserves — interest and fees

     $ 56      $ 56     

% of loans

       1.7     1.9  

% of past due

       163     159  

Average loans (billions)

     $ 67.6      $ 64.5           5 %

Net write-off rate — principal only(d)

       1.5     1.7  

Net write-off rate — principal, interest and fees(d)

       1.8     2.0  

30 days past due as a % of total

       1.0     1.2  

Net interest income divided by average loans(e)

       8.6     8.4  

Net interest yield on Card Member loans(e)

       9.6     9.5  

 

 

  #

Denotes a variance greater than 100 percent.

 

  (a)

Provisions for principal (resulting from authorized transactions) and fee reserve components on Card Member receivables and provisions for principal (resulting from authorized transactions), interest and/or fees on Card Member loans.

 

  (b)

Write-offs, less recoveries.

 

  (c)

Beginning in the first quarter 2014, reserves for card-related fraud losses of $(7) million for Card Member receivables and $(6) million for Card Member loans are included in Other liabilities. For the three months ended March 31, 2015 and 2014, Card Member receivables also