American Express

AMERICAN EXPRESS COMPANY

ANNUAL REPORT

2013

Deliver Results
Today. Invest for 
Tomorrow.

AMERICAN EXPRESS COMPANY

2013 FINANCIAL RESULTS

(Millions, except per share amounts, percentages and employees) 

2013 

2012 

% INC/(DEC)

Total Revenues Net of Interest Expense 

$  32,974 

$  31,555 

Net Income 

$  5,359 

$  4,482 

Return on Average Equity 

27.8% 

23.1% 

Total Assets 

Shareholders’ Equity 

Diluted Net Income Attributable to 
Common Shareholders 

Cash Dividends Declared per Share 

Book Value per Share 

Average Common Shares Outstanding for 
Diluted Earnings per Common Share 

$ 153,375 

$ 153,140 

$  19,496 

$  18,886 

$ 

$ 

4.88 

0.89 

$ 

$ 

3.89 

0.80 

$  18.32 

$  17.09 

1,089 

1,141 

Common Share Cash Dividends Declared 

$ 

967 

$ 

909 

Common Share Repurchases 

55 

69 

Number of Employees 

  62,800 

63,500 

4%

20%

–

3%

25%

11%

7%

(5)%

6%

(20)%

(1)%

TOTAL REVENUES 
NET OF INTEREST EXPENSE
(IN BILLIONS)

RETURN ON 
AVERAGE EQUITY

NET INCOME
(IN BILLIONS)

3
.
4
2
$

6
.
7
2
$

0
.
0
3
$

6
.
1
3
$

0
.
3
3
$

%
6
.
4
1

%
5
.
7
2

%
7
.
7
2

%
1
.
3
2

%
8
.
7
2

1
.
2
$

1
.
4
$

9
.
4
$

5
.
4
$

4
.
5
$

09

10

11

12

13

09

10

11

12

13

09

10

11

12

13

Various forward-looking statements are made in this Annual Report, which generally include the words “believe,” “expect,” “anticipate,” 
“optimistic,” “intend,” “plan,” “aim,” “will,” “should,” “could,” “would,” “likely,” and similar expressions. Certain factors that may affect 
these forward-looking statements, including American Express Company’s ability to achieve its goals referred to herein, are discussed 
on page 54.

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AMERICAN EXPRESS COMPANY

TO OUR SHAREHOLDERS:

Character has a lot to do with success or 

failure in business. And character had a big 

hand in our company’s accomplishments 

in 2013. The service ethic that anchors our 

culture, the desire to reinvent, and the ability 

to achieve in challenging conditions—all of 

these qualities were on display this past year.

During 2013, we produced record earnings in a slow-growth economy. 
While delivering short-term results, we also invested heavily in 
opportunities to expand our core businesses and open new avenues 
for growth in the future. We also returned a substantial portion of our 
profits to shareholders through a dividend increase and share buy-
backs, taking advantage of our strong capital position.

Meanwhile, we continued the work of transforming our company. 
Positive change is coming from many directions. We are developing 
new ways to serve our customers in the digital economy. We are driving 
commerce by using our closed-loop network and data analytics to 
create value for buyers and sellers. And we are making American 
Express a more welcoming and inclusive brand by reaching out to new 
types of customers.

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TO OUR SHAREHOLDERS:

AMERICAN EXPRESS COMPANY

It was gratifying to see the stock market recognize our progress 
and potential. For 2013, our shareholders enjoyed a total return of 
60 percent. While it was a great year for equities all around—the 
proverbial rising tide lifted many boats—we did especially well in 
outperforming the Dow, S&P 500 and S&P Financials. In fact, we  
beat these indices over the past one-, three- and five-year periods.

Deliver results today. Invest for tomorrow. Maintain a strong financial 
core. Transform the business. We made progress on each of these 
fronts in 2013. This is how we aim to drive consistent, sustainable 
growth and create value for our shareholders. Although we face many 
challenges in a volatile and intensely competitive environment, I am 
confident that we are on the right path.

CARDS-IN-FORCE 
(IN MILLIONS)

BILLED BUSINESS 
(IN BILLIONS)

9
.
7
8

0
.
1
9

4
.
7
9

4
.
2
0
1

2
.
7
0
1

0
2
6
$

3
1
7
$

2
2
8
$

8
8
8
$

2
5
9
$

Billed business rose 

7 percent to a record 

$952 billion on broad-

based growth in spending 

among consumers, 

small businesses and 

corporations globally. 

Higher spending per 

card, combined with an 

expanding Card Member 

base, drove the increase.

09

10

11

12

13

09

10

11

12

13

3

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AMERICAN EXPRESS COMPANY

HIGHER EARNINGS ON CORE  
BUSINESS GROWTH

American Express earned $5.4 billion in net income for 2013, up 
20 percent from the previous year. Diluted earnings per share rose 
25 percent. Solid growth from our core businesses, disciplined 
expense controls and excellent credit quality drove our profits.

The economy didn’t offer many favors. Overall consumer spending and 
borrowing remained relatively weak in many parts of the world, with only  
modest improvement in GDP as the year progressed. Nevertheless, we 
were able to grow revenues by 4 percent, capitalizing on the advantages 
of our spend-centric model and diverse customer base. While we came  
in below our on-average and over-time goal of 8 percent revenue growth, 
we feel good about the result in this environment.

Let’s look more closely at some of the factors that drove our 
performance:

 HIGHER SPENDING BY CARD MEMBERS:  Spending on American 
Express cards rose 7 percent for the year as we continued to generate 
one of the highest organic growth rates among major card issuers. 
Our Card Members swiped, clicked and tapped their way to a record 
$952 billion in purchases with us in 2013. We experienced broad-based 
growth among consumers, small businesses and corporate clients.

The rise in spending also paved the way for a modest increase in 
loan balances. Total loans were up 3 percent, well above the industry 
average. The combination of higher loan balances and lower funding 
costs drove a 9 percent increase in net interest income.

 EXCELLENT CREDIT QUALITY:  Credit quality remained excellent.  
We continued to outperform our major card-issuing competitors in past- 
due and write-off rates. This reflects both the quality of our customer 
base and our lending strategy, which is centered on premium products. 
While we expect that write-offs will eventually rise from today’s 
historically low levels, we are confident in our ability to balance growth 
and risk in our portfolio.

4

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AMERICAN EXPRESS COMPANY

 RESTRUCTURING AND EXPENSE CONTROLS:  Cost controls also 
played a crucial role in our financial performance. During 2013, we 
reduced total expenses by 1 percent, even as we increased investments 
in marketing and promotion.

Across the company, we emphasized the importance of containing 
operating expenses. We backed that up with a publicly announced  
goal: limit operating expense growth to no more than 3 percent in both 
2013 and 2014. We beat that goal in 2013 and remain committed to  
it for 2014.

The restructuring actions that we announced in January helped us 
contain operating expenses by making American Express a leaner, 
more flexible organization. Unfortunately, realizing these benefits 
involved difficult decisions to reduce jobs. Our restructuring focused 
on consolidating similar functions and eliminating duplicate efforts, 
streamlining corporate staff groups, and continuing to adapt to 
customers’ shifting preferences for online servicing.

TRANSFORMING COMMERCE 

American Express continued its tradition of innovation to deliver value to Card Members and 

build business for merchants. Partnerships with digital platforms created new commerce 

opportunities in 2013:

US - www.tripadvisor.com

Turning Tweets into 

Rewarding Travels. 

Paying with Points. 

Transactions.  

TripAdvisor became the 

Certain New York City 

Card Members who 

latest digital platform 

taxicabs began accepting 

connected their eligible 

to host merchant offers 

Membership Rewards 

cards to their Twitter 

for Card Members 

points for payment 

accounts were able to 

who connect their 

through terminals 

purchase items by using 

eligible cards with their 

designed by VeriFone. 

Twitter hashtags. 

TripAdvisor profiles. 

5

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AMERICAN EXPRESS COMPANY

It’s never easy to make a decision that results in respected colleagues 
losing their jobs. We supported their transitions as best we could and 
remain thankful for their contributions to the company. 

The reengineering announcement was a tough way to begin the year, 
but it left us in a stronger financial position in the end. We believe these 
actions made us more nimble, more efficient and more effective in  
using our resources to drive growth.

GOING FOR GROWTH

Our strong performance and cost controls in 2013 gave us the ability 
to invest more than we did in the prior year. We pursued a mix of 
opportunities in both traditional and new areas, with different return 
horizons. 

In our core businesses, we focused on acquiring new Card Members 
and merchants globally; expanding our network of card-issuing 
partners; and developing new services and capabilities to better 
support our customers and business partners.

As a result, we: 

  added nearly 5 million cards-in-force worldwide; 

  increased average spending per card by making it easier and more 
rewarding to do business with American Express;

  expanded our network of card-issuing partners with major new 
signings like Wells Fargo, U.S. Bank, and Barclaycard in the U.K.; and

  achieved strong increases in corporate account signings and small 
business volumes.

J.D. POWER 

American Express 

received its seventh 

straight J.D. Power award 

for “Highest Customer 

Satisfaction Among 

U.S. Credit Card 

Companies.” American 

Express has received 

this award every year  

that it has been given.

6

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•
•
•
•
AMERICAN EXPRESS COMPANY

SHOP SMALL 

As Small Business 

Saturday entered its 

fourth year in the U.S., 

American Express 

added Shop Small 

events in Argentina, 

Australia, Canada, Israel, 

South Africa, and the 

United Kingdom. U.S. 

consumers who were 

aware of Small Business 

Saturday reported 

spending an estimated 

$5.7 billion with 

independent merchants 

on the day. 

Our reputation as a company that provides world-class service 
continued to grow as well. We earned our seventh straight J.D. Power 
award for highest customer satisfaction among U.S. credit card 
companies. That’s a perfect seven awards in the seven years that J.D. 
Power has surveyed credit card customers. While we don’t set out to 
win awards, it’s gratifying to receive this recognition and similar honors 
in countries around the world. Of course, we ask our Card Members 
for direct feedback, too. Record numbers said they would recommend 
American Express to their friends, which we take as the highest 
expression of satisfaction.

In another highlight of 2013, we saw an American Express-inspired 
movement go international. Our company founded Small Business 
Saturday in the U.S. four years ago to help small business owners 
attract more customers and ring up more sales. It’s now a fixture on 
the holiday shopping calendar. By the end of the year, the Shop Small 
movement had expanded to include Argentina, Australia, Canada, 
Israel, South Africa, and the U.K. These efforts show how we can use  
our network and relationships around the world to support commerce.

EXPANDING THE AMERICAN EXPRESS NETWORK

American Express continued to expand its global footprint, adding new partners around 

the globe in 2013.

Global Merchant Services 

Global Network Services 

American Express was 

helped grow American 

signed new card-issuing 

the exclusive financial 

Express Card acceptance, 

partners, including Wells 

services partner at the 

signing Menards, a chain 

Fargo and U.S. Bank in the 

launch of the Samsung 

of family-owned home 

U.S., Barclaycard in the 

Wallet. 

improvement stores in 

U.K., and Equity Bank in 

the U.S.; European airline 

East Africa.

Ryanair; and OXXO, a 

convenience store chain 

in Mexico with more than 

11,000 locations. 

7

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AMERICAN EXPRESS COMPANY

As for those newer ventures I mentioned earlier, we continued to build 
the customer base for Bluebird, our checking and debit alternative 
offered in partnership with Walmart; American Express Serve, our 
full-service reloadable prepaid account that helps consumers move 
and manage their money; and Loyalty Partner, our rewards coalition 
business. I will take a closer look at these efforts just ahead in this letter.

(RE)IMAGINATION

Great ideas endure. Fifty years ago, we put the “Member Since” date on 
the American Express Card. That feeling of membership, of belonging, 
of receiving special treatment has meant a lot to our customers through 
the years. Today, American Express is redefining what membership 
means and reinventing the company in the process. It goes to show that 
great ideas can always be made better.

With that in mind, we are taking stock of our assets and talents, retaining 
what’s best and adding new twists. Here are four examples of how we  
adapted our company and services during 2013 to create new 
advantages for our customers and to become a more welcoming and 
inclusive brand.

 MAKING MEMBERSHIP MOBILE:  I’ll start with how we’re making 
membership mobile—from personalized offers based on your spend 
graph to secure servicing via social tools. Here is how it could play out 
in the day of an AmEx customer:

7:45 am 

 Pauline is running late. With the subway snarled, she 
takes a taxi to work in Brooklyn. She pays the fare using 
Membership Rewards points.

10:30 am 

 Pauline remembers to settle up with her sister for the 
dinner bill last Saturday. She sends $50 from her Serve 
mobile app.

1:15 pm 

 With the AmEx Mobile app on her iPhone, Pauline gets a 
$20-off offer for a fashion retailer where she loves to shop.

5:30 pm 

 Time to go home. Pauline realizes she left her card in the 
taxi this morning. She tweets @AskAmex and will have it 
replaced within 24 hours.

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AMERICAN EXPRESS COMPANY

The example is fictional, but the capabilities are real. For instance, 
we took one of our biggest assets, our Membership Rewards program, 
and invented a new way to deliver value to customers. Our mobile app 
now gives Card Members an easy way to use their points for practically 
any purchase, right on their mobile devices, once the charges appear 
on their statements. There is nothing else like it in the industry for 
flexibility and choice. About one out of every four Card Members who 
took advantage of this feature redeemed Membership Rewards points 
for the first time.

Other digital advances in 2013 enabled Card Members to make 
purchases directly on Twitter using hashtags, helped small business 
owners manage expenses using their smartphones, and provided  
real-time fraud alerts via text messages.

 SERVING THE UNDERSERVED:  Thinking differently also involves 
broadening our product set to reach new audiences. Take our efforts in 
the area of financial inclusion.

The current financial system is failing to meet the needs of millions of 
consumers. In the U.S. alone, nearly 70 million people are unbanked, 
underbanked or unhappily banked—frustrated by the hassles and 
hidden fees of the traditional system. The same is true in other countries 
around the world. A big opportunity exists to make moving and 
managing money easier and less expensive for those who need it most.

BUILDING SCALE GLOBALLY

American Express broadened its product portfolio, adding millions of customers in 2013.

Expanded features on American Express Serve and 

Bluebird offered consumers efficient ways to move and 

manage their money. 

Merchant coalitions in American Express’ Loyalty Partner 

business now offer more than 60 million consumers a  

way to earn points that can be redeemed for merchandise 

and special offers. 

9

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AMERICAN EXPRESS COMPANY

We have been putting the building blocks in place. Two years ago, we 
launched our Serve software platform with the simple idea that 
consumers needed a better way to move their money. Since then,  
we have improved the technology that powers both Serve and Bluebird. 
This enabled us to add an array of new money management capabilities 
in 2013, including direct deposit, bill pay, mobile check capture, and a 
“set aside” account for savings.

It’s still very early in the life of these alternative payment products and 
we have a long way to go to build scale, but we are encouraged. Both 
Serve and Bluebird are making our brand more relevant and welcoming 
to younger customers who may not have considered American Express 
before. We’ve also seen a halo effect on existing Card Members—those 
who know about Bluebird rate us higher for brand attributes such as 
relevance, innovation and respect. 

 REACHING NEW CUSTOMERS:  On the subject of reaching new 
customer groups, you might be surprised to know which part of our 
company has brought in the most new consumer relationships over the 
last three years. The answer is Loyalty Partner. When we acquired this 
loyalty coalition business in 2011, it had about 34 million customers. 
Three years later, that base has nearly doubled to 60 million people, 
most of whom did not have a prior relationship with American Express.

The heart of this business is a closed-loop network powered by data 
analytics. In each of the five countries where it operates, Loyalty 
Partner brings together multiple merchants to participate in a single 
loyalty program with a common rewards currency. Enrolled consumers 
can earn and redeem rewards from participating merchants, while 
the merchants gain access to a powerful customer loyalty platform 
and analysis that can make their marketing efforts more effective. 
This model complements American Express’ strength in rewards 
management, deepens our relationships with merchants, and provides 
an additional path to growth in key international markets.

Operating under the brand name PAYBACK, we now have loyalty 
coalitions in Germany, India, Mexico, Poland and Italy. The Italy  
launch just took place in January of 2014. We plan to take PAYBACK  
to additional countries in the coming years.

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AMERICAN EXPRESS COMPANY

 UNLOCKING GROWTH POTENTIAL:  My last example of 
transformation involves a change in one of our longest-standing 
businesses. In September, we announced plans to form a 50-50  
joint venture to accelerate the growth of American Express   
Global Business Travel (GBT). The deal is subject to definitive 
agreements and regulatory approval.

The joint venture would bring added resources to develop new 
products, attract new customers and expand the business globally.   
Our partner, an investor group led by Certares, intends to invest 
between $700 million and $1 billion to help grow GBT. The new  
company would retain the American Express brand, as well as   
its close connections with our commercial card business. 

The business travel environment has been challenging, but our team  
has made much progress in lowering expenses while enhancing 
services. Forming the joint venture will help advance this progress 
and make GBT a next-generation travel management company.

 DOING THE RIGHT THING 

As much as we emphasize thinking creatively and moving quickly, our   
highest priority is doing things the right way. We are dedicated to 
strengthening our regulatory compliance program across the company. 

The aim is not just to clean up errors after they happen, but to prevent 
them in the first place. We’ve made a great deal of progress integrating 
compliance reviews earlier and more completely into all of our business 
processes. We have also added compliance and operational  risk 
managers across the company, and established a stand-alone 
Risk Committee of our Board of Directors. 

I can’t remember a day in the past two years when I didn’t talk   
about compliance with one or more of our employees. We take it   
that seriously. It would be foolish not to.

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AMERICAN EXPRESS COMPANY

Case in point: Last December, we announced an agreement with 
regulators to pay substantial fines and customer refunds for marketing 
and billing practices involving certain credit card add-on products. 
This product category has come under increased regulatory scrutiny 
across the card industry, and several card issuers have been hit with 
major fines. For our part, we cooperated with regulators and conducted 
our own internal reviews of the add-on products we offer. We identified 
most of the issues included in the settlement and reported them to 
the regulators. We also stopped marketing the particular products in 
question—Identity Protect, Account Protector and Lost Wallet Protector 
(in Puerto Rico)—more than a year ago.

The fact that most of our customers did not use these products doesn’t 
matter. Anytime that American Express offers a product or service 
to any customer, our reputation and relationships are on the line. 
Therefore, we must keep an absolute focus on meeting our compliance 
requirements and doing the right thing for our customers.

CENTURION LOUNGES 

Centurion Lounges 

opened in Las Vegas 

(LAS) and Dallas (DFW) 

airports, offering Card 

Members access to a 

variety of services and 

amenities. Entry to the 

lounges is complimentary 

for American Express 

Platinum and Centurion 

Card Members. 

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AMERICAN EXPRESS COMPANY

WHAT’S NEXT

Over the past few years, we showed that we could weather a financial 
crisis and then grow in a stubbornly weak post-recession economy. 
Looking ahead, we aim to produce consistent growth over the long term.

We don’t have any special insights into where the economy is headed. 
There were some relatively encouraging signs as we entered 2014, but 
time will tell. With our financial strength and the flexibility built into our 
business model, I believe we are in a good position to benefit when the 
economy does improve. 

Beyond economic uncertainty, we face many challenges. We need to 
stay ahead of intense competition in the payments industry from both 
traditional and potentially disruptive challengers. We have to adapt to  
an evolving regulatory landscape. And we must continue to demonstrate 
the value that we provide to cost-conscious merchants. 

I like our prospects. Our trusted brand sets us apart in an industry not 
known for trust. The direct relationships we have with many millions 
of consumers and merchants—and our closed-loop network that 
connects them—put us at the heart of the commerce chain. Our world-
class service infrastructure earns us precious customer loyalty.

Every day, we work hard to take these advantages to a higher level. 
Advanced data analytics, creative digital strategies, and flexible 
payments and commerce technologies—combined with our good,  
old-fashioned service ethic—are helping us get better and better at 
matching the right customers with the right value propositions at the 
right moments. 

We want to lead in the digital age; to drive commerce; to provide 
meaningful value to customers around the world; and to continue 
to be a great place to work.

This is only the beginning.

Sincerely,

KENNETH I. CHENAULT 

Chairman & CEO 

American Express Company 

February 25, 2014

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2013 FINANCIAL RESULTS

16 FINANCIAL REVIEW

EXECUTIVE OVERVIEW

CONSOLIDATED RESULTS OF OPERATIONS

BUSINESS SEGMENT RESULTS

CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

RISK MANAGEMENT

CRITICAL ACCOUNTING ESTIMATES

OTHER MATTERS

57 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

58 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

59 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

60 CONSOLIDATED FINANCIAL STATEMENTS

65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

108 CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

109 COMPARISON OF FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

its customers’ digital experiences and develop platforms for online and
mobile commerce. Emerging technologies also provide an opportunity
to deliver financial products and services that help new and existing
customer segments move and manage their money, which we are
pursuing through our Enterprise Growth Group (EGG).

The Company’s products and services generate the following types

of revenue for the Company:
(cid:2) Discount revenue, the Company’s largest revenue source, which
represents fees generally charged to merchants when Card Members
use their cards to purchase goods and services at merchants on the
Company’s network;

(cid:2) Net card fees, which represent revenue earned for annual card

membership fees;

(cid:2) Travel commissions and fees, which are earned by charging a
transaction or management fee to both customers and suppliers for
travel-related transactions;

(cid:2) Other commissions and fees, which are earned on foreign exchange
conversions, card-related fees and assessments and other service
fees;

(cid:2) Other revenue, which represents revenues arising from contracts
with partners of our Global Network Services (GNS) business
(including royalties and signing fees), insurance premiums earned
from Card Member travel and other insurance programs, Travelers
Cheques and prepaid card-related revenues and other miscellaneous
revenue and fees; and

(cid:2)

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

income

In addition to funding and operating costs associated with these types
of revenue, other major expense categories are related to marketing
and rewards programs that add new Card Members and promote Card
Member loyalty and spending, and provisions for Card Member credit
and fraud losses.

FINANCIAL HIGHLIGHTS
For 2013, the Company reported net income of $5.4 billion and
diluted earnings per share of $4.88. This compared to $4.5 billion of
net income and $3.89 diluted earnings per share for 2012 and $4.9
billion of net income and $4.09 diluted earnings per share from
continuing operations for 2011.

2013 included a fourth quarter charge of $66 million ($41 million
after-tax) related to a proposed merchant litigation settlement.

FINANCIAL REVIEW

this Financial Review,

The financial section of American Express Company’s Annual Report
consists of
the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements.
The following discussion is designed to provide perspective and
understanding regarding the consolidated financial condition and
results of operations. Certain key terms are defined in the Glossary of
Selected Terminology.

This Financial Review and the Notes to the Consolidated Financial

Statements exclude discontinued operations unless otherwise noted.

Services

(USCS),

International Card

EXECUTIVE OVERVIEW
BUSINESS INTRODUCTION
American Express Company (the Company) is a global services
company, comprised of four reportable operating segments: U.S. Card
Services
(ICS), Global
Commercial Services (GCS) and Global Network and Merchant
Services (GNMS). The Company 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. The Company’s range
of products and services includes:
(cid:2) charge and credit card products;
(cid:2) expense management products and services;
(cid:2) consumer and business travel services;
(cid:2) stored-value products such as Travelers Cheques and other prepaid

products;

(cid:2) network services;
(cid:2) merchant acquisition and processing, servicing and settlement, and
point-of-sale, marketing and information products and services for
merchants; and

(cid:2)

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

The Company’s 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
including direct mail, online
applications, in-house and third-party sales forces and direct response
advertising.

channels,

The Company competes in the global payments industry with
charge, credit and debit card networks, issuers and acquirers, as well
as evolving alternative payment mechanisms, systems and products.
As the payments industry continues to evolve, the Company is facing
increasing competition from non-traditional players that leverage new
technologies and customers’ existing card accounts and bank
relationships to create payment or other fee-based solutions. The
Company is transforming its existing businesses and creating new
products and services for the digital marketplace as it seeks to enhance

16

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

2012 results included:
(cid:2) $461 million ($328 million after-tax) of net charges for costs related
to reengineering initiatives, including a $400 million ($287 million
after-tax) restructuring charge in the fourth quarter;

(cid:2) $342 million ($212 million after-tax) in expense resulting from
enhancements to the process that estimates future redemptions of
Membership Rewards points by U.S. Card Members;

(cid:2) $153 million ($95 million after-tax) in charges related to Card
in addition to

Member reimbursements in the fourth quarter,
amounts incurred in prior quarters during the year; and

(cid:2) A tax benefit of $146 million related to the realization of certain

foreign tax credits.

2011 results from continuing operations included:
(cid:2) $300 million and $280 million ($186 million and $172 million after-
tax) of benefits related to the MasterCard and Visa litigation
settlements, respectively;

(cid:2) $188 million ($117 million after-tax)

reflecting
enhancements to the process that estimates future redemptions of
Membership Rewards points by U.S. Card Members;

in expense

(cid:2) $153 million ($106 million after-tax) of net charges for costs related

to reengineering initiatives; and

(cid:2) Tax benefits of $102 million and $77 million related to the favorable
resolution of certain prior years’ tax items and the realization of
certain foreign tax credits, respectively.

FINANCIAL TARGETS
The Company seeks to achieve three financial targets, on average and
over time:
(cid:2) Revenues net of interest expense growth of at least 8 percent;
(cid:2) Earnings per share (EPS) growth of 12 to 15 percent; and
(cid:2) Return on average equity (ROE) of 25 percent or more.

If the Company achieves its EPS and ROE targets, it will seek to return
on average and over time approximately 50 percent of the capital it
generates to shareholders as dividends or through the repurchases of
common stock, which may be subject to certain regulatory restrictions
as described herein.

FORWARD-LOOKING STATEMENTS AND NON-GAAP MEASURES
Certain of the statements in this Annual Report 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.

The Company prepares its Consolidated Financial Statements in
accordance with accounting principles generally accepted in the
United States (GAAP). However, certain information included within
this Annual Report constitute non-GAAP financial measures. The
Company’s calculations of non-GAAP financial measures may differ
from the calculations of similarly titled measures by other companies.

BANK HOLDING COMPANY
The Company is a bank holding company under the Bank Holding
Company Act of 1956 and the Federal Reserve Board (Federal
Reserve) is the Company’s primary federal regulator. As such, the
Company is subject to the Federal Reserve’s regulations, policies and
minimum capital standards.

CURRENT ECONOMIC ENVIRONMENT/OUTLOOK
The Company’s results for 2013 reflect healthy spending growth,
continuing strong credit quality, effective control of operating
expenses and a strong capital position. Despite a challenging economic
environment, billed business grew 7 percent over the prior year. Card
Member billed business volumes grew both in the U.S. and
internationally, and across all of the Company’s businesses.

The Company’s average loans also continued to grow year over
year, which, along with a higher net yield and a lower cost of funds,
led to a 9 percent increase in net interest income. At the same time,
lending write-off rates remained at historically low levels. While the
Company expects lending write-off rates will
increase from such
levels, the Company has not experienced overall credit deterioration,
as total delinquency rates remained consistently low during the year.

in growth opportunities

The Company effectively controlled its expenses, with total
expenses decreasing 1 percent over the prior year. The Company
continued to invest
in the U.S. and
internationally as marketing and promotion expense grew by 5
percent as compared to the prior year. Operating expenses decreased 4
percent as compared to the prior year. Excluding the impact of the
restructuring charge taken in the fourth quarter of 2012, adjusted
operating expenses were flat year over year.1 The Company’s aim is to
have operating expenses grow at an annual rate of less than 3 percent
in 2014.

As discussed below within Certain Legislative, Regulatory and
Other Developments, the regulatory environment continues to evolve
and has heightened the focus that all financial services firms, including
the Company, must have on their controls and processes. The review
of products and practices will be a continuing focus of the Company,
as well as by regulators. In addition, regulation of the payments
industry has increased significantly in recent years and governments
in several countries have established or are proposing to establish
payment system regulatory regimes.

1 Adjusted operating expenses, a non-GAAP measure, is calculated by
excluding from 2012 operating expenses of $13.2 billion the $400
million restructuring charge taken in the fourth quarter of 2012.
The year over year growth rate is calculated by comparing 2012
adjusted operating expenses of $12.8 billion with 2013 operating
expenses of $12.7 billion. Management believes adjusted operating
expenses is a useful metric to evaluate the Company’s performance
against its operating expense goal for 2013.

17

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Competition remains extremely intense across the Company’s
businesses. While the Company’s business is diversified, including the
corporate card business, a large international business and GNS
partners around the world, the global economic environment remains
challenging. In addition, any impact of potential U.S. income tax law
changes or volatility in foreign exchange rates remains uncertain.

As announced during the third quarter of 2013, the Company plans
to create a new joint venture for its Global Business Travel (GBT)
operations. It is expected that GBT’s operations, business relationships
and other assets would be held and operated by the joint venture
entity. As presently contemplated, at the closing of the transaction the
Company would maintain an approximate 50 percent ownership stake
in the joint venture, while an investor group would own the remaining
interest. The transaction remains subject to the execution of definitive
agreements and receipt of regulatory and other approvals. Assuming
these conditions are met, the Company would plan to close the
transaction in the second quarter of 2014. The Company would expect
to use a substantial portion of any gain recognized upon a closing of
the transaction to invest in the Company’s growth initiatives.

18

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

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.

TABLE 1: SUMMARY OF THE COMPANY’S FINANCIAL PERFORMANCE

Years Ended December 31,
(Millions, except percentages and per share amounts)

Total revenues net of interest expense
Provisions for losses
Expenses
Income from continuing operations
Net income
Earnings per common share from continuing operations – diluted(a)
Earnings per common share – diluted(a)
Return on average equity(b)
Return on average tangible common equity(c)

2013

2012

2011

$ 32,974
2,110
22,976
5,359
5,359
4.88
4.88
27.8%
34.9%

$

$ 31,555
1,990
23,114
4,482
4,482
3.89
3.89
23.1%
29.2%

$

$ 29,962
1,112
21,894
4,899
4,935
4.09
4.12
27.7%
35.8%

$

$

$

Change
2013 vs. 2012

Change
2012 vs. 2011

1,419
120
(138)
877
877
0.99
0.99

4% $
6
(1)
20
20
25
25% $

1,593
878
1,220
(417)
(453)
(0.20)
(0.23)

5%

79
6
(9)
(9)
(5)
(6)%

(a) Earnings per common share from continuing operations — diluted and Earnings per common share — diluted were both reduced by the impact of earnings allocated

to participating share awards and other items of $47 million, $49 million and $58 million for the years ended December 31, 2013, 2012 and 2011, respectively.

(b) ROE is computed by dividing (i) one-year period net income ($5.4 billion, $4.5 billion and $4.9 billion for 2013, 2012 and 2011, respectively) by (ii) one-year average

total shareholders’ equity ($19.3 billion, $19.4 billion and $17.8 billion for 2013, 2012 and 2011, 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 $4.1 billion, $4.2 billion and $4.2 billion as of
December 31, 2013, 2012 and 2011, respectively. The Company believes return on average tangible common equity is a useful measure of the profitability of its
business.

TABLE 2: TOTAL REVENUES NET OF INTEREST EXPENSE SUMMARY

Years Ended December 31,
(Millions, except percentages, per share amounts and ratio data)

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

Discount revenue
Net card fees
Travel commissions and fees
Other commissions and fees
Other
Total non-interest revenues
Total interest income
Total interest expense
Net interest income
Total revenues net of interest expense

$ 18,695
2,631
1,913
2,414
2,274
27,927
7,005
1,958
5,047
$ 32,974

$ 17,739
2,506
1,940
2,317
2,425
26,927
6,854
2,226
4,628
$ 31,555

$ 16,734
2,448
1,971
2,269
2,164
25,586
6,696
2,320
4,376
$ 29,962

$

$

956
125
(27)
97
(151)
1,000
151
(268)
419
1,419

5% $
5
(1)
4
(6)
4
2
(12)
9
4% $

1,005
58
(31)
48
261
1,341
158
(94)
252
1,593

6%
2
(2)
2
12
5
2
(4)
6
5%

TOTAL REVENUES NET OF INTEREST EXPENSE
Discount revenue increased $956 million or 5 percent in 2013 as
in 2012 as
compared to 2012, and $1,005 million or 6 percent
compared to 2011. The 2013 increase reflects a 7 percent increase in
worldwide billed business, which was partially offset by faster growth
in GNS billings than overall Company billings, higher contra-revenue
including cash rebate rewards, and a slight decline in the
items,
average discount rate. U.S. billed business and billed business outside
the U.S. increased 8 percent and 6 percent, respectively, in 2013 as
compared to the prior year, reflecting increases in average spending
per proprietary basic card and basic cards-in-force. Excluding the
impact of changes in foreign exchange rates billed business outside the
U.S. increased 10 percent. See Tables 5 and 6 for more detail on billed
business performance. The 2012 increase in discount revenue as
compared to 2011 reflects an 8 percent increase in worldwide billed
business volumes, partially offset by a slight decline in the average
discount rate and higher contra-revenue items, including cash rebate
rewards and corporate client incentives. The average discount rate was
2.51 percent and 2.52 percent for 2013 and 2012, respectively. Over
time, changes in the mix of spending by location and industry,
certain
volume-related pricing discounts,

investments,

strategic

pricing initiatives and other factors will likely result in further erosion
of the average discount rate.

Net card fees increased $125 million or 5 percent in 2013 as
compared to 2012, and $58 million or 2 percent in 2012 as compared
to 2011. The 2013 increase reflects higher average proprietary cards-
in-force and higher average card fees in ICS and USCS. Excluding the
impact of changes in foreign exchange rates, net card fees increased 8
percent in 2013 compared to 2012.2 The increase in 2012 as compared
to 2011 reflects higher average proprietary cards-in-force.

2 The foreign currency adjusted information, a non-GAAP measure,
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). The Company believes the
presentation of information on a foreign currency adjusted basis is
helpful to investors by making it easier to compare the Company’s
performance in one period to that of another period without the
variability caused by fluctuations in currency exchange rates.

19

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Travel commissions and fees decreased $27 million or 1 percent in
2013 as compared to 2012, and $31 million or 2 percent in 2012 as
compared to 2011. The decrease in 2013 reflects flat sales in business
travel and a 2 percent decline in U.S. consumer travel sales. The
decrease in 2012 as compared to 2011 reflects a 1 percent decline in
worldwide travel sales. In 2012, business travel sales declined 4
percent, while U.S. consumer travel sales increased 12 percent.

Other commissions and fees increased $97 million or 4 percent in
2013 as compared to 2012, and $48 million or 2 percent in 2012 as
compared to 2011. The 2013 increase was primarily due to lower Card
Member reimbursements versus the prior year and marginally higher
late fees and foreign currency conversion revenues, as well as higher
revenue from the Company’s Loyalty Partner business. The increase in
2012 as compared to 2011 reflects higher revenues from the Loyalty
Partner business.

Other revenues decreased $151 million or 6 percent in 2013 as
compared to 2012, and increased $261 million or 12 percent in 2012 as
compared to 2011. The 2013 decrease reflects the effect of a benefit in
the first half of 2012 due to revised estimates of the liability for
uncashed Travelers Cheques in certain international countries. The
decrease also reflects the loss of revenue from the publishing business
and higher Card Member
2013,
in the

fourth quarter of

TABLE 3: PROVISIONS FOR LOSSES SUMMARY

reimbursements within other revenue in 2013 as compared to 2012.
These decreases were partially offset by an increase in Loyalty Edge
revenue from additional client signings and a larger gain on the sale of
investment securities in 2013. The increase in 2012 as compared to
2011 reflects higher gains on the sale of investment securities, higher
GNS partner royalty revenues, and the previously mentioned favorable
effects of revised estimates in the liability for uncashed Travelers
Cheques in international countries.

Interest income increased $151 million or 2 percent in 2013 as
compared to 2012, and $158 million or 2 percent in 2012 as compared
to 2011. The increase in both years reflects an increase in interest on
loans driven by higher average Card Member loans, partially offset by
decreases in interest and dividends on investment securities driven by
lower average investment securities.

Interest expense decreased $268 million or 12 percent in 2013 as
compared to 2012, and $94 million or 4 percent in 2012 as compared
to 2011. The decrease in both years was due to lower interest on
deposits, reflecting a lower cost of funds, partially offset by increases
in average customer deposit balances. The decreases also reflect lower
interest on long-term debt and other, lower average long-term debt
balances and, in 2013, a lower cost of funds on long-term debt.

Years Ended December 31,
(Millions, except percentages)

Charge card
Card Member loans
Other

Total provisions for losses

# Denotes a variance of more than 100 percent.

Change
2013 vs. 2012

Change
2012 vs. 2011

$

2013

789
1,229
92

$

2012

742
1,149
99

$

2011

770
253
89

$

47
80
(7)

$

2,110

$

1,990

$

1,112

$

120

6% $
7
(7)

6% $

(28)
896
10

878

(4)%
#
11

79%

PROVISIONS FOR LOSSES
Charge card provision for losses increased $47 million or 6 percent in
2013 as compared to 2012, and decreased $28 million or 4 percent in
2012 as compared to 2011. The 2013 increase reflects higher average
Card Member receivable balances resulting in higher amounts of net
write-offs, partially offset by a higher reserve release in 2013 than
2012. The 2012 decrease reflects a net reserve release in 2012
compared to a reserve build in 2011. Card Member loans provision for
losses increased $80 million or 7 percent in 2013 as compared to 2012,

and $896 million or over 100 percent in 2012 as compared to 2011.
The 2013 increase reflects lower reserve releases as compared to the
prior year, partially offset by the benefit of lower net write-offs in 2013
due to improved credit performance. The 2012 increase from 2011
reflects a smaller reserve release in 2012 than in 2011. Other provision
for losses decreased $7 million or 7 percent in 2013 as compared to
2012, and increased $10 million or 11 percent in 2012 as compared to
2011.

20

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

TABLE 4: EXPENSES SUMMARY

Years Ended December 31,
(Millions, except percentages)

Marketing and promotion
Card Member rewards
Card Member services

Total marketing, promotion, rewards and Card Member services

Salaries and employee benefits
Other, net

Total expenses

2013

2012

2011

$ 3,043
6,457
767

$ 2,890
6,282
772

$ 2,996
6,218
716

$

10,267

6,191
6,518

9,944

6,597
6,573

9,930

6,252
5,712

Change
2013 vs. 2012

Change
2012 vs. 2011

153
175
(5)

323

(406)
(55)

5%
3
(1)

3

(6)
(1)

$

(106)
64
56

14

345
861

(4)%
1
8

—

6
15

$ 22,976

$ 23,114

$ 21,894

$

(138)

(1)% $

1,220

6%

EXPENSES
Marketing and promotion expenses increased $153 million or 5
percent in 2013 as compared to 2012, and decreased $106 million or 4
percent in 2012 as compared to 2011. The 2013 increase reflects higher
spend on Card Member acquisition marketing. The 2012 decrease
reflects lower loyalty and brand advertising.

Card Member rewards expenses increased $175 million or 3
percent in 2013 as compared to 2012, and $64 million or 1 percent in
2012 as compared to 2011. The 2013 increase reflects higher co-brand
rewards expenses of $283 million, primarily relating to higher
spending volumes, partially offset by a decrease in Membership
Rewards expenses of $108 million. The 2013 decrease in Membership
Rewards expenses resulted primarily from:
(cid:2) a $208 million decrease related to the liability for Membership
Rewards points earned by Card Members but not redeemed. This
decrease includes the impact of a $342 million prior year expense
relating to enhancements made to the U.S. URR estimation process
which was partially offset by a net increase in expenses related to
slower average declines in the WAC per point assumption and slower
average growth in the URR as compared to the prior year, and

(cid:2) a $100 million increase relating to higher new points earned. The
increase for new points earned in 2013 was lower than the 2012
increase, primarily as a result of a decline in WAC per point during
2013, in relation to 2012.

The 2012 increase reflects higher co-brand rewards expenses of $148
million, primarily relating to higher spending volumes, partially offset
by a decrease in Membership Rewards expenses of $84 million. The
2012 decrease in Membership Rewards expenses resulted primarily
from:
(cid:2) a $353 million decrease related to the liability for Membership
Rewards points earned by Card Members but not yet redeemed.
This decrease includes the aforementioned enhancements to the
U.S. URR estimation process of $342 million recognized in 2012
which was more than offset by a $188 million expense relating to
enhancements to the U.S. URR estimation process in 2011 and a net
decrease in expenses related to slower average URR growth and
favorable changes in the WAC per point assumption, and
(cid:2) a $269 million increase relating to higher new points earned.

The Company’s Membership Rewards URR for current program
participants was 94 percent (rounded down) at December 31, 2013, an

increase from 94 percent (rounded up) at December 31, 2012 and 92
percent (rounded down) at December 31, 2011. The increases in the
URR reflect greater engagement
in the Company’s Membership
Rewards program.

Card Member services expenses decreased $5 million or 1 percent
in 2013 compared to 2012, and increased $56 million or 8 percent in
2012 as compared to 2011. The 2012 increase was driven by increases
in the costs associated with enhanced benefits to U.S. Card Members.

Salaries and employee benefits expenses decreased $406 million or
6 percent in 2013 as compared to 2012, and increased $345 million or
6 percent in 2012 as compared to 2011. The change in both years was
primarily driven by the restructuring charge in the fourth quarter of
2012.

2013 decrease

Other, net decreased $55 million or 1 percent in 2013 as compared
to 2012, and increased $861 million or 15 percent in 2012 as compared
to 2011. The
reflects higher Card Member
reimbursements and investment impairments in the prior year. This
decrease was partially offset by higher professional services expenses
in the current year driven by increased investments in technology
development and other investments in the business, as well as higher
occupancy and equipment expenses, primarily reflecting higher data
processing expenses as well as the fourth quarter proposed merchant
litigation settlement. The 2012 increase reflects the absence of the
benefits of the Visa and MasterCard litigation settlement payments
that ceased in the fourth quarter 2011. In addition, the increase
includes higher costs associated with Card Member reimbursements of
$143 million in 2012, as well as impairments of certain cost method
investments.

INCOME TAXES
The effective tax rate on continuing operations was 32.1 percent in
2013 compared to 30.5 percent in 2012 and 29.6 percent in 2011. The
tax rate for 2013 included benefits of $150 million related to the
resolution of certain prior years’ items. The tax rates for 2012 and
2011 included benefits of $146 million and $77 million, respectively,
related to the realization of certain foreign tax credits. The tax rate for
2011 also included a benefit of $102 million related to the resolution
of certain prior years’ tax items.

The tax rates in all years reflect the level of pretax income in
relation to recurring permanent tax benefits and variances in the
geographic mix of business.

21

TABLE 5: SELECTED STATISTICAL INFORMATION

Years Ended December 31,

Card billed business: (billions)
United States
Outside the United States

Total

Total cards-in-force: (millions)
United States
Outside the United States

Total

Basic cards-in-force: (millions)
United States
Outside the United States

Total

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

$

$

637.0
315.4

952.4

$

$

53.1
54.1

107.2

41.1
44.0

85.1

$

$

590.7
297.7

888.4

52.0
50.4

102.4

40.3
40.5

80.8

542.8
279.4

822.2

50.6
46.8

97.4

39.3
37.4

76.7

8%
6

7

2
7

5

2
9

5

4
3
2%

9%
7

8

3
8

5

3
8

5

6
—
—%

Average discount rate
Average basic Card Member spending (dollars) (a)
Average fee per card (dollars) (a)
Average fee per card adjusted (dollars) (a)

2.51%

2.52%

2.54%

$

$

16,334
40
44

$

$

15,720
39
43

$

$

14,881
39
43

(a) Average basic Card Member spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net
card fees, 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 $262 million, $257 million and $219 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company presents adjusted average fee per
card because the Company believes this metric presents a useful indicator of card fee pricing across a range of its proprietary card products.

22

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

TABLE 6: SELECTED STATISTICAL INFORMATION

Worldwide(b)
Billed business
Proprietary billed business
GNS billed business(c)
Airline-related volume

(9% and 10% of worldwide billed business

for 2013 and 2012, respectively)

United States(b)
Billed business
Proprietary consumer card billed

business(d)

Proprietary small business billed

business(d)

Proprietary corporate services billed

business(e)

T&E-related volume

(26% and 27% of U.S. billed business
for 2013 and 2012, respectively)

Non-T&E-related volume

(74% and 73% of U.S. billed business
for 2013 and 2012, respectively)

Airline-related volume

(8% and 9% of U.S. billed business
for 2013 and 2012, respectively)

Outside the United States(b)
Billed business

Japan, Asia Pacific & Australia (JAPA)

billed business

Latin America & Canada (LACC)

billed business

Europe, the Middle East & Africa

(EMEA) billed business

Proprietary consumer and small business billed business(f)

JAPA billed business
LACC billed business
EMEA billed business

Proprietary corporate services billed business(e)

2013

2012

Percentage Increase
(Decrease)

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

Percentage Increase
(Decrease)

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

7%
6
12

3

8

7

11

8

6

9

4

6

6

6

7
2
(4)
4
7
2%

8%
7
16

3

10

13

11

6
6
6
7
6
3%

8%
8
10

3

9

8

12

11

6

10

4

7

12

7

—
4
7
5
(1)
3%

9%
8
14

4

10

12

12

5
6
7
8
4
7%

(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-earlier period against which such
results are being compared). The Company believes the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to
compare the Company’s performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.

(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.
Included in the ICS segment.
(f)

23

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

TABLE 7: SELECTED STATISTICAL INFORMATION

As of or for the Years Ended December 31,
(Millions, except percentages and where indicated)

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

Worldwide Card Member receivables
Total receivables (billions)
Loss reserves:
Beginning balance

Provisions(a)
Other additions(b)
Net write-offs(c)
Other deductions(d)

Ending balance

% of receivables
Net write-off rate – principal only – USCS(e)
Net write-off rate – principal and fees – USCS(e)
30 days past due as a % of total – USCS
Net loss ratio as a % of charge volume – ICS/GCS
90 days past billing as a % of total – ICS/GCS

Worldwide Card Member loans
Total loans (billions)
Loss reserves:
Beginning balance

Provisions(a)
Other additions(b)
Net write-offs – principal only(c)
Net write-offs – interest and fees(c)
Other deductions(d)

Ending balance

Ending reserves – principal only
Ending reserves – interest and fees
% of loans
% of past due
Average loans (billions)
Net write-off rate – principal only(e)
Net write-off rate – principal, interest and fees(e)
30 days past due as a % of total
Net interest income divided by average loans(f)
Net interest yield on Card Member loans(f)

$

44.2

$

42.8

$

40.9

3%

5%

428
647
142
(669)
(162)

438
601
141
(640)
(112)

$

386

$

428

$

0.9%
1.7%
1.9%
1.6%
0.12%
1.0%

1.0%
1.9%
2.1%
1.8%
0.10%
0.9%

386
603
167
(560)
(158)

438

1.1%
1.7%
1.9%
1.9%
0.09%
0.9%

(2)
8
1
5
45

13
—
(16)
14
(29)

(10)%

(2)%

$

67.2

$

65.2

$

62.6

3%

4%

1,471
1,114
115
(1,141)
(150)
(148)

1,261

1,212
49
1.9%
169%
63.3

1.8%
2.0%
1.1%
8.0%
9.3%

$

$
$

$

1,874
1,031
118
(1,280)
(157)
(115)

1,471

1,423
48
2.3%
182%
61.5

2.1%
2.3%
1.2%
7.5%
9.1%

$

$
$

$

3,646
145
108
(1,720)
(201)
(104)

1,874

1,818
56
3.0%
206%
59.1
2.9%
3.3%
1.5%
7.4%
9.1%

$

$
$

$

(22)
8
(3)
(11)
(4)
29

(14)

(15)
2

(49)
#
9
(26)
(22)
11

(22)

(22)
(14)

3%

4%

# Denotes a variance greater than 100 percent.
(a) Provisions for principal (resulting from authorized transactions), interest and/or fees on Card Member loans and principal (resulting from authorized transactions)

and fee reserve components on Card Member receivables.

(b) Provisions for unauthorized transactions.
(c) Net write-offs, less recoveries.
(d) For Card Member receivables, includes net write-offs resulting from unauthorized transactions of $(160) million, $(141) million and $(161) million for the years ended
December 31, 2013, 2012 and 2011, respectively; foreign currency translation adjustments of $(4) million, $2 million and $(2) million for the years ended
December 31, 2013, 2012 and 2011, respectively; a reclassification of Card Member bankruptcy reserves of $18 million from other liabilities to credit reserves in 2012;
and other items of $2 million, $9 million and $5 million for the years ended December 31, 2013, 2012 and 2011, respectively. For Card Member loans, includes net
write-offs for unauthorized transactions of $(130) million, $(116) million and $(103) million for the years ended December 31, 2013, 2012 and 2011, respectively;
foreign currency translation adjustments of $(12) million, $7 million and $(2) million for the years ended December 31, 2013, 2012 and 2011, respectively; a
reclassification of Card Member bankruptcy reserves of $4 million from other liabilities to credit reserves in 2012; and other items of $(6) million, $(10) million and $1
million for the years ended December 31, 2013, 2012 and 2011, respectively.

(e) 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’s practice is to include uncollectible interest and/or fees as part of its total provision for losses, a net write-off rate including principal, interest
and/or fees is also presented.

(f) Refer to the following table for the calculation of net interest yield on Card Member loans, a non-GAAP measure, net interest income divided by average loans, a GAAP

measure, and the Company’s rationale for presenting net interest yield on Card Member loans.

24

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Interest and fees on loans and certain investment income is directly
attributable to the segment in which it is reported. Interest expense
reflects an allocated funding cost based on a combination of segment
funding requirements and internal funding rates.

PROVISIONS FOR LOSSES
The provisions for losses are directly attributable to the segment in
which they are reported.

EXPENSES
Marketing and promotion expenses are reflected in each segment
based on actual expenses incurred, with the exception of brand
advertising, which is primarily reflected in the GNMS and USCS
segments. Rewards and Card Member services expenses are reflected
in each segment based on actual expenses incurred within each
segment.

related to the Company’s

Salaries and employee benefits and other operating expenses reflect
expenses such as professional services, occupancy and equipment and
communications incurred directly within each segment. In addition,
expenses
such as
technology costs, are allocated to each segment primarily based on
support service activities directly attributable to the segment. Other
overhead expenses, such as staff group support functions, are allocated
from Corporate & Other to the other segments based on a mix of each
segment’s direct consumption of services and relative level of pretax
income.

services,

support

CAPITAL
Each business segment
is allocated capital based on established
business model operating requirements, risk measures and regulatory
capital requirements. Business model operating requirements include
capital needed to support operations and specific balance sheet items.
The risk measures include considerations for credit, market and
operational risk.

INCOME TAXES
An income tax provision (benefit) is allocated to each business
segment based on the effective tax rates applicable to various
businesses that comprise the segment.

TABLE 8: NET INTEREST YIELD ON CARD MEMBER LOANS

Years Ended December 31,
(Millions, except percentages and where
indicated)

Net interest income
Exclude:

Interest expense not attributable to the

2013

2012

2011

$ 5,047

$ 4,628

$ 4,376

Company’s Card Member loan portfolio

1,181

1,366

1,445

Interest income not attributable to the

Company’s Card Member loan portfolio

(361)

(401)

(476)

Adjusted net interest income(a)

$ 5,867

$ 5,593

$ 5,345

Average loans (billions)
Exclude:

Unamortized deferred card fees, net of

direct acquisition costs of Card Member
loans, and other (billions)

$ 63.3

$

61.5

$

59.1

(0.3)

(0.2)

(0.1)

Adjusted average loans (billions)(a)

$ 63.0

$

61.3

$

59.0

Net interest income divided by average loans
Net interest yield on Card Member loans(a)

8.0%
9.3%

7.5%
9.1%

7.4%
9.1%

(a) Adjusted average loans, adjusted net interest income and net interest yield on
Card Member loans are non-GAAP measures. The Company believes
adjusted net interest income and adjusted average loans are useful to
investors because they are components of net interest yield on Card Member
loans, which provides a measure of profitability of the Company’s Card
Member loan portfolio.

the

BUSINESS SEGMENT RESULTS OVERVIEW
The Company considers a combination of factors when evaluating the
composition of its reportable operating segments, including the results
reviewed by
economic
characteristics, products and services offered, classes of customers,
product distribution channels, geographic considerations (primarily
U.S. versus non-U.S.) and regulatory environment considerations.
Refer to Note 25 of
the Consolidated Financial Statements for
additional discussion of the products and services by segment.

operating decision maker,

chief

Results of the business segments essentially treat each segment as a
stand-alone business. The management reporting process that derives
these
various
methodologies as described below.

allocates

revenue

expense

results

using

and

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

TOTAL REVENUES NET OF INTEREST EXPENSE
The Company allocates discount revenue and certain other revenues
among segments using a transfer pricing methodology. Within the
USCS, ICS and GCS segments, discount revenue reflects the issuer
component of
revenue generated by each
segment’s Card Members; within the GNMS segment, discount
revenue reflects the network and acquirer component of the overall
discount revenue. Net card fees and travel commissions and fees are
directly attributable to the segment in which they are reported.

the overall discount

25

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

U.S. CARD SERVICES SEGMENT
TABLE 9: USCS SELECTED INCOME STATEMENT DATA

Years Ended December 31,
(Millions, except percentages)

Revenues

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

Discount revenue, net card fees and other

$ 12,123

$ 11,469

$ 10,804

$

Interest income
Interest expense

Net interest income

Total revenues net of interest expense
Provisions for losses

Total revenues net of interest expense after provisions for losses

Expenses

Marketing, promotion, rewards and Card Member services
Salaries and employee benefits and other operating expenses

Total expenses

Pretax segment income
Income tax provision

Segment income

Effective tax rate

5,565
693

4,872

16,995
1,417

15,578

6,825
3,759

10,584

4,994
1,801

5,342
765

4,577

16,046
1,429

14,617

6,552
3,996

10,548

4,069
1,477

5,074
807

4,267

15,071
687

14,384

6,593
3,662

10,255

4,129
1,449

$ 3,193

$ 2,592

$ 2,680

$

36.1%

36.3%

35.1%

654

223
(72)

295

949
(12)

961

273
(237)

36

925
324

601

6% $

4
(9)

6

6
(1)

7

4
(6)

—

23
22

23% $

665

268
(42)

310

975
742

233

(41)
334

293

(60)
28

(88)

6%

5
(5)

7

6
#

2

(1)
9

3

(1)
2

(3)%

# Denotes a variance greater than 100 percent.

USCS issues a wide range of card products and services to consumers
and small businesses in the U.S., and provides consumer travel
services to Card Members and other consumers.

TOTAL REVENUES NET OF INTEREST EXPENSE
Discount revenue, net card fees and other revenues increased $654
million or 6 percent in 2013 as compared to the prior year, primarily
due to higher discount revenue, resulting from billed business growth,
and higher net card fees, partially offset by higher Card Member
reimbursements within other revenue. Billed business increased 8
percent in 2013 as compared to the prior year, primarily driven by a 5
percent increase in average spending per proprietary basic card and 4
percent higher cards-in-force.

Interest income increased $223 million or 4 percent in 2013 as
compared to the prior year, primarily due to a 4 percent increase in
average Card Member loans and higher net interest yield on Card
Member loans as compared to the prior year.

Interest expense decreased $72 million or 9 percent in 2013 as
compared to the prior year, due to a lower cost of funds, partially
offset by higher average Card Member receivable and loan balances.

Total revenues net of interest expense increased $975 million or 6
percent in 2012 as compared to the prior year, primarily driven by
higher discount revenue, increased net interest income, higher other
revenues and higher net card fees.

PROVISIONS FOR LOSSES
Provisions for losses decreased $12 million or 1 percent in 2013 as
compared to the prior year.

Provisions for losses increased $742 million or over 100 percent in
2012 as compared to the prior year, primarily reflecting a smaller
reserve release in 2012 than in 2011, partially offset by lower net write-
offs in 2012.

Refer to Table 10 for the lending and charge card write-off rates for

2013, 2012 and 2011.

EXPENSES
Marketing, promotion, rewards and Card Member services expenses
increased $273 million or 4 percent in 2013 as compared to the prior
year, primarily reflecting higher marketing and promotion expenses and
higher Card Member rewards in 2013. Card Member rewards expenses
increased $78 million or 2 percent in 2013 as compared to 2012. The
increase reflects higher co-brand rewards expenses of $265 million,
primarily related to higher spending volumes, partially offset by a
decrease in Membership Rewards expenses of $187 million. The 2013
decrease in Membership Rewards expenses resulted primarily from an
increase in expenses relating to higher new points earned which was
more than offset by a decrease in expenses related to the liability for
Membership Rewards points earned by Card Members but not
redeemed. This decrease includes the impact of a $317 million prior year
expense relating to enhancements made to the U.S. URR estimation
process which was partially offset by a net increase in expenses related to
slower average declines in the WAC per point assumption and slower
average growth in the URR as compared to the prior year.

Marketing, promotion, rewards and Card Member services expenses
decreased $41 million or 1 percent in 2012 as compared to the prior
year, due to lower marketing, promotion and rewards expenses, partially
offset by higher Card Member services expenses. Card Member rewards
expenses decreased $33 million or 1 percent in 2012 as compared to
2011. The decrease reflects higher co-brand rewards expenses of $75
million, primarily relating to higher spending volumes, which was more
than offset by a decrease in Membership Rewards expenses of $108
million. The 2012 decrease in Membership Rewards expenses resulted
primarily from an increase in expenses relating to higher new points
earned which was more than offset by a decrease in expenses related to
the liability for Membership Rewards points earned by Card Members
but not yet redeemed. This decrease includes the aforementioned
enhancements to the U.S. URR estimation process of $317 million
recognized in 2012 which was more than offset by a $188 million
expense relating to enhancements to the U.S. URR estimation process in
2011 and a decrease in expenses related to slower average URR growth
and favorable changes in the WAC per point assumption.

26

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

reimbursement

reflecting lower Card Member

Salaries and employee benefits and other operating expenses
decreased $237 million or 6 percent in 2013 as compared to the prior
year,
as
compared to the prior year. The 2013 decrease also reflects the
restructuring charge in the fourth quarter of 2012. Salaries and
employee benefits and other operating expenses increased $334
million or 9 percent in 2012 as compared to the prior year, primarily
driven by higher other operating expenses related to Card Member
reimbursement costs, an increase in expenses related to higher costs
associated with hedging the Company’s fixed rate debt exposures and
higher restructuring charges.

costs,

INCOME TAXES
The tax rate in all periods reflects the benefits from the resolution of
certain prior years’
tax items and the relationship of recurring
permanent tax benefits to varying levels of pretax income.

TABLE 10: USCS SELECTED STATISTICAL INFORMATION

As of or for the Years Ended December 31,
(Millions, except percentages and where indicated)

Card billed business (billions)
Total cards-in-force
Basic cards-in-force
Average basic Card Member spending (dollars)*
U.S. Consumer Travel:

Travel sales
Travel commissions and fees/sales

Total segment assets (billions)
Segment capital
Return on average segment capital(a)
Return on average tangible segment capital(a)

Card Member receivables:

Total receivables (billions)
30 days past due as a % of total
Average receivables (billions)
Net write-off rate – principal only(b)
Net write-off rate – principal, interest and fees(b)

Card Member loans:

Total loans (billions)
30 days past due loans as a % of total
Net write-off rate – principal only(b)
Net write-off rate – principal, interest and fees(b)

Calculation of Net Interest Yield on Card Member Loans:

Net interest income
Exclude:

Interest expense not attributable to the Company’s Card Member loan portfolio
Interest income not attributable to the Company’s Card Member loan portfolio

Adjusted net interest income(c)

Average loans (billions)
Exclude:

Unamortized deferred card fees, net of direct acquisition costs of Card Member

loans (billions)

Adjusted average loans (billions)(c)

Net interest income divided by average loans
Net interest yield on Card Member loans(c)

$

$

$

$
$

$

$

$

2013

501.0
43.7
32.5
15,689

3,967

7.1%

103.5
9,269

35.6%
37.0%

$

$

$

$
$

21.8

1.6%

20.6

$

$

1.7%
1.9%

2012

462.3
42.2
31.3
14,986

4,042

7.6%

98.3
8,714
28.8%
30.1%

$

$

$

$
$

21.1
1.8%

19.8

$

$

1.9%
2.1%

58.4

$

56.0

$

1.1%
1.8%
2.0%

1.2%
2.1%
2.3%

2011

424.3
40.9
30.4
14,124

3,603

8.3%

97.8
8,804

33.0%
34.8%

20.6

1.9%

18.8

1.7%
1.9%

53.7

1.4%
2.9%
3.2%

$

4,872

$

4,577

$

4,267

$

$

$

183
(9)

204
(9)

5,046

54.7

$

$

4,772

52.8

$

$

233
(10)

4,490

50.3

—

—

54.7

$

52.8

$

8.9%
9.2%

8.7%
9.0%

—

50.3

8.5%
8.9%

Change
2013 vs. 2012

Change
2012 vs. 2011

8%
4
4
5

(2)

5
6

3

4

9%
3
3
6

12

1
(1)

2

5

4%

4%

* Proprietary cards only.
(a) Return on average segment capital is calculated by dividing (i) one-year period segment income ($3.2 billion, $2.6 billion and $2.7 billion for 2013, 2012 and 2011,
respectively) by (ii) one-year average segment capital ($9.0 billion for both 2013 and 2012 and $8.1 billion for 2011). Return on average tangible segment capital, a
non-GAAP measure, is computed in the same manner as return on average segment capital except the computation of average tangible segment capital, a non-GAAP
measure, excludes from average segment capital average goodwill and other intangibles of $334 million, $379 million and $425 million as of December 31, 2013, 2012
and 2011, respectively. The Company believes return on average tangible segment capital is a useful measure of the profitability of its business.

(b) Refer to Table 7 footnote (e) on page 24.
(c) Adjusted net interest income, adjusted average loans and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected
Terminology” for the definitions of these terms. The Company believes adjusted net interest income and adjusted average loans are useful to investors because they
are components of net interest yield on Card Member loans, which provides a measure of profitability of the Company’s Card Member loan portfolio.

27

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

INTERNATIONAL CARD SERVICES SEGMENT
TABLE 11: ICS SELECTED INCOME STATEMENT DATA

Years Ended December 31,
(Millions, except percentages)

Revenues

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

Discount revenue, net card fees and other

$ 4,644

$

4,561

$ 4,470

$

Interest income
Interest expense

Net interest income

Total revenues net of interest expense
Provisions for losses

Total revenues net of interest expense after provisions for losses

Expenses

Marketing, promotion, rewards and Card Member services
Salaries and employee benefits and other operating expenses

Total expenses

Pretax segment income
Income tax provision

Segment income

Effective tax rate

1,118
361

757

5,401
444

4,957

2,013
2,301

4,314

643
12

631

$

1,147
402

745

5,306
330

4,976

1,927
2,390

4,317

659
25

634

1,195
426

769

5,239
268

4,971

1,857
2,352

4,209

762
39

723

$

$

1.9%

3.8%

5.1%

$

83

(29)
(41)

12

95
114

(19)

86
(89)

(3)

(16)
(13)

(3)

2% $

(3)
(10)

2

2
35

—

4
(4)

—

(2)
(52)

—% $

91

(48)
(24)

(24)

67
62

5

70
38

108

(103)
(14)

(89)

2%

(4)
(6)

(3)

1
23

—

4
2

3

(14)
(36)

(12)%

ICS issues proprietary consumer and small business cards outside the
U.S.

TOTAL REVENUES NET OF INTEREST EXPENSE
Discount revenue, net card fees and other revenues increased $83
million or 2 percent in 2013 as compared to the prior year, primarily
due to an increase in net card fees, as well as higher Loyalty Partner
commissions and fees and foreign exchange conversion fee revenue.
Excluding the impact of changes in foreign exchange rates, discount
revenue, net card fees and other revenues increased 6 percent in 2013
as compared to the prior year.3

Billed business increased 2 percent in 2013 as compared to the
prior year, primarily reflecting an increase in average spending per
proprietary basic card. Excluding the impact of changes in foreign
exchange rates, billed business increased 6 percent
in 2013 as
compared to the prior year. Refer
to Table 6 for additional
information on billed business by region.

PROVISIONS FOR LOSSES
Provisions for losses increased $114 million or 35 percent in 2013 as
compared to the prior year, primarily driven by a higher provision for
both charge cards and Card Member loans. The increase in charge
card provision reflects higher average receivables resulting in higher
net write-offs and a reserve build in 2013. The increase in Card
Member loans provision reflects a lower reserve release compared to
the prior year, partially offset by lower net write-offs. Excluding the
impact of changes in foreign exchange rates, provisions for losses
increased 38 percent in 2013 as compared to the prior year.3

Provisions for losses increased $62 million or 23 percent in 2012 as
compared to the prior year, primarily driven by higher Card Member
loans provision due to lower reserve releases in 2012, partially offset
by lower charge card provision and lower Card Member lending net
write-off rates.

Refer to Table 12 for the lending and charge write-off rates for

2013, 2012 and 2011.

Interest income decreased $29 million or 3 percent in 2013 as
compared to the prior year, primarily due to lower average Card
Member
related to Card Member
charges
reimbursements in 2013. Excluding the impact of changes in foreign
exchange rates,
in 2013 as
compared to the prior year.3

income increased 1 percent

as well

interest

loans

as

Interest expense decreased $41 million or 10 percent in 2013 as
compared to the prior year, reflecting a lower cost of funds. Excluding
the impact of changes in foreign exchange rates,
interest expense
decreased 6 percent in 2013 as compared to the prior year.3

Total revenues net of interest expense increased $67 million or 1
percent in 2012 as compared to the prior year, primarily due to higher
discount revenue, net card fees and other revenues, partially offset by
lower net interest income.

EXPENSES
Marketing, promotion, rewards and Card Member services expenses
increased $86 million or 4 percent in 2013 as compared to the prior
year, driven primarily by higher Card Member rewards expenses,
which includes a charge related to a change in the International
Membership Rewards URR estimation
certain
international countries, as well as higher marketing and promotion
expenses. Excluding the impact of changes in foreign exchange rates,
marketing, promotion, rewards and Card Member services expenses
increased 8 percent in 2013 as compared to the prior year.3 Marketing,
promotion, rewards and Card Member services expenses increased
$70 million or 4 percent in 2012 as compared to the prior year, driven
by higher volume-related rewards costs and co-brand expenses and
higher Card Member services expenses, partially offset by lower
marketing and promotion expenses.

process

for

3 Refer to footnote 2 on page 19 relating to changes in foreign

exchange rates.

28

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Salaries and employee benefits and other operating expenses
decreased $89 million or 4 percent in 2013 as compared to the prior
year, primarily driven by lower salaries and employee benefits, as well
as lower other operating expenses reflecting the restructuring charge
in the fourth quarter of 2012. Excluding the impact of changes in
foreign exchange rates, salaries and employee benefits and other
operating expenses decreased 1 percent in 2013 as compared to the
prior year.4 Salaries and employee benefits and other operating
expenses increased $38 million or 2 percent in 2012 as compared to
the prior year, primarily due to higher restructuring charges, partially
offset by lower other operating expenses.

INCOME TAXES
The effective tax rate in all periods reflects the recurring permanent
tax benefit related to the segment’s ongoing funding activities outside
the U.S., which is allocated to ICS under the Company’s internal tax
allocation process. The effective tax rate for 2013 also reflects the
allocated share of tax benefits related to the resolution of certain prior
years’ items and the effective tax rate for 2012 and 2011 reflects the
allocated share of tax benefits related to the realization of certain
foreign tax credits. In addition, the effective tax rate in each of the
periods reflects the impact of recurring permanent tax benefits on
varying levels of pretax income.

4 Refer to footnote 2 on page 19 relating to changes in foreign

exchange rates.

29

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

TABLE 12: ICS SELECTED STATISTICAL INFORMATION

As of or for the Years Ended December 31,
(Millions, except percentages and where indicated)

Card billed business (billions)
Total cards-in-force
Basic cards-in-force
Average basic Card Member spending (dollars)*
International Consumer Travel:

Travel sales
Travel commissions and fees/sales

Total segment assets (billions)
Segment capital
Return on average segment capital(a)
Return on average tangible segment capital(a)

Card Member receivables:

Total receivables (billions)
90 days past billing as a % of total
Net loss ratio (as a % of charge volume)

Card Member loans:

Total loans (billions)
30 days past due loans as a % of total
Net write-off rate – principal only(b)
Net write-off rate – principal, interest and fees(b)

Calculation of Net Interest Yield on Card Member Loans:

Net interest income
Exclude:

Interest expense not attributable to the Company’s Card Member loan portfolio
Interest income not attributable to the Company’s Card Member loan portfolio

Adjusted net interest income(c)
Average loans (billions)
Exclude:

Unamortized deferred card fees, net of direct acquisition costs of Card Member

loans, and other (billions)

Adjusted average loans (billions)(c)
Net interest income divided by average loans
Net interest yield on Card Member loans(c)

$

$

$

$
$

$

$

$

$
$

$

$

$

$

$
$

$

$

2013

131.7
15.7
10.7
12,429

1,420

6.9%
31.1
3,132
20.9%
38.8%

7.8
1.1%
0.20%

8.8
1.4%
1.9%
2.3%

2012

128.9
15.6
10.6
12,221

1,372

7.2%
31.8
2,875

21.8%
43.0%

7.8
0.9%
0.16%

9.2
1.5%
1.9%
2.4%

$

$

$

$
$

$

$

2011

124.2
15.3
10.5
11,935

1,324

7.8%
29.1
2,840

25.8%
49.8%

7.2
0.9%
0.15%

8.9
1.7%
2.7%
3.3%

757

$

745

$

769

93
(29)

821
8.5

(0.2)

8.3
8.9%
9.9%

$
$

$

102
(25)

822
8.7

(0.2)

8.5
8.5%
9.6%

$
$

$

125
(38)

856
8.8

(0.1)

8.7
8.8%
9.9%

Change
2013 vs. 2012

Change
2012 vs. 2011

2%
1
1
2

3

(2)
9

—

4%
2
1
2

4

9
1

8

(4)%

3%

* Proprietary cards only.
(a) Return on average segment capital is calculated by dividing (i) one-year period segment income ($631 million, $634 million and $723 million for 2013, 2012 and 2011,
respectively) by (ii) one-year average segment capital ($3.0 billion, $2.9 billion and $2.8 billion for 2013, 2012 and 2011, respectively). Return on average tangible
segment capital, a non-GAAP measure, is computed in the same manner as return on average segment capital except the computation of average tangible segment
capital, a non-GAAP measure, excludes from average segment capital average goodwill and other intangibles of $1.4 billion at both December 31, 2013 and 2012 and
$1.3 billion as of December 31, 2011. The Company believes return on average tangible segment capital is a useful measure of the profitability of its business.

(b) Refer to Table 7 footnote (e) on page 24.
(c) Adjusted net interest income, adjusted average loans and net interest yield on Card Member loans are non-GAAP measures. The Company believes adjusted net
interest income and adjusted average loans are useful to investors because they are components of net interest yield on Card Member loans, which provides a
measure of profitability of the Company’s Card Member loan portfolio.

30

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

GLOBAL COMMERCIAL SERVICES SEGMENT
TABLE 13: GCS SELECTED INCOME STATEMENT DATA

Years Ended December 31,
(Millions, except percentages)

Revenues

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

Discount revenue, net card fees and other

$

5,085

$

4,995

$

4,880

$

Interest income
Interest expense

Net interest expense

Total revenues net of interest expense
Provisions for losses

Total revenues net of interest expense after provisions for losses

Expenses

Marketing, promotion, rewards and Card Member services
Salaries and employee benefits and other operating expenses

Total expenses

Pretax segment income
Income tax provision

Segment income

Effective tax rate

13
245

11
257

(232)

(246)

4,853
159

4,694

604
2,846

3,450

1,244
384

$

860

$

4,749
136

4,613

579
3,074

3,653

960
316

644

9
264

(255)

4,625
76

4,549

547
2,927

3,474

1,075
337

$

738

$

30.9%

32.9%

31.3%

90

2
(12)

(14)

104
23

81

25
(228)

(203)

284
68

216

2% $

115

2%

18
(5)

(6)

2
17

2

4
(7)

(6)

30
22

34% $

2
(7)

(9)

124
60

64

32
147

179

(115)
(21)

(94)

22
(3)

(4)

3
79

1

6
5

5

(11)
(6)

(13)%

GCS offers global corporate payment and travel-related products and
services to large and mid-sized companies.

TOTAL REVENUES NET OF INTEREST EXPENSE
Discount revenue, net card fees, and other revenues increased $90
million or 2 percent in 2013 as compared to the prior year, primarily
due to higher discount revenue resulting from an increased level of
Card Member spending and higher other commissions and fees. Billed
business increased 5 percent in 2013 as compared to the prior year,
primarily driven by a 5 percent increase in average spending per
proprietary basic card. Billed business volume increased 8 percent
within the U.S. and 2 percent outside the U.S.

Net interest expense decreased $14 million or 6 percent in 2013 as
compared to the prior year, primarily driven by a lower cost of funds,
partially offset by increased funding requirements due to higher
average Card Member receivable balances. Excluding the impact of
changes in foreign exchange rates, net interest expense decreased 3
percent for 2013 as compared to the prior year.5

Total revenues net of interest expense increased $124 million or 3
percent in 2012 as compared to the prior year, primarily due to higher
discount revenue, net card fees, and other revenues.

PROVISIONS FOR LOSSES
Provisions for losses increased $23 million or 17 percent in 2013 as
compared to the prior year, primarily reflecting higher average Card
Member receivables resulting in higher net write-offs, partially offset
by a lower reserve build compared to the prior year. Provisions for
losses increased $60 million or 79 percent in 2012 as compared to the
prior year, reflecting a change in estimate for certain credit reserves
that resulted in higher reserve releases in 2011. Refer to Table 14 for
the charge card net loss ratio as a percentage of charge volume.

EXPENSES
Marketing, promotion, rewards and Card Member services expenses
increased $25 million or 4 percent in 2013 as compared to the prior
year, primarily reflecting higher rewards costs related to higher
volumes and an enhancement
in the International Membership
Rewards URR estimation process. Marketing, promotion, rewards and
Card Member services expenses increased $32 million or 6 percent in
2012 as compared to the prior year, primarily due to a $25 million
charge related to a change in the U.S. Membership Rewards URR
estimation process.

Salaries and employee benefits and other operating expenses
decreased $228 million or 7 percent in 2013 as compared to the prior
year, primarily due to higher restructuring costs in 2012, as well as
lower payroll and benefit costs in 2013. Salaries and employee benefits
and other operating expenses increased $147 million or 5 percent in
2012 as compared to the prior year, primarily driven by higher
restructuring charges and other operating expenses.

INCOME TAXES
The effective tax rate for 2013 reflects the reversal of a valuation
allowance related to deferred tax assets associated with certain of the
Company’s non-U.S. business
the
allocated share of tax benefits related to the resolution of certain prior
years’ tax items. Based on management’s intent to reorganize its
business travel operations through the creation of a joint venture, it is
more likely than not that future taxable income will be sufficient to
support
the associated non-US
deferred tax assets.

travel operations, as well as

the realization of

the benefit of

5 Refer to footnote 2 on page 19, relating to changes in foreign

exchange rates.

31

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

The effective tax rate for 2012 and 2011 reflects the allocated share
of tax benefits related to the realization of certain foreign tax credits.
The effective tax rate for 2012 also reflects the impact of a valuation

allowance primarily related to restructuring charges associated with
certain non-U.S. travel operations.

TABLE 14: GCS SELECTED STATISTICAL INFORMATION

As of or for the Years Ended December 31,
(Millions, except percentages and where indicated)

Card billed business (billions)
Total cards-in-force
Basic cards-in-force
Average basic Card Member spending (dollars)*
Global Corporate Travel:

Travel sales
Travel commissions and fees/sales

Total segment assets (billions)
Segment capital
Return on average segment capital(a)
Return on average tangible segment capital(a)
Card Member receivables:

Total receivables (billions)
90 days past billing as a % of total
Net loss ratio (as a % of charge volume)

$

$

$

$
$

$

2013

175.4
7.1
7.1
24,924

18,869

8.1%

19.2
3,688

23.6%
45.8%

14.4
0.9%
0.08%

$

$

$

$
$

$

2012

166.4
7.0
7.0
23,737

18,894

8.1%

18.9
3,625

17.6%
35.1%

13.7
0.8%
0.06%

$

$

$

$
$

$

2011

154.2
7.0
7.0
21,898

19,618

8.0%
18.8
3,564

20.4%
42.1%

12.8
0.8%
0.06%

Change
2013 vs. 2012

Change
2012 vs. 2011

5%
1
1
5

—

2
2

8%
—
—
8

(4)

1
2

5%

7%

Proprietary cards only.

*
(a) Return on average segment capital is calculated by dividing (i) one-year period segment income ($860 million, $644 million and $738 million for 2013, 2012 and 2011,
respectively) by (ii) one-year average segment capital ($3.6 billion for each of 2013, 2012 and 2011). Return on average tangible segment capital, a non-GAAP
measure, is computed in the same manner as return on average segment capital except the computation of average tangible segment capital, a non-GAAP measure,
excludes from average segment capital average goodwill and other intangibles of $1.8 billion at both December 31, 2013 and 2012 and $1.9 billion at December 31,
2011. The Company believes return on average tangible segment capital is a useful measure of the profitability of its business.

32

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

GLOBAL NETWORK & MERCHANT SERVICES SEGMENT
TABLE 15: GNMS SELECTED INCOME STATEMENT DATA

Years Ended December 31,
(Millions, except percentages)

Revenues

2013

2012

2011

Change
2013 vs. 2012

Change
2012 vs. 2011

Discount revenue, net card fees and other

$ 5,229

$ 5,005

$

4,713

$

224

4% $

292

6%

Interest income
Interest expense

Net interest income

Total revenues net of interest expense
Provisions for losses

Total revenues net of interest expense after provisions for losses

Expenses

Marketing, promotion, rewards and Card Member services
Salaries and employee benefits and other operating expenses

Total expenses

Pretax segment income
Income tax provision

Segment income

Effective tax rate

32
(252)

284

5,513
69

5,444

704
2,271

2,975

2,469
894

23
(243)

266

5,271
74

5,197

744
2,234

2,978

2,219
776

5
(224)

229

4,942
75

4,867

755
2,133

2,888

1,979
686

$

1,575

$

1,443

$

1,293

$

36.2%

35.0%

34.7%

9
(9)

18

242
(5)

247

(40)
37

(3)

250
118

132

39
4

7

5
(7)

5

(5)
2

—

11
15

9% $

18
(19)

37

329
(1)

330

(11)
101

90

240
90

150

#
8

16

7
(1)

7

(1)
5

3

12
13

12%

# Denotes a variance greater than 100 percent.

GNMS operates a global payments network which processes and
settles proprietary and non-proprietary card transactions. GNMS
acquires merchants and provides point-of-sale products, multi-
channel marketing programs and capabilities, services and data,
leveraging the Company’s global closed-loop network. It provides
ATM services and enters into partnership agreements with third-party
card issuers and acquirers, licensing the American Express brand and
extending the reach of the global network.

TOTAL REVENUES NET OF INTEREST EXPENSE
Discount revenue, net card fees and other revenues increased $224
million or 4 percent in 2013 as compared to the prior year. The
increase primarily reflects higher merchant-related revenues, driven
by a 7 percent increase in global card billed business, as well as higher
GNS revenues.

The interest expense credit increased $9 million or 4 percent in
2013 as compared to the prior year, reflecting the Company’s internal
transfer pricing and funding rates, which results in a net benefit for
GNMS due to its merchant payables.

Total revenues net of interest expense increased $329 million or 7
percent in 2012 as compared to the prior year, primarily due to higher
discount revenue, net card fees and other revenues and higher net
interest income.

PROVISIONS FOR LOSSES
Provisions for losses decreased $5 million or 7 percent in 2013 as
compared to the prior year. Provisions for losses decreased $1 million
or 1 percent in 2012 as compared to the prior year.

EXPENSES
Marketing, promotion, rewards and Card Member services expenses
decreased $40 million or 5 percent in 2013 as compared to 2012 and
$11 million or 1 percent in 2012 compared to 2011. The decrease in
both years reflects lower marketing and promotion expenses.

Salaries and employee benefits and other operating expenses
increased $37 million or 2 percent in 2013 as compared to the prior
year, primarily reflecting increased other operating expenses related to
the proposed merchant
litigation settlement, partially offset by
decreases in professional services and salary and employee benefits.
Salaries and employee benefits and other operating expenses increased
$101 million or 5 percent in 2012 as compared to the prior year,
primarily due to higher professional services costs and increases in
salary and employee benefits costs, partially offset by other operating
expenses.

33

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

TABLE 16: GNMS SELECTED STATISTICAL INFORMATION

As of or for the Years Ended December 31,
(Millions, except percentages and where indicated)

Global Worldwide Card billed business (billions)
Global Network & Merchant Services:

Total segment assets (billions)
Segment capital

Return on average segment capital(a)
Return on average tangible segment capital(a)
Global Network Services:

Card billed business (billions)
Total cards-in-force

$

$
$

$

2013

952.4

17.1
1,952
76.8%
84.9%

144.1
40.7

$

$
$

$

2012

888.4

16.5
2,048

68.6%
75.9%

128.8
37.6

$

$
$

$

2011

822.2

17.8
2,037

66.3%
74.3%

116.8
34.2

Change
2013 vs. 2012

Change
2012 vs. 2011

7%

4
(5)

12
8%

8%

(7)
1

10
10%

(a) Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.6 billion, $1.4 billion and $1.3 billion for 2013, 2012 and 2011,
respectively) by (ii) one-year average segment capital ($2.1 billion for both 2013 and 2012 and $1.9 billion for 2011). Return on average tangible segment capital, a
non-GAAP measure, is computed in the same manner as return on average segment capital except the computation of average tangible segment capital, a non-GAAP
measure, excludes from average segment capital average goodwill and other intangibles of $195 million, $203 million and $209 million as of December 31, 2013, 2012
and 2011, respectively. The Company believes return on average tangible segment capital is a useful measure of the profitability of its business.

investment securities and the aforementioned
gains on sales of
favorable effects of revised estimates of the liability for uncashed
international Travelers Cheques.

Results for all periods disclosed also included net interest expense
related to maintaining the liquidity pool discussed in “Consolidated
Capital Resources and Liquidity — Liquidity Management”, as well as
interest expense related to other corporate indebtedness.

CORPORATE & OTHER
Corporate
the
Company’s EGG (including Global Payment Options) and other
Company operations, are included in Corporate & Other.

and auxiliary

businesses,

including

functions

Corporate & Other had net after-tax expense of $900 million, $831
million and $535 million in 2013, 2012 and 2011, respectively. The
increase in net after-tax expense for 2013 was primarily a result of
favorable effects in 2012 of revised estimates of
the liability for
uncashed Travelers Cheques in certain international countries, as well
as higher tax expenses in the current year. The 2013 increase was
partially offset by the impact of restructuring costs in 2012.

The increase in net after-tax expense in 2012 was primarily a result
of the loss of after-tax income related to the MasterCard and Visa
settlements of $186 million and $172 million, respectively which
ended in the fourth quarter of 2011, as well as an increase in
restructuring costs. The 2012 increase was partially offset by higher

34

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

CONSOLIDATED CAPITAL RESOURCES AND
LIQUIDITY
The Company’s balance sheet management objectives are to maintain:
(cid:2) A solid and flexible equity capital profile;
(cid:2) A broad, deep and diverse set of funding sources to finance its assets

and meet operating requirements; and

(cid:2) Liquidity programs that enable the Company to continuously meet
expected future financing obligations and business requirements for
at least a 12-month period, even in the event it is unable to continue
to raise new funds under its traditional funding programs during a
substantial weakening in economic conditions.

CAPITAL STRATEGY
The Company’s objective is to retain sufficient
levels of capital
generated through earnings and other sources to maintain a solid
equity capital base and to provide flexibility to support future business
growth. The Company believes capital allocated to growing businesses
with a return on risk-adjusted equity in excess of its costs will generate
shareholder value.

The level and composition of the Company’s consolidated capital
position are determined through the Company’s internal capital
adequacy assessment process, which reflects its business activities, as
well as marketplace conditions and requirements or expectations of
credit rating agencies, regulators and shareholders, among others. The
Company’s consolidated capital position is also influenced by
subsidiary capital requirements. The Company, as a bank holding
company, is also subject to regulatory requirements administered by
the U.S. federal banking agencies. The Federal Reserve has established
specific capital adequacy guidelines that involve quantitative measures
of assets, liabilities and certain off-balance sheet items.

The Company currently calculates and reports its capital ratios
under the standards commonly referred to as Basel I. The Company
has adopted Basel III in certain non-U.S. jurisdictions and is currently
taking steps toward Basel III advanced approaches implementation in
the U.S. As an advanced approaches institution, the Company will
report its 2014 capital ratios using Basel III capital definitions and
Basel I risk-weighted assets. Beginning in 2015, the Company will
report its capital ratios under the Basel III standardized approach to
risk-weighted assets.

During 2014,

the Company will begin reporting its capital
adequacy standards on a parallel basis to its regulators under Basel
requirements for an advanced approaches institution. The parallel
period will continue until the Company receives regulatory approval
to exit parallel reporting and subsequently begin publicly reporting its
capital
standardized and advanced
approaches.

ratios using both Basel

III

The following table presents the regulatory risk-based capital ratios
and leverage ratios
significant bank
subsidiaries, as well as additional ratios widely utilized in the
marketplace, as of December 31, 2013.

the Company and its

for

TABLE 17: REGULATORY RISK-BASED CAPITAL AND LEVERAGE
RATIOS

Risk-Based Capital

Tier 1

American Express Company
American Express Centurion Bank
American Express Bank, FSB

Total

American Express Company
American Express Centurion Bank
American Express Bank, FSB

Tier 1 Leverage

American Express Company
American Express Centurion Bank
American Express Bank, FSB

Common Equity to Risk-Weighted Assets

American Express Company
Tier 1 Common Risk-Based(b)
American Express Company

Tangible Common Equity to Risk-Weighted

Assets(b)

American Express Company

Well-
Capitalized
Ratios(a)

Ratios as of
December 31,
2013

6%

10

5%

12.5%
19.9
15.6

14.4
21.2
17.7

10.9
19.0
17.5

15.1

12.5

12.0%

(a) As defined by the Federal Reserve.
(b) Refer to page 36 for a reconciliation of Tier 1 common equity and tangible

common equity, both non-GAAP measures.

The following provides definitions for the Company’s regulatory risk-
based capital ratios and leverage ratio, which are calculated as per
standard regulatory guidance, if applicable:

Risk-Weighted Assets — Assets are weighted for risk according to a
formula used by the Federal Reserve to conform to capital adequacy
guidelines. On- and off-balance sheet items are weighted for risk, with
off-balance sheet items converted to balance sheet equivalents, using
risk conversion factors, before being allocated a risk-adjusted weight.
The off-balance sheet items comprise a minimal part of the overall
calculation. Risk-weighted assets under Basel I as of December 31,
2013 were $129.5 billion.

35

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Tier 1 Risk-Based Capital Ratio — The Tier 1 capital ratio is calculated
as Tier 1 capital divided by risk-weighted assets. Tier 1 capital is the
sum of common shareholders’ equity, certain perpetual preferred
stock (not applicable to the Company), and non-controlling interests
in consolidated subsidiaries, adjusted for ineligible goodwill and
intangible assets, as well as certain other comprehensive income items
as follows: net unrealized gains/losses on securities and derivatives,
and net unrealized pension and other postretirement benefit losses, all
net of tax. Tier 1 capital as of December 31, 2013 was $16.2 billion.
This ratio is commonly used by regulatory agencies to assess a
financial institution’s financial strength. Tier 1 capital is the primary
form of capital used to absorb losses beyond current loss accrual
estimates.

Total Risk-Based Capital Ratio — The total risk-based capital ratio is
calculated as the sum of Tier 1 capital and Tier 2 capital, divided by
risk-weighted assets. Tier 2 capital is the sum of the allowance for
receivable and loan losses (limited to 1.25 percent of risk-weighted
assets) and 45 percent of the unrealized gains on equity securities, plus
a $750 million subordinated hybrid security, for which the Company
received approval from the Federal Reserve for treatment as Tier 2
capital. Tier 2 capital as of December 31, 2013 was $2.4 billion. The
$750 million subordinated hybrid security is not expected to meet the
requirements of Tier 2 capital under Basel III, and will begin to be
transitioned out of capital beginning in 2014. See “Basel III” below.

Tier 1 Leverage Ratio — The Tier 1 leverage ratio is calculated by
dividing Tier 1 capital by the Company’s average total consolidated
assets for the most recent quarter. Average total consolidated assets as
of December 31, 2013 were $148.6 billion.

The following provides definitions for capital ratios widely used in the
marketplace, although they may be calculated differently by different
companies:

Tier 1 Common Risk-Based Capital Ratio — The Tier 1 common risk-
based capital ratio is calculated as Tier 1 common equity, a non-GAAP
measure, divided by risk-weighted assets. Tier 1 common equity is
calculated by reference to total shareholders’ equity as shown below:

TABLE 18: TOTAL TIER 1 COMMON EQUITY

(Billions)

December 31,
2013

Total shareholders’ equity
Net effect of certain items in accumulated other

comprehensive loss excluded from Tier 1 common equity

Less: Ineligible goodwill and intangible assets
Less: Ineligible deferred tax assets

Total Tier 1 common equity

$

$

19.5

0.4
(3.5)
(0.2)

16.2

The Company believes the Tier 1 common risk-based capital ratio is
useful because it can be used to assess and compare the quality and
composition of
the Company’s capital with the capital of other
financial services companies. Moreover, Basel III includes measures
that rely on the Tier 1 common risk-based capital ratio.

Common Equity and Tangible Common Equity to Risk-Weighted Assets
Ratios — Common equity equals the Company’s shareholders’ equity
of $19.5 billion as of December 31, 2013, and tangible common equity,
a non-GAAP measure, equals common equity less goodwill and other
intangibles of $4.0 billion as of December 31, 2013. The Company
believes presenting the ratio of tangible common equity to risk-
weighted assets is a useful measure of evaluating the strength of the
Company’s capital position.

The Company seeks to maintain capital levels and ratios in excess of
the minimum regulatory requirements and finance such capital in a
cost efficient manner; failure to maintain minimum capital
levels
could affect the Company’s status as a financial holding company and
cause the respective regulatory agencies to take actions that could
limit the Company’s business operations.

The Company’s primary source of equity capital has been the
generation of net income. Historically, capital generated through net
income and other sources, such as the exercise of stock options by
capital
employees, has
requirements. To the extent capital has exceeded business, regulatory
and rating agency requirements,
the Company has historically
returned excess capital to shareholders through its regular common
share dividend and share repurchase program.

growth in its

exceeded the

annual

The Company maintains certain flexibility to shift capital across its
businesses as appropriate. For example, the Company may infuse
additional capital
into subsidiaries to maintain capital at targeted
levels in consideration of debt ratings and regulatory requirements.
These infused amounts can affect the capital profile and liquidity
levels at the American Express parent company level. The Company
does not currently intend or foresee a need to shift capital from non-
U.S. subsidiaries with permanently reinvested earnings to a U.S.
parent company.

Basel III
Basel III, when fully phased-in, will require bank holding companies and
their bank subsidiaries to maintain substantially more capital than prior
requirements, with a greater emphasis on common equity. The
Company estimates that had Basel III been fully phased-in during 2013,
its reported Tier 1 risk-based capital and Tier 1 common risk-based
ratios would have been 12.2 percent, and its reported Tier 1 leverage
ratio would have been 10.7 percent. As of December 31, 2013, had the
Basel III rules been effective, the Company’s supplementary leverage
ratio would be 9.0 percent.6 These ratios are calculated using the
standardized approach for determining risk-weighted assets. As noted

6 The capital ratios are non-GAAP measures. The Company believes
the presentation of the capital ratios is helpful to investors by
showing the impact of Basel III.

36

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

the Company is currently taking steps toward Basel

above,
III
advanced approaches implementation in the U.S. The Company’s $750
million subordinated hybrid security, which is presently included in
Tier 2 capital (but not in Tier 1 capital), is not expected to meet the
requirements of Tier 2 capital under Basel III. The disqualification of
this subordinated hybrid security from Tier 2 capital will affect our
total risk-based capital ratio under Basel III; however, this ratio is
expected to remain well in excess of the required minimum.

The following provides definitions for capital ratios as defined by
Basel III using the standardized approach. All calculations are non-
GAAP measures.

Basel III Tier 1 Common Risk-Based Capital Ratio — The Basel III Tier
1 common risk-based capital ratio is calculated as adjusted Tier 1
common equity divided by adjusted risk-weighted assets.

Basel III Tier 1 Risk-Based Capital Ratio — The Basel III Tier 1 risk-
based capital ratio is calculated as adjusted Tier 1 capital divided by
adjusted risk-weighted assets.

The following table presents a comparison of the Company’s Tier 1
and Tier 1 common risk-based capital under Basel I to its estimated
Tier 1 and Tier 1 common risk-based capital under Basel III.

TABLE 19: BASEL I VERSUS BASEL III

(Billions)

December 31,
2013

Tier 1 and Tier 1 Common Risk-Based Capital under Basel I

Adjustments related to:

AOCI(a) for available for sale securities
Pension, other post-retirement benefit costs and other

Estimated Tier 1 and Tier 1 Common Risk-Based Capital under

Basel III(b)

$

$

16.2

0.1
(0.4)

15.9

(a) Accumulated Other Comprehensive Income.
(b) Estimated Basel

III Tier 1 capital and Tier 1 common equity reflects the
Company’s current interpretation of Basel III. The estimated Basel III Tier 1
capital and Tier 1 common equity could change if the Company’s business
changes; and the estimated impact for 2013 is not necessarily indicative of
the impact in future periods.

Basel III Risk-Weighted Assets — The Basel III risk-weighted assets
reflect the Company’s Basel I risk-weighted assets, adjusted for the
impact of the incremental risk weighting applied to deferred tax assets
and significant investments in unconsolidated financial institutions, as
well as exposures to past due accounts, equities and sovereigns. Basel
III risk-weighted assets as of December 31, 2013 were estimated to be
$130.5 billion.

Basel III Tier 1 Leverage Ratio — The Basel III Tier 1 leverage ratio is
calculated by dividing Basel III Tier 1 capital by the Company’s
average total consolidated assets.

Basel III Supplementary Leverage Ratio — The Basel III supplementary
leverage ratio is calculated by dividing Basel III Tier 1 capital by the
Company’s total assets for leverage capital purposes under Basel III.
Total assets for leverage capital purposes includes adjustments for Tier
sheet derivatives, undrawn
1
unconditionally cancellable commitments and other off-balance sheet
liabilities. Total assets for leverage capital purposes as of December 31,
2013 were $176.3 billion.

capital deductions,

off-balance

SHARE REPURCHASES AND DIVIDENDS
The Company has a share repurchase program to return excess capital
to shareholders. The share repurchases reduce shares outstanding and
offset, in whole or part, the issuance of new shares as part of employee
compensation plans.

During 2013, the Company returned approximately $5.0 billion to
its shareholders in the form of dividends ($967 million) and share
repurchases ($4.0 billion). The Company repurchased 55 million
common shares at an average price of $72.51 in 2013. These dividend
and share repurchase amounts represent approximately 81 percent of
total capital generated during the year. This percentage for 2013 is
significantly greater than the on average and over time target to
distribute approximately 50 percent of the capital to shareholders as
dividends or through the repurchases of common stock. These
distribution percentages result from the strength of the Company’s
capital ratios and the amount of capital it generates from net income
and through employee stock plans in relation to the amount of capital
its organic business growth and through
required to support
acquisitions.

On January 6, 2014, the Company submitted its comprehensive
capital plan to the Federal Reserve. The capital plan includes an
analysis of performance and capital availability under certain adverse
economic assumptions. The capital plan was submitted to the Federal
Reserve pursuant
and capital
distributions. The Company expects a response from the Federal
Reserve by March 31, 2014. In the first quarter of 2014, the Company
is expected to execute share repurchases up to $1.0 billion pursuant to
its capital plan that received no objections from the Federal Reserve in
March 2013.

guidance on dividends

to its

FUNDING STRATEGY
The Company’s principal funding objective is to maintain broad and
well-diversified funding sources to allow it to meet its maturing
obligations, cost-effectively finance current and future asset growth in
its global businesses as well as to maintain a strong liquidity profile.
The diversity of funding sources by type of debt instrument, by
maturity and by investor base, among other
factors, provides
additional insulation from the impact of disruptions in any one type of
debt, maturity or investor. The mix of the Company’s funding in any
period will seek to achieve cost efficiency consistent with both
maintaining diversified sources and achieving its liquidity objectives.
The Company’s funding strategy and activities are integrated into its

37

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

asset-liability management activities. The Company has in place a
funding policy covering American Express Company and all of its
subsidiaries.

changes, ability to securitize and sell receivables, and the performance
of receivables previously sold in securitization transactions. Many of
these risks and uncertainties are beyond the Company’s control.

The Company’s proprietary card businesses are the primary asset-
generating businesses, with significant assets in both domestic and
international Card Member receivable and lending activities. The
Company’s financing needs are in large part a consequence of its
proprietary card-issuing businesses and the maintenance of a liquidity
position to support all of its business activities, such as merchant
payments. The Company
card
transactions prior to reimbursement by Card Members and therefore
funds the merchant payments during the period Card Member loans
and receivables are outstanding. The Company also has additional
financing needs associated with general corporate purposes, including
acquisition activities.

generally pays merchants

for

FUNDING PROGRAMS AND ACTIVITIES
The Company meets its funding needs through a variety of sources,
including direct and third-party distributed deposits and debt
instruments,
asset
securitizations, borrowings through secured borrowing facilities and
long-term committed bank borrowing facilities in certain non-U.S.
regions.

debentures,

unsecured

senior

such

as

The Company had the following consolidated debt and customer
deposits outstanding as of December 31:

TABLE 20: SUMMARY OF CONSOLIDATED DEBT AND CUSTOMER
DEPOSITS

(Billions)

Short-term borrowings
Long-term debt

Total debt
Customer deposits

$

2013

5.0
55.3

60.3
41.8

$

2012

3.3
59.0

62.3
39.8

Total debt and customer deposits

$

102.1

$

102.1

The Company seeks to raise funds to meet all of its financing needs,
including seasonal and other working capital needs, while also seeking
to maintain sufficient cash and readily marketable securities that are
easily convertible to cash, in order to meet the scheduled maturities of
all long-term funding obligations on a consolidated basis for a 12-
month period. Management does not currently expect to make any
significant changes to the Company’s funding programs or liquidity
strategy in order to satisfy Basel III’s liquidity coverage ratio standard
based upon its current understanding of the requirements.

The Company’s funding plan for the full year 2014 includes,
among other sources, approximately $6.0 billion to $12.0 billion of
unsecured term debt issuance and $3.0 billion to $9.0 billion of
secured term debt issuance. The Company’s funding plans are subject
to various risks and uncertainties, such as future business growth, the
impact of global economic, political and other events on market
capacity, demand for securities offered by the Company, regulatory

38

The Company’s equity capital and funding strategies are designed,
among other things, to maintain appropriate and stable unsecured
debt ratings from the major credit rating agencies: Moody’s Investor
Services (Moody’s), Standard & Poor’s (S&P), Fitch Ratings (Fitch)
and Dominion Bond Rating Services (DBRS). Such ratings help
support the Company’s access to cost-effective unsecured funding as
part of
funding strategy. The Company’s asset-backed
securitization (ABS) activities are rated separately.

its overall

TABLE 21: UNSECURED DEBT RATINGS

Credit Agency

Entity Rated

DBRS
Fitch
Moody’s

Moody’s

S&P

S&P

All rated entities
All rated entities
TRS(a)
and rated operating
subsidiaries
American Express
Company
TRS and rated
operating
subsidiaries(b)
American Express
Company

Short-Term
Ratings

Long-Term
Ratings

R-1 (middle)
F1
Prime-1

A (high)
A+
A2

Outlook

Stable
Stable
Stable

Prime-2

A-2

A3

A-

Stable

Stable

A-2

BBB+

Stable

(a) American Express Travel Related Services Company, Inc.
(b) S&P does not provide a rating for TRS short-term debt.

Downgrades in the ratings of the Company’s unsecured debt or asset
securitization program securities could result in higher funding costs,
as well as higher fees related to borrowings under its unused lines of
credit. Declines in credit ratings could also reduce the Company’s
borrowing capacity in the unsecured debt and asset securitization
capital markets. The Company believes its funding mix, including the
proportion of U.S. retail deposits insured by the Federal Deposit
Insurance Corporation (FDIC), should reduce the impact that credit
rating downgrades would have on the Company’s funding capacity
and costs.

SHORT-TERM FUNDING PROGRAMS
Short-term borrowings, such as commercial paper, are defined as any
debt with an original maturity of 12 months or less, as well as interest-
bearing overdrafts with banks. The Company’s short-term funding
programs are used primarily to meet working capital needs, such as
managing seasonal variations in receivables balances. The amount of
short-term borrowings issued in the future will depend on the
Company’s funding strategy, its needs and market conditions.

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

The Company had the following short-term borrowings outstanding
as of December 31:

TABLE 22: SHORT-TERM BORROWINGS OUTSTANDING

(Billions)

Commercial paper
Other short-term borrowings(a)

Total

2013

2012

$

$

0.2
4.8

5.0

$

$

—
3.3

3.3

(a) Includes $2.0 billion draw on American Express Credit Account Master Trust
(Lending Trust) secured borrowing facility, maturing on September 15, 2015,
which was repaid on February 18, 2014.

included

approximately

LONG-TERM DEBT PROGRAMS
During 2013, the Company and its subsidiaries issued debt and asset
securitizations with maturities ranging from 3 to 5 years. These
amounts
billion of AAA-rated
securitization certificates and notes, $0.2 billion of subordinated
securities and $5.5 billion of unsecured debt across a variety of
maturities and markets. During the year,
the Company retained
approximately $0.3 billion of subordinated securities, as the pricing
and yields for these securities were not attractive compared to other
sources of financing available to the Company.

$3.3

The Company’s 2013 debt issuances were as follows:

Refer to Note 10 to the Consolidated Financial Statements for further
description of these borrowings.

TABLE 24: DEBT ISSUANCES

As of December 31, 2013,
paper

the Company had $0.2 billion
commercial
paper
outstanding. Average
outstanding was $0.1 billion and $0.4 billion in 2013 and 2012,
respectively.

commercial

DEPOSIT PROGRAMS
The Company offers deposits within its American Express Centurion
Bank (Centurion Bank) and American Express Bank, FSB (FSB)
subsidiaries (together, the Banks). These funds are currently insured
up to $250,000 per account holder through the FDIC. The Company’s
ability to obtain deposit funding and offer competitive interest rates is
dependent on the Banks’ capital levels. The Company, through the
FSB, has a direct retail deposit program, Personal Savings from
American Express, to supplement its distribution of deposit products
sourced through third-party distribution channels. The direct retail
program makes FDIC-insured certificates of deposit (CDs) and high-
yield savings account products available directly to consumers.

The Company held the following deposits as of December 31:

TABLE 23: CUSTOMER DEPOSITS

(Billions)

U.S. retail deposits:

Savings accounts – Direct
Certificates of deposit:(a)

Direct
Third-party

Sweep accounts – Third-party

Other retail deposits:

Non-U.S. deposits and U.S. non-interest Bearing
Card Member credit balances – U.S. and non-U.S.(b)

2013

2012

$

24.6

$

18.7

0.5
6.9
8.9

0.1
0.8

0.7
8.9
11.4

0.1
—

Total customer deposits

$

41.8

$

39.8

(a) The weighted average remaining maturity and weighted average rate at
issuance on the total portfolio of U.S. retail CDs, issued through direct and
third-party programs, were 25.3 months and 1.8 percent, respectively, as of
December 31, 2013.

(b) Beginning 2013, the Company reclassified prospectively Card Member credit
balances from Card Member loans, Card Member receivables and Other
liabilities to Customer deposits.

(Billions)

American Express Company:

Amount

Fixed Rate Senior Notes (weighted-average coupon of 1.55%)
Floating Rate Senior Notes (3-month LIBOR plus 59 basis points)

$

American Express Credit Corporation:

Fixed Rate Senior Notes (weighted-average coupon of 1.82%)
Floating Rate Senior Notes (3-month LIBOR plus 51 basis points)

American Express Centurion Bank:

Floating Rate Senior Notes (3-month LIBOR plus 30 basis points)

American Express Credit Account Master Trust:(a)

Floating Rate Senior Certificates (1-month LIBOR plus 42 basis

points on average)

Floating Rate Subordinated Certificates (1-month LIBOR plus 70

basis points on average)

Fixed Rate Senior Certificates (weighted-average coupon of 0.98%)

American Express Issuance Trust II:(a)

Floating Rate Senior Notes (1-month LIBOR plus 37 basis points)
Floating Rate Subordinated Notes (1-month LIBOR plus 64 basis

points)

Total

$

1.0
0.9

2.3
1.2

0.1

1.6

0.1
0.5

1.2

0.1

9.0

(a) Issuances from the Lending Trust and the American Express Issuance Trust II
(Charge Trust II) do not include $0.3 billion of subordinated securities
retained by the Company during the year.

ASSET SECURITIZATION PROGRAMS
The Company periodically securitizes Card Member receivables and
loans arising from its card business, as the securitization market
provides the Company with cost-effective funding. Securitization of
Card Member receivables and loans is accomplished through the
transfer of those assets to a trust, which in turn issues securities
collateralized by the transferred assets to third-party investors. The
proceeds from issuance are distributed to the Company, through its
wholly owned subsidiaries, as consideration for the transferred assets.

The receivables and loans being securitized are reported as assets
on the Company’s Consolidated Balance Sheets and the related
securities issued to third-party investors are reported as long-term
debt.

Under the respective terms of the securitization trust agreements,
the occurrence of certain triggering events associated with the
performance of the assets of each trust could result in payment of trust
expenses, establishment of reserve funds, or in a worst-case scenario,
early amortization of investor certificates. During the year ended
December 31, 2013, no such triggering events occurred.

39

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

During 2013, the Company transferred Card Member receivables
from the American Express Issuance Trust (Charge Trust) to the
Charge Trust II, dissolving the Charge Trust. The Company will
continue to utilize the Charge Trust II for securitization of Card
Member receivables.

LIQUIDITY MANAGEMENT
The Company’s liquidity objective is to maintain access to a diverse
set of cash, readily marketable securities and contingent sources of
liquidity, so that the Company can continuously meet expected future
financing obligations and business requirements for at least a 12-
month period, even in the event it is unable to raise new funds under
its regular funding programs during a substantial weakening in
economic conditions. The Company has in place a liquidity risk policy
that sets out the Company’s approach to managing liquidity risk on an
enterprise-wide basis.

The Company incurs and accepts liquidity risk arising in the
normal course of offering its products and services. The liquidity risks
that the Company is exposed to can arise from a variety of sources,
and thus its liquidity management strategy includes a variety of
parameters, assessments and guidelines, including, but not limited to:
(cid:2) Maintaining a diversified set of funding sources (refer to Funding

Strategy section for more details);

(cid:2) Maintaining unencumbered liquid assets and off-balance sheet

liquidity sources; and

(cid:2) Projecting cash inflows and outflows from a variety of sources and
under a variety of scenarios, including collateral requirements for
derivative transactions.

The Company’s current liquidity target is to have adequate liquidity in
the form of excess cash and readily marketable securities that are
easily convertible into cash to satisfy all maturing long-term funding
obligations for a 12-month period. In addition to its cash and readily
marketable securities, the Company maintains a variety of contingent
liquidity resources, such as access to undrawn amounts under its
secured borrowing facilities, committed bank credit facilities and the
Federal Reserve discount window.

As of December 31, 2013, the Company had $13.0 billion in excess
cash available to fund long-term maturities:

TABLE 25: SUMMARY OF EXCESS CASH AVAILABLE FOR LONG-
TERM MATURITIES

(Billions)

Cash(a)
Less:

Commercial Paper

Cash available to fund maturities

Total

$ 13.2

0.2

$ 13.0

(a) Includes $19.5 billion classified as cash and cash equivalents, less $6.3 billion
of cash available to fund day-to-day operations. The $13.2 billion represents
cash residing in the U.S.

The upcoming approximate maturities of the Company’s long-term
unsecured debt, debt
issued in connection with asset-backed
securitizations and long-term certificates of deposit are as follows:

TABLE 26: DEBT MATURITIES

(Billions)

2014 Quarters
Ending:

March 31
June 30
September 30
December 31

Total

Debt Maturities

Unsecured
Debt

Asset-Backed
Securitizations(a)

Certificates
of Deposit

$

$

— $
2.1
1.5
2.2

5.8

$

0.5
1.0
2.5
—

4.0

$

$

0.7
0.5
0.5
1.0

2.7

Total

$ 1.2
3.6
4.5
3.2

$ 12.5

(a) Excludes a $3.0 billion draw on the Charge Trust II secured borrowing facility,
maturing on July 15, 2016 and a $2.0 billion draw on the Lending Trust
secured borrowing facility maturing on September 15, 2015. The draw on the
Charge Trust II facility was repaid on January 15, 2014 and the draw on the
Lending Trust facility was repaid on February 18, 2014.

The Company’s financing needs for the next 12 months are expected
to arise from these debt and deposit maturities as well as changes in
business needs, including changes in outstanding Card Member loans
and receivables and acquisition activities.

The Company considers various factors in determining the amount
liquidity it maintains, such as economic and financial market
of
in business operations, growth in its
conditions,
the cost and
businesses, potential acquisitions or dispositions,
availability of alternative liquidity sources, and regulatory and credit
rating agency considerations.

seasonality

The yield the Company receives on its cash and readily marketable
securities is, generally, less than the interest expense on the sources of
funding for these balances. Thus, the Company incurs substantial net
interest costs on these amounts. The level of net interest costs will be
dependent on the size of the Company’s cash and readily marketable
securities holdings, as well as the difference between its cost of
funding these amounts and their investment yields.

Securitized Borrowing Capacity
As of December 31, 2013, the Company maintained its committed,
secured borrowing facility, with a maturity date of
revolving,
September 15, 2015, that gives the Company the right to sell up to $2.0
billion face amount of eligible AAA certificates from the Lending
Trust. On July 18, 2013, the Company terminated its existing $3.0
billion Charge Trust II committed, revolving, secured borrowing
facility with a maturity date of July 15, 2014 and entered into a new
three-year committed, revolving, secured borrowing facility with a
maturity date of July 15, 2016 that gives the Company the right to sell
up to $3.0 billion face amount of eligible AAA notes from the Charge
Trust II. Both facilities are used in the ordinary course of business to
fund seasonal working capital needs, as well as to further enhance the
Company’s contingent funding resources. As of December 31, 2013,
$3.0 billion and $2.0 billion were drawn on the Charge Trust II facility
and Lending Trust facility, respectively.

40

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Federal Reserve Discount Window
As insured depository institutions, the Banks may borrow from the
Federal Reserve Bank of San Francisco, subject to the amount of
qualifying collateral that they may pledge. The Federal Reserve has
indicated that both credit and charge card receivables are a form of
secured borrowings made through the
qualifying collateral
discount window. Whether
considered
assets will be
specific
qualifying collateral and the amount that may be borrowed against the
collateral remain at the discretion of the Federal Reserve.

for

The Company had approximately $48.5 billion as of December 31,
2013 in U.S. credit card loans and charge card receivables that could
be sold over time through its existing securitization trusts, or pledged
in return for secured borrowings to provide further liquidity, subject
in each case to applicable market conditions and eligibility criteria.

Committed Bank Credit Facilities
In addition to the secured borrowing facilities described above, the
Company maintained committed syndicated bank credit facilities as of
December 31, 2013 of $7.0 billion, which expire as follows:

TABLE 27: EXPIRATION OF COMMITTED SYNDICATED BANK
CREDIT FACILITIES

(Billions)

2015
2016

Total

$

$

4.8
2.2

7.0

the credit

lines is subject

covenants, principally

The availability of
to the Company’s
the
compliance with certain financial
maintenance by Credco of a certain ratio of combined earnings and
fixed charges to fixed charges. As of December 31, 2013, the Company
was in compliance with each of its covenants. The drawn balance of
the committed credit facilities of $4.0 billion as of December 31, 2013
was used to fund the Company’s business activities in the normal
course. The remaining capacity of the facilities mainly served to
further enhance the Company’s contingent funding resources.

The Company’s committed bank credit facilities do not contain
material adverse change clauses, which might otherwise preclude
borrowing under the credit facilities, nor are they dependent on the
Company’s credit rating.

CASH FLOWS
Cash Flows from Operating Activities
Cash flows from operating activities primarily include net income
adjusted for (i) non-cash items included in net income, including
provisions for losses, depreciation and amortization, deferred taxes,
and stock-based compensation and (ii) changes in the balances of
operating assets and liabilities, which can vary significantly in the
normal course of business due to the amount and timing of various
payments.

41

For the year ended December 31, 2013, net cash provided by
operating activities of $8.5 billion increased $1.4 billion compared to
$7.1 billion in 2012, primarily due to higher net income, premium
paid on debt exchange in 2012 and smaller changes in accounts
payable and other liabilities, partially offset by a decrease in deferred
taxes and other.

For the year ended December 31, 2012, net cash provided by
operating activities of $7.1 billion decreased $2.7 billion compared to
$9.8 billion in 2011. The decrease was primarily due to a decrease in
the liabilities for accounts payable and other liabilities in 2012 as
compared to the prior year versus an increase in 2011 as compared to
the prior year.

Cash Flows from Investing Activities
The Company’s investing activities primarily include funding Card
Member loans and receivables and the Company’s available-for-sale
investment portfolio.

For the year ended December 31, 2013, net cash used in investing
activities of $7.3 billion increased $0.8 billion compared to $6.5 billion
in 2012, primarily due to higher purchases of investments.

For the year ended December 31, 2012, net cash used in investing
activities of $6.5 billion increased $6.0 billion compared to $0.5 billion
in 2011, primarily due to a reduction in maturities, redemptions and
sales of investments, and a net decrease in the cash flows related to
Card Member loans and receivables and restricted cash, partially offset
by lower purchases of investments and fewer acquisitions in 2012 as
compared to 2011.

Cash Flows from Financing Activities
The Company’s financing activities primarily include issuing and
repaying debt, taking customer deposits, issuing and repurchasing its
common shares, and paying dividends.

For the year ended December 31, 2013, net cash used in financing
activities of $3.9 billion increased $0.6 billion compared to $3.3 billion
in 2012, due to lower issuances of long-term debt, slowing growth in
customer deposits and higher principal payments on long-term debt,
partially offset by an increase in short-term borrowings and the
issuance of American Express common shares to employees.

For the year ended December 31, 2012, net cash used in financing
activities of $3.3 billion increased $2.6 billion compared to $0.7 billion
in 2011, due to a decrease in short-term borrowings, and an increase
in the repurchase of common shares in 2012, which more than offset a
decrease in principal payments on long-term debt.

OFF-BALANCE SHEET ARRANGEMENTS AND
CONTRACTUAL OBLIGATIONS
sheet
The Company has
transactions, arrangements, obligations and other relationships that
may have a material current or future effect on its financial condition,
changes in financial condition, results of operations, or liquidity and
capital resources.

identified both on and off-balance

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

CONTRACTUAL OBLIGATIONS
The table below identifies transactions that represent contractually committed future obligations of the Company. Purchase obligations include
agreements to purchase goods and services that are enforceable and legally binding on the Company and that specify significant terms, including:
fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

TABLE 28: COMMITTED FUTURE OBLIGATIONS BY YEAR

(Millions)

Long-term debt
Interest payments on long-term debt(b)
Certificates of deposit
Other long-term liabilities(c)
Operating lease obligations
Purchase obligations(d)

Total

Payments due by year(a)

2014

2015–2016

2017–2018

$

$ 9,849
1,198
2,738
235
237
390

$

25,435
1,729
2,881
87
353
190

16,711
682
1,611
15
246
76

2019 and
thereafter

$

3,972
1,817
191
18
922
23

Total

$ 55,967
5,426
7,421
355
1,758
679

$ 14,647

$

30,675

$

19,341

$

6,943

$ 71,606

(a) The above table excludes approximately $1.0 billion of tax liabilities that have been recorded in accordance with GAAP governing the accounting for uncertainty in
income taxes as inherent complexities and the number of tax years currently open for examination in multiple jurisdictions do not permit reasonable estimates of
payments, if any, to be made over a range of years.

(b) Estimated interest payments were calculated using the effective interest rate in place as of December 31, 2013, and reflects the effect of existing interest rate swaps.

Actual cash flows may differ from estimated payments.

(c) As of December 31, 2013, there were no minimum required contributions, and no contributions are currently planned, for the U.S. American Express Retirement Plan.
For the U.S. American Express Retirement Restoration Plan and non-U.S. defined benefit pension and postretirement benefit plans, contributions in 2014 are
anticipated to be approximately $61 million, and this amount has been included within other long-term liabilities. Remaining obligations under defined benefit pension
and postretirement benefit plans aggregating $600 million have not been included in the table above as the timing of such obligations is not determinable.
Additionally, other long-term liabilities do not include $6.2 billion of Membership Rewards liabilities, which are not considered long-term liabilities as Card Members in
good standing can redeem points immediately, without restrictions, and because the timing of point redemption is not determinable.

(d) The purchase obligation amounts represent non-cancelable minimum contractual obligations by period under contracts that were in effect as of December 31, 2013.

CERTAIN OTHER OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2013, the Company had approximately $265
billion of unused credit available to Card Members as part of
established lending product agreements. Total unused credit available
to Card Members does not
cash
requirements, as a significant portion of this unused credit will likely
not be drawn. The Company’s charge card products generally have no
pre-set limit, and therefore are not reflected in unused credit available
to Card Members.

represent potential

future

To mitigate counterparty credit risk related to derivatives, the
Company accepted noncash collateral in the form of security interest
in U.S. Treasury securities from its derivatives counterparties with a
fair value of nil and $335 million as of December 31, 2013 and 2012,
respectively, none of which was sold or repledged.

Refer to Note 24 to the Consolidated Financial Statements for
sheet

the Company’s

off-balance

other

discussion regarding
arrangements.

Termination fees are included in these amounts.

The Company also has certain contingent obligations to make
payments under contractual agreements entered into as part of the
ongoing operation of the Company’s business, primarily with co-
brand partners. The contingent obligations under such arrangements
were approximately $2.8 billion as of December 31, 2013.

In addition to the contractual obligations noted above,
the
Company has off-balance sheet arrangements that include guarantees
and other off-balance sheet arrangements as more fully described
below.

GUARANTEES
The Company’s principal guarantees are associated with Card
Member services to enhance the value of owning an American Express
card. As of December 31, 2013, the Company had guarantees totaling
approximately $45 billion related to Card Member protection plans, as
well as other guarantees in the ordinary course of business that are
within the scope of GAAP governing the accounting for guarantees.
Refer to Note 13 to the Consolidated Financial Statements for further
discussion regarding the Company’s guarantees.

42

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

its

uses

comprehensive

RISK MANAGEMENT
GOVERNANCE
The Company
Enterprise-wide Risk
Management (ERM) program to measure, aggregate, monitor, and
manage risks. The ERM program is designed to enable the Board of
risk
Directors and management
It also
management capabilities, policies, processes and controls.
contributes
the
risk-adjusted performance
Company’s businesses and business leaders. The implementation and
execution of the ERM program is headed by the Company’s Chief Risk
Officer.

effectiveness of

evaluation of

to assess

to the

the

the Audit

the Risk Committee,

Risk management and key risks identified by management are
overseen by the Company’s Board of Directors and three of
its
and Compliance
committees:
Committee, and the Compensation and Benefits Committee. Each of
these committees consists entirely of
independent directors and
provides regular reports to the Board of Directors regarding matters
reviewed at the committee level. In addition to the risks under the
purview of a particular committee, the Board of Directors monitors the
“tone at the top” and risk culture of the Company, oversees strategic
risk, and reviews specific and significant risks facing the Company from
time to time. These Committees meet regularly in private sessions with
the Company’s Chief Risk Officer, the Chief Compliance Officer, the
General Auditor and other senior management with regard to the
Company’s risk management processes, controls and capabilities.

The Risk Committee of the Company’s Board of Directors provides
risk oversight on risk policies and the risk management performance of
the Company. The Risk Committee approves key risk management
policies and monitors the Company’s risk culture, talent, capabilities
and risk outcomes. In particular, it approves the Company’s ERM policy
along with its sub-policies governing individual credit risk, institutional
credit risk, market risk, liquidity risk, operational risk, reputational risk,
and asset/liability risk, as well as the launch of new products and
services. The ERM policy sets the Company’s risk appetite and defines
governance over risk taking and the risk monitoring processes across the
Company. Risk appetite defines the overall risk levels the Company is
willing to accept while operating in full compliance with regulatory and
legal requirements. In addition, it establishes principles for risk taking in
the aggregate and for each risk type, and is
supported by a
comprehensive system of risk limits, escalation triggers and controls
designed to ensure that the risks remain within the defined risk appetite
boundaries. Furthermore, the policy defines risk management roles and
responsibilities.

The Risk Committee also regularly reviews the credit risk profile of
the Company, risk trends and risk management capabilities. The Risk
Committee receives regular updates from the Company’s Global Risk
Oversight team, which reports to the Chief Risk Officer, on key risks
affecting the Company,
including transaction and exposure level
approvals driven by policy-based risk escalations and risk limits.

The Risk Committee reviews enterprise-wide operational risk trends,
events and capabilities, with an emphasis on compliance, fraud, legal,
process or control failures, information security, and privacy impacts, as
well as trends in market, funding, liquidity and reputational risk. The

43

Risk Committee also provides
the Company’s
compliance with Basel capital and liquidity standards and its Internal
Capital Adequacy Assessment Process,
including its Comprehensive
Capital and Review (CCAR) submissions.

risk oversight of

and compliance

compliance policies

As it relates to risk management,

the Company’s Board of Directors approves

the Audit and Compliance
the
Committee of
risk tolerance
Company’s
statement, which reinforces
the importance of compliance risk
management at the Company. In addition, the Audit and Compliance
Committee reviews the effectiveness of the Company’s Corporate-wide
Compliance Risk Management Program. More broadly, the Committee
is responsible for assisting the Board of Directors in its oversight
responsibilities relating to the integrity of the Company’s financial
internal and external
statements and financial reporting process;
auditing,
the
independent registered public accounting firm and the performance of
the Company’s internal audit services function; and the integrity of the
Company’s systems of internal accounting and financial controls.

including the qualifications and independence of

The Compensation and Benefits Committee of the Company’s Board
of Directors works with the Chief Risk Officer
to ensure the
compensation programs covering risk-taking employees, business units,
and the Company overall appropriately balance risk with incentives
such that business performance is achieved without taking imprudent or
uneconomic risks. The Company’s Chief Risk Officer is actively
involved in the goal-setting process, reviews the current and forward-
looking risk profiles of each business unit, and provides input into
performance evaluation. The Chief Risk Officer meets with the
Compensation and Benefits Committee and attests that performance
goals and actual results have been achieved without taking imprudent
risks. The Compensation and Benefits Committee uses a risk-balanced
incentive compensation framework to decide on the Company’s bonus
pools and the compensation of senior executives.

There are several internal management committees, including the
Enterprise-wide Risk Management Committee (ERMC), chaired by the
Company’s Chief Risk Officer, and the Asset-Liability Committee
(ALCO), chaired by the Company’s Chief Financial Officer, which
oversee risks and implementation of risk policies across the Company
with approval by the appropriate board committee. The ERMC is
responsible for overseeing all risks, while the ALCO is responsible for
liquidity, asset/liability risk, and the Company’s
managing market,
capital position.

the Chief Credit Officer of

As defined in the ERM policy, the Company follows the “three lines
of defense” approach to risk management. The first line of defense
comprises functions and management committees directly initiating risk
taking. Business Unit presidents,
the
Company, the Chief Operational Risk Officer, and the Chief Market
Risk Officer are part of the first line of defense. The second line of
defense comprises functions overseeing risk taking activities of the first
line. The Global Risk Oversight (GRO) and Market Risk Oversight
groups, the ERMC and certain control groups, both at the enterprise
level and within regulated entities, are part of the second line of defense.
The GRO oversees the framework and processes for managing credit,
and
operational

and model

Company

faces

risks

the

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

acts as a check to the first line of defense managing these risks. The
Internal Audit Group constitutes the third line of defense, and
provides independent assurance that the first and second lines of
defense operate as intended.

CREDIT RISK MANAGEMENT PROCESS
Credit risk is defined as loss due to obligor or counterparty default or
changes in the credit quality of a security. Credit risks in the Company
are divided into two broad categories: individual and institutional.
Each has distinct risk management tools and metrics. Business units
that create individual or
risk exposures of
significant importance are supported by dedicated risk management
teams, each led by a Chief Credit Officer. To preserve independence,
Chief Credit Officers for all business units report to the Chief Credit
Officer of
the Company, who in turn reports directly to the
Company’s Chief Risk Officer.

institutional credit

of

consist

customers

of millions

INDIVIDUAL CREDIT RISK
Individual credit risk arises principally from consumer and small
business charge cards, credit cards, lines of credit, and loans. These
portfolios
across multiple
geographies, occupations,
industries and levels of net worth. The
Company benefits from the high-quality profile of its customers,
which is driven by brand, premium customer servicing, product
features and risk management capabilities, which span underwriting,
customer management and collections. Externally, the risk in these
portfolios
such as
unemployment rates and GDP growth, which can affect customer
liquidity.

correlated to broad economic

trends,

is

The business unit leaders and their Chief Credit Officers take the
lead in managing the individual credit risk process. These Chief Credit
Officers are guided by the Individual Credit Risk Committee, which is
responsible for implementation and enforcement of the Individual
Credit Risk Management Policy. This policy is further supported by
subordinate policies and operating manuals covering decision logic
and processes of credit extension, including prospecting, new account
approvals, authorizations,
line management and collections. The
subordinate risk policies and operating manuals are designed to
ensure consistent application of risk management principles and
standardized reporting of asset quality and loss recognition.

Individual credit risk management is supported by sophisticated
proprietary scoring and decision-making models that use the most up-
to-date proprietary information on prospects and customers, such as
spending and payment history and data feeds from credit bureaus.
Additional data, such as new commercial variables, continue to be
integrated into the risk models to further mitigate small business risk.
The Company has developed data-driven economic decision logic for
customer interactions to better serve its customers.

INSTITUTIONAL CREDIT RISK
Institutional credit risk arises principally within the Company’s Global
Corporate Payments, Global Merchant Services, GNS, Prepaid
Services and Foreign Exchange Services businesses, as well as
investment and liquidity management activities. Unlike individual

credit risk, institutional credit risk is characterized by a lower loss
frequency but higher severity. It is affected both by general economic
conditions and by client-specific events. The absence of large losses in
any given year or over several years is not necessarily representative of
the level of risk of institutional portfolios, given the infrequency of
loss events in such portfolios.

to

Similar

business units

risk capabilities,

Individual Credit Risk,

taking
institutional credit risks are supported by Chief Credit Officers. These
officers are guided by the Institutional Risk Management Committee
(IRMC), which is responsible for implementation and enforcement of
the Institutional Credit Risk Management Policy and for providing
guidance to the credit officers of each business unit with substantial
institutional credit risk exposures. The committee, along with the
business unit Chief Credit Officers, makes investment decisions in
core
the
ensure proper
underwriting standards and contractual rights of risk mitigation,
monitor risk exposures, and determine risk mitigation actions. The
IRMC formally reviews large institutional risk exposures to ensure
compliance with ERMC guidelines and procedures and escalates them
to the ERMC as appropriate. At the same time, the IRMC provides
guidance to the business unit risk teams to optimize risk-adjusted
returns on capital. A centralized risk rating unit and a specialized
airline risk group provide risk assessment of institutional obligors
across the Company.

implementation of

Exposure to the Airline Industry
rewards and
The Company has multiple important co-brand,
corporate payments arrangements with airlines. The Company’s
largest airline partner is Delta Air Lines and this relationship includes
exclusive co-brand credit card partnerships and other arrangements
travel and
including Membership Rewards, merchant acceptance,
corporate payments. Refer to Note 22 in the Consolidated Financial
Statements for further details of these relationships.

and

counterparties,

and measures

its ongoing risk management process,

Sovereign Debt Exposure
As part of
the Company
monitors its financial exposure to both sovereign and non-sovereign
customers
and manages
concentrations of risk by geographic regions, as well as by economic
sectors and industries. A primary focus area for monitoring is credit
deterioration due to weaknesses in economic and fiscal profiles. The
Company evaluates countries based on the market assessment of the
riskiness of their sovereign debt and the Company’s assessment of
their economic and financial outlook and closely monitors those
deemed high risk. As of December 31, 2013, the Company considers
its gross credit exposures to government entities, financial institutions
and corporations in those countries to be individually and collectively
not material.

OPERATIONAL RISK MANAGEMENT PROCESS
The Company defines operational risk as the risk of not achieving
business objectives due to inadequate or failed processes, people, or
information systems, or the external environment, including failures

44

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

to comply with laws and regulations. Operational risk is inherent in all
business activities and can impact an organization through direct or
indirect financial loss, brand damage, customer dissatisfaction, or legal
and regulatory penalties.

implemented a

To appropriately measure and manage operational

risk,
comprehensive operational

the
Company has
risk
framework that is defined in the Operational Risk Management Policy
approved by the Risk Committee. The Operational Risk Management
Committee (ORMC) coordinates with all control groups on effective
risk assessments and controls and oversees the preventive, responsive
and mitigation efforts by Lead Operational Risk Officers in the
business units and staff groups. To preserve independence, the Lead
Operational Risk Officers for all business units report to the Chief
Operational Risk Officer of the Company, who in turn reports directly
to the Company’s Chief Risk Officer.

The Company uses the operational risk framework to identify,
measure, monitor and report inherent and emerging operational risks.
This framework, supervised by the ORMC, consists of (a) operational
risk event capture, (b) a project office to coordinate issue management
and control enhancements, (c) key risk indicators such as customer
complaints or pre-implementation test metrics, and (d) process and
entity-level risk assessments.

The framework requires the assessment of operational risk events
to determine root causes, impact to customers and/or the Company,
and resolution plan accountability to correct any defect, remediate
customers, and enhance controls and testing to mitigate future issues.
The impact on the Company is assessed from an operational, financial,
brand, regulatory compliance and legal perspective.

COMPLIANCE RISK MANAGEMENT PROCESS
legal or
The Company defines compliance risk as the risk of
reputational harm, fines, monetary penalties, payment of damages or
other forms of sanction as a result of non-compliance with applicable
laws, regulations, rules or standards of conduct.

The Company views its ability to effectively mitigate compliance
risk as an important aspect of its business model. The Company’s
Global Compliance and Ethics organization is
responsible for
establishing
the Company’s Corporate-wide
Compliance Risk Management Program. Pursuant to this program,
the Company seeks to manage and mitigate compliance risk by
assessing, controlling, monitoring, measuring and reporting the
regulatory risks to which it is exposed.

and maintaining

REPUTATIONAL RISK MANAGEMENT PROCESS
The Company defines reputational risk as the risk that negative public
perceptions regarding the Company’s products, services, business
practices, management, clients and partners, whether true or not,
could cause a decline in the customer base, costly litigation, or
revenue reductions.

45

The Company views protecting its reputation as core to its vision
respected service brand and

of becoming the world’s most
fundamental to its long-term success.

General principles and the overall

framework for managing
reputational risk across the Company are defined in the Reputational
Risk Management Policy. The Reputational Risk Management
Committee is responsible for implementation of and adherence to this
policy, and for performing periodic assessments of the Company’s
reputation and brand health based on internal and external
assessments.

Business leaders across the Company are responsible for ensuring
that reputation risk implications of transactions, business activities
and management practices are appropriately considered and relevant
subject matter experts are engaged as needed. In addition, the ERMC
and its sub-committees are responsible for ensuring that reputational
risk considerations are properly reflected in all decisions escalated to
the committees.

MARKET RISK MANAGEMENT PROCESS
Market risk is the risk to earnings or value resulting from movements
in market prices. The Company’s market risk exposure is primarily
generated by:
(cid:2)

insurance and Travelers Cheque

Interest rate risk in its card,
businesses, as well as in its investment portfolios; and
(cid:2) Foreign exchange risk in its operations outside the U.S.

Market risk limits and escalation triggers within the Market Risk
and Asset Liability Management Policies are approved by the Risk
Committee of
the Board of Directors and the ERMC, based on
recommendations by the ALCO. Market risk is centrally monitored
for compliance with policy and limits by the Market Risk Committee,
which reports into the ALCO and is chaired by the Chief Market Risk
Officer. Market risk management is also guided by policies covering
the use of derivative financial instruments, funding and liquidity and
investments.

The Company’s market exposures are in large part by-products of
the delivery of its products and services. Interest rate risk arises
through the funding of Card Member receivables and fixed-rate loans
with variable-rate borrowings as well as through the risk to net
interest margin from changes in the relationship between benchmark
rates such as Prime and LIBOR.

Interest rate exposure within the Company’s charge card and fixed-
rate lending products is managed by varying the proportion of total
funding provided by variable-rate debt and deposits compared to
fixed-rate debt and deposits. In addition, interest rate swaps are used
from time to time to effectively convert fixed-rate debt to variable-rate
or to convert variable-rate debt to fixed-rate. The Company may
change the mix between variable-rate and fixed-rate funding based on
changes in business volumes and mix, among other factors.

The Company does not engage in derivative financial instruments
for trading purposes. Refer to Note 12 to the Consolidated Financial
Statements
the Company’s derivative
financial instruments.

further discussion of

for

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

analyzes

scenarios

a variety of

The Company

to inform
management of potential impacts to earnings and economic value of
equity, which may occur given changes in interest rate curves using a
range of severities. As of December 31, 2013, the detrimental effect on
the Company’s annual net interest income of a hypothetical 100 basis
point increase in interest rates would be approximately $227 million.
To calculate this effect, the Company first measures the potential
change in net interest income over the following 12 months taking
into consideration anticipated future business growth and market-
based forward interest rates. The Company then measures the impact
of the assumed forward interest rate plus the 100 basis point increase
on the projected net interest income. This effect is primarily driven by
the volume of charge card receivables and loans deemed to be fixed-
rate and funded by variable-rate liabilities. As of December 31, 2013,
the percentage of worldwide charge card accounts receivable and
credit card loans that were deemed to be fixed rate was 67.6 percent,
or $77 billion, with the remaining 32.4 percent, or $37 billion, deemed
to be variable rate.

foreign exchange forward contracts outstanding, the effect on the
Company’s earnings of a hypothetical 10 percent change in the value
of the U.S. dollar would be immaterial as of December 31, 2013. With
respect to earnings denominated in foreign currencies, the adverse
impact on pretax income of a hypothetical 10 percent strengthening of
the U.S. dollar related to anticipated overseas operating results for the
next 12 months would be approximately $192 million as of
December 31, 2013. With respect to translation exposure of foreign
subsidiary equity,
forward
contracts outstanding, a hypothetical 10 percent strengthening in the
U.S. dollar would result in an immaterial reduction in equity as of
December 31, 2013.

including related foreign exchange

impact of

The actual

interest rate and foreign exchange rate
changes will depend on, among other factors, the timing of rate
changes, the extent to which different rates do not move in the same
direction or in the same direction to the same degree, changes in the
cost, volume and mix of the Company’s hedging activities and changes
in the volume and mix of the Company’s businesses.

The Company is also subject to market risk from changes in the
relationship between the benchmark Prime rate that determines the
yield on its variable-rate lending receivables and the benchmark
LIBOR rate that determines the effective interest cost on a significant
portion of its outstanding debt. Differences in the rate of change of
these two indices, commonly referred to as basis risk, would impact
the Company’s variable-rate U.S. lending net interest margins because
the Company borrows at rates based on LIBOR but lends to its
customers based on the Prime rate. The detrimental effect on the
Company’s net
income of a hypothetical 10 basis point
decrease in the spread between Prime and one-month LIBOR over the
next 12 months is estimated to be $31 million. The Company currently
has approximately $36 billion of Prime-based, variable-rate U.S.
lending receivables and $31 billion of LIBOR-indexed debt, including
asset securitizations.

interest

Foreign exchange risk is generated by Card Member cross-
currency charges,
foreign subsidiary equity and foreign currency
earnings in units outside the U.S. The Company’s foreign exchange
risk is managed primarily by entering into agreements to buy and sell
currencies on a spot basis or by hedging this market exposure to the
extent it is economically justified through various means, including
the use of derivative financial instruments such as foreign exchange
forward and cross-currency swap contracts, which can help “lock in”
the value of the Company’s exposure to specific currencies.

As of both December 31, 2013 and 2012,

foreign currency
derivative instruments with total notional amounts of approximately
$27 billion were outstanding. Derivative hedging activities related to
cross-currency charges, balance sheet exposures and foreign currency
earnings generally do not qualify for hedge accounting; however,
derivative hedging activities related to translation exposure of foreign
subsidiary equity generally do.

The Company conducts scenario analysis to inform management
of potential impacts to earnings that may occur due to changes in
foreign exchange rates of various severities. With respect to cross-
including related
currency charges and balance sheet exposures,

46

FUNDING & LIQUIDITY RISK MANAGEMENT PROCESS
Liquidity risk is defined as the inability of the Company to meet its
ongoing financial and business obligations as they become due at a
reasonable cost. General principles and the overall framework for
managing liquidity risk across the Company are defined in the
Liquidity Risk Policy approved by the Risk Committee of the Board of
Directors and the ALCO. Liquidity risk limits are approved by the
Risk Committee of the Board of Directors and the ERMC. Liquidity
risk is centrally managed by the Funding and Liquidity Committee,
which reports into the ALCO. The Company manages liquidity risk by
maintaining access to a diverse set of cash, readily-marketable
securities and contingent sources of liquidity, such that the Company
can continuously meet its business requirements and expected future
financing obligations for at least a 12-month period, even in the event
it is unable to raise new funds under its regular funding programs
during a substantial weakening in economic conditions. The Company
balances the trade-offs between maintaining too much liquidity, which
can be costly and limit financial flexibility, and having inadequate
liquidity, which may result in financial distress during a liquidity
event.

Liquidity risk is managed both at an aggregate company level and
at the major legal entities in order to ensure that sufficient funding
and liquidity resources are available in the amount and in the location
needed in a stress event. The Funding and Liquidity Committee
reviews the forecasts of the Company’s aggregate and subsidiary cash
positions and financing requirements, approves the funding plans
designed to satisfy those requirements under normal conditions,
establishes guidelines to identify the amount of liquidity resources
required and monitors positions and determines any actions to be
taken. Liquidity planning also takes into account operating cash
flexibilities.

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

CRITICAL ACCOUNTING ESTIMATES
Refer to Note 1 to the Consolidated Financial Statements for a
summary of the Company’s significant accounting policies referenced,
as applicable, to other financial statement footnotes. Certain of the
Company’s accounting policies that require significant management
assumptions and judgments are set forth below.

RESERVES FOR CARD MEMBER LOSSES
for Card Member losses represent management’s best
Reserves
estimate of the probable losses inherent in the Company’s outstanding
portfolio of Card Member loans and receivables, as of the balance
sheet date.

In estimating these losses, management uses

statistical and
analytical models that take into account several factors, including loss
migration rates,
losses and
recoveries, portfolio specific risk indicators, current risk management
risk. Management also
initiatives and concentration of
considers other external environmental factors in establishing reserves
for Card Member losses.

emergence periods, historical

credit

loss

The process of estimating these reserves requires a high degree of
judgment. To the extent historical credit experience updated for
external environmental trends is not indicative of future performance,
actual losses could differ significantly from management’s judgments
and expectations, resulting in either higher or lower future provisions
for Card Member losses in any quarter.

losses inherent

As of December 31, 2013, a 10 percent increase in management’s
estimate of
in the outstanding portfolio of Card
Member loans and receivables evaluated collectively for impairment at
such date would increase reserves for Card Member losses with a
corresponding change to provision for Card Member losses by
approximately $165 million. This sensitivity analysis is provided as a
hypothetical scenario to assess the sensitivity of the provision for Card
Member losses. It does not represent management’s expectations for
losses in the future, nor does it include how other portfolio factors
recoveries, or
such as
the amount of
loss migration rates or
outstanding balances, may impact
the level of reserves for Card
Member losses and the corresponding impact on the provision for
Card Member losses.

LIABILITY FOR MEMBERSHIP REWARDS EXPENSE
The Membership Rewards program is the Company’s largest card-
based rewards program. Card Members can earn points for purchases
charged on their enrolled card products. Certain types of purchases
allow Card Members to also earn bonus points. Membership Rewards
points are redeemable for a broad variety of rewards including travel,
entertainment, retail certificates and merchandise. Points typically do
not expire, and there is no limit on the number of points a Card
Member may earn.

The Company records a Membership Rewards

liability that
represents the estimated cost of points earned that are expected to be
redeemed by Card Members in the future. The Membership Rewards

47

liability is impacted over time by enrollment levels, points earned and
redeemed, and the weighted-average cost per point, which is
influenced by redemption choices made by Card Members, reward
offerings by partners and other Membership Rewards program
changes. The liability reflects management’s judgment regarding
ultimate
redemptions and associated redemption costs. Actual
redemptions and associated redemption costs could differ significantly
from management’s judgment resulting in either higher or lower
Membership Rewards expense.

Management uses statistical and actuarial models to estimate URRs
of points earned to date by current Card Members based on
redemption trends of current enrollees, card product type, enrollment
tenure, card spend levels and credit attributes. A WAC per point
redeemed during the previous 12 months, adjusted as appropriate for
certain changes in redemption costs that are not representative of
future cost expectations, is used to estimate future redemption costs.
Management periodically evaluates its liability estimation process and
assumptions based on developments in redemption patterns, cost per
point redeemed, partner contract changes and other factors.

Changes in the Membership Rewards URR and WAC per point
have the effect of either increasing or decreasing the liability through
the current period marketing, promotion, rewards and Card Member
services expense by an amount estimated to cover the cost of all points
previously earned but not yet redeemed by current enrollees as of the
end of the reporting period. As of December 31, 2013, an increase in
the estimated URR of current enrollees of 100 basis points would
increase the balance sheet liability and corresponding expense for the
cost of Membership Rewards by approximately $290 million.
Similarly, an increase in the WAC per point of 1 basis point would
increase the balance sheet liability and corresponding expense for the
cost of Membership Rewards by approximately $86 million.

FAIR VALUE MEASUREMENT
The Company holds investment securities and derivative instruments
that are carried at fair value on the Consolidated Balance Sheets.
Management makes assumptions and judgments when estimating the
fair values of these financial instruments.

In accordance with fair value measurement and disclosure
guidance, the objective of a fair value measurement is to determine the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date based on the principal or, in the absence of a
principal, most advantageous market for the specific asset or liability.
The disclosure guidance establishes a three-level hierarchy of inputs to
valuation techniques used to measure fair value. The fair value
hierarchy gives the highest priority to the measurement of fair value
based on unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1), followed by the measurement of fair value
based on pricing models with significant observable inputs (Level 2),
with the lowest priority given to the measurement of fair value based
on pricing models with significant unobservable inputs (Level 3). The
Company did not have any Level 3 assets measured on a recurring

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

basis during the year ended December 31, 2013. Refer to Note 3 to the
Consolidated Financial Statements.

Any such changes could result in the Company recognizing an other-
than-temporary impairment loss through earnings.

Investment Securities
The Company’s investment securities are mostly composed of fixed-
income securities issued by states and municipalities as well as the U.S.
Government and Agencies.

Derivative Instruments
The Company’s primary derivative instruments are interest rate
swaps, foreign currency forward agreements, cross-currency swaps
and a total return swap relating to a foreign equity investment.

The fair market values for the Company’s investment securities,
including investments comprising defined benefit pension plan assets,
are obtained primarily from pricing services engaged by the Company.
For each security, the Company receives one price from a pricing
service. The fair values provided by the pricing services are estimated
using pricing models, where the inputs to those models are based on
observable market inputs or recent trades of similar securities. The
pricing services did not apply any adjustments to the pricing models
used as of December 31, 2013 and 2012. In addition, the Company did
not apply any adjustments to prices received from the pricing services.
The Company reaffirms its understanding of the valuation techniques
used by its pricing services at least annually. In addition, the Company
corroborates
for
reasonableness by comparing the prices from the respective pricing
services to valuations obtained from different pricing sources as well
as comparing prices to the sale prices received from sold securities at
least quarterly.

the prices provided by

its pricing services

In the measurement of fair value for the Company’s investment
securities, even though the underlying inputs used in the pricing
models are directly observable from active markets or recent trades of
similar securities in inactive markets, the pricing models do entail a
certain amount of subjectivity and therefore differing judgments in
how the underlying inputs are modeled could result in different
estimates of fair value.

Other-Than-Temporary Impairment of Investment Securities
Realized losses are recognized when management determines that a
investment securities is other-than-
decline in the fair value of
temporary. Such determination requires judgment regarding the
amount and timing of recovery. The Company reviews and evaluates
its investment securities at least quarterly, and more often as market
conditions may require, to identify investment securities that have
indications of other-than-temporary impairments. The Company
considers several factors when evaluating debt securities for other-
than-temporary impairment,
the
extent to which a decline in the fair value of a security is due to
increased default risk for the specific issuer or market interest rate
risk. With respect to market interest rate risk, the Company assesses
whether it has the intent to sell the investment securities and whether
it is more likely than not that the Company will be required to sell the
investment securities before recovery of any unrealized losses.

including the determination of

In determining whether any of

investment
securities are other-than-temporarily impaired, a change in facts and
circumstances could lead to a change in management judgment about
the Company’s view on collectability and credit quality of the issuer,
or the impact of market interest rates on the investment securities.

the Company’s

48

The fair value of

the Company’s derivative instruments

is
estimated by using either a third-party valuation service that uses
proprietary pricing models, or by internal pricing models, where the
inputs to those models are readily observable from actively quoted
markets. The Company reaffirms its understanding of the valuation
techniques used by a third-party valuation service at least annually.

To mitigate credit risk arising from the Company’s derivative
instruments, counterparties are required to be pre-approved and rated
as investment grade. In addition,
the Company manages certain
counterparty credit risks by exchanging cash and noncash collateral
under executed credit support agreements. The noncash collateral
does not reduce the derivative balance reflected in the other assets line
but effectively reduces risk exposure as it is available in the event of
counterparty default. Based on the assessment of credit risk of the
Company’s derivative counterparties, the Company does not have
derivative positions that warrant credit valuation adjustments.

In the measurement of fair value for the Company’s derivative
instruments, although the underlying inputs used in the pricing
the
models are readily observable from actively quoted markets,
pricing models do entail a certain amount of subjectivity and,
therefore, differing judgments in how the underlying inputs are
modeled could result in different estimates of fair value.

GOODWILL RECOVERABILITY
Goodwill represents the excess of acquisition cost of an acquired
company over the fair value of assets acquired and liabilities assumed.
In accordance with U.S. GAAP, goodwill is not amortized but is tested
for impairment at the reporting unit level annually or when events or
circumstances arise, such as adverse changes in the business climate,
that would more likely than not reduce the fair value of the reporting
unit below its
carrying value. The Company’s approach and
testing is
methodology for conducting its goodwill
described in Note 8 to the Consolidated Financial Statements, but is
fundamentally based on the measurement of
fair value for the
Company’s reporting units, which inherently entails the use of
significant judgment.

impairment

For valuation, the Company uses a combination of the income
approach (discounted cash flows) and market approach (market
multiples) in estimating the fair value of its reporting units.

the Company estimates

When preparing discounted cash flow models under the income
approach,
future cash flows using the
reporting unit’s internal multi-year forecast, and a terminal value
calculated using a growth rate
is
appropriate in light of current and expected future economic

that management believes

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

conditions. To discount
these cash flows the Company uses its
expected cost of equity, determined using a capital asset pricing
model. When using the market method under the market approach,
the Company applies comparable publically traded companies’
multiples (e.g., earnings, revenues) to its reporting units’ actual
results. The judgment in estimating forecasted cash flows, discount
rates and market comparables is significant, and imprecision could
materially affect the fair value of the Company’s reporting units.

Based upon the updated valuations for the Company’s reporting
units, the Company has concluded goodwill is not impaired as of
December 31, 2013, nor was any goodwill written off during 2013.
However, the Company could be exposed to increased risk of goodwill
impairment if future operating results or macroeconomic conditions
differ significantly from management’s current assumptions.

INCOME TAXES
The Company is subject to the income tax laws of the U.S., its states
and municipalities and those of the foreign jurisdictions in which the
Company operates. These tax laws are complex, and the manner in
which they apply to the taxpayer’s facts is sometimes open to
interpretation. In establishing a provision for income tax expense, the
Company must make judgments about the application of inherently
complex tax laws.

Unrecognized Tax Benefits
The Company establishes a liability for unrecognized tax benefits,
which are the differences between a tax position taken or expected to
be taken in a tax return and the benefit recognized in the financial
statements.

In establishing a liability for an unrecognized tax benefit,
assumptions may be made in determining whether, and the extent to
which, a tax position should be sustained. A tax position is recognized
only when it is more likely than not to be sustained upon examination
by the relevant taxing authority based on its technical merits. The
amount of
that
recognized is
management believes is more likely than not to be realized on ultimate
settlement. As new information becomes available,
the Company
evaluates its tax positions, and adjusts its unrecognized tax benefits, as
appropriate.

the largest benefit

tax benefit

Tax benefits ultimately realized can differ from amounts previously
recognized due to uncertainties, with any such differences generally
impacting the provision for income tax.

Deferred Tax Asset Realization
Deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using the enacted tax rates expected to be in effect for the
years in which the differences are expected to reverse.

Since deferred taxes measure the future tax effects of

items
recognized in the Consolidated Financial Statements, certain estimates
and assumptions are required to determine whether it is more likely
than not that all or some portion of the benefit of a deferred tax asset
will not be realized. In making this assessment, management analyzes
and estimates
reversing
temporary differences and available tax planning strategies. These
assessments are performed quarterly, taking into account any new
information.

future taxable income,

the impact of

Changes in facts or circumstances can lead to changes in the

ultimate realization of deferred tax assets due to uncertainties.

49

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Dodd-Frank prohibits payment card networks from restricting
merchants from offering discounts or incentives to customers to pay
with particular forms of payment, such as cash, check, credit or debit
card, or restricting merchants from setting certain minimum, and for
certain merchants maximum, transaction amounts for credit cards, as
long as any such discounts or incentives or any minimum or
maximum transaction amounts do not discriminate on the basis of the
issuer or network and comply with applicable federal or state
disclosure requirements.

Under Dodd-Frank,

the Federal Reserve is also authorized to
regulate interchange fees paid to financial institutions on debit card
and certain general-use prepaid card transactions to ensure that they
are “reasonable and proportional” to the cost of processing individual
transactions, and to prohibit payment card networks and issuers from
requiring transactions to be processed on a single payment network or
fewer than two unaffiliated networks. The Federal Reserve’s rule
provides that the regulations on interchange and routing do not apply
to a three-party network like American Express when it acts as both
the issuer and the network for its prepaid cards, and the Company is
therefore not a “payment card network” as that term is defined and
used for the specific purposes of the rule.

Dodd-Frank also authorizes the Federal Reserve to establish
enhanced prudential
including capital,
regulatory requirements,
leverage and liquidity standards, risk management requirements,
concentration limits on credit exposures, mandatory resolution plans
(so-called “living wills”) and stress tests for, among others, large bank
holding companies, such as the Company, that have greater than $50
billion in assets. The Company is also required to develop and
maintain a “capital plan,” and to submit the capital plan to the Federal
Reserve for its quantitative and qualitative review under the Federal
Reserve’s CCAR process. In addition, certain derivative transactions
are now required to be centrally cleared, which will increase collateral
posting requirements for the Company.

regulatory guidance for complete implementation.

Many provisions of Dodd-Frank require the adoption of additional
rules or
In
addition, Dodd-Frank mandates multiple studies, which could result
in additional legislative or regulatory action. Accordingly, the ultimate
consequences of Dodd-Frank and its implementing regulations on the
Company’s business, results of operations and financial condition
continues to be uncertain at this time.

the Company is

OTHER MATTERS
CERTAIN LEGISLATIVE, REGULATORY AND OTHER DEVELOPMENTS
As a participant in the financial services industry and as a bank
holding company,
to comprehensive
examination and supervision by the Federal Reserve and to a range of
laws and regulations that impact its business and operations. In light
of legislative initiatives over the last several years and continuing
regulatory reform implementation, compliance requirements and
including the
expenditures have risen for financial services firms,
Company, and the Company expects compliance requirements and
expenditures will continue to rise in the future.

subject

financial

Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank) contains a wide array of provisions intended to govern
the practices and oversight of
institutions and other
participants in the financial markets. Among other matters, the law
created an independent Consumer Financial Protection Bureau (the
CFPB), which has broad rulemaking authority over providers of
credit, savings, payment and other consumer financial products and
services with respect
laws.
Moreover, the CFPB has examination and enforcement authority with
respect to certain federal consumer financial laws for providers of
consumer financial products and services, including the Company and
certain of its subsidiaries. The CFPB is directed to prohibit “unfair,
deceptive or abusive” acts or practices, and to ensure that all
consumers have access to fair, transparent and competitive markets
for consumer financial products and services.

to certain federal consumer financial

The review of products and practices to prevent unfair, deceptive
or abusive conduct will be a continuing focus of the CFPB and
banking regulators more broadly, as well as by the Company itself.
Internal and regulatory reviews have resulted in, and are likely to
continue to result in, changes to the Company’s practices, products
and procedures. Such reviews are also likely to continue to result in
increased costs related to regulatory oversight, supervision and
restitution to the Company’s Card
examination and additional
Members and may result in additional regulatory actions, including
civil money penalties.

In December 2013, the Company announced that certain of its
subsidiaries reached settlements with several banking regulators,
including the CFPB, to resolve regulatory reviews of marketing and
billing practices related to several credit card add-on products. For a
these settlements, see “Legal Proceedings” in the
description of
Company’s Annual Report on Form 10-K for
the year ended
December 31, 2013.

In October 2012, the Company announced that it and certain of its
subsidiaries
reached settlements with several bank regulators,
including the CFPB, relating to certain aspects of the Company’s U.S.
consumer card practices, which requires the Company to undertake
certain actions that will continue in 2014. For a description of these
settlements, see “Legal Proceedings” in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2012.

50

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Department of Justice Litigation
The U.S. Department of Justice (DOJ) and certain states attorneys
general have brought an action against the Company alleging that the
provisions
in the Company’s card acceptance agreements with
merchants that prohibit merchants from discriminating against the
Company’s card products at the point of sale violate the U.S. antitrust
laws. See Item 1. “Legal Proceedings” in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013, for
descriptions of
the DOJ action and related cases. Visa and
MasterCard, which were also defendants in the DOJ and state action,
entered into a settlement agreement and have been dismissed as
parties pursuant to that agreement. The settlement enjoins Visa and
MasterCard, with certain exceptions, from adopting or enforcing rules
or entering into contracts that prohibit merchants from engaging in
various actions to steer cardholders to other card products or payment
forms at the point of sale. If similar conditions were imposed on
American Express, it could have a material adverse effect on American
Express’ business.

Other Legislative and Regulatory Initiatives
The payment card sector also faces continuing scrutiny in connection
with the fees merchants pay to accept cards and terms of merchant
rules and contracts. Regulators and legislators outside the U.S. have
focused on the way bankcard network members collectively set the
“interchange” (that is, the fee paid by the bankcard merchant acquirer
to the card issuer in “four-party” payment networks, like Visa and
MasterCard). Although, unlike the Visa and MasterCard networks, the
American Express “three-party” payment network does not have
interchange fees or collectively set any fees, antitrust actions and
government regulation relating to merchant pricing or terms of
merchant rules and contracts could affect all networks.

on

24,

and

July

2013,

issued

process

In January 2012, the European Commission (the Commission)
published a Green Paper
to begin a process of
(a document
consultation toward potential regulation) covering a range of issues
affecting the payments industry. The Commission completed the
its
consultation
recommendations, which included draft
legislation now under
consideration within the European Parliament. The Commission’s
recommendations included a number of proposals that would likely
have significant impact across the industry and would apply either in
whole or in part to American Express. The proposed changes include:
(cid:2) Price caps — The Commission proposed capping interchange fees at
20 basis points for debit and prepaid cards and 30 basis points for
credit and charge cards. Although American Express does not have
such as Visa and
interchange fees
MasterCard have, the caps would be deemed to apply to elements of
the financial arrangements agreed between American Express and
each GNS partner in the European Union (the EU). The discount
rates American Express agrees with merchants would not be
capped, but the interchange caps could exert downward pressures
on merchant fees across the industry, including American Express

like four-party networks

discount rates. The Commission would exclude commercial card
transactions generally from the scope of these caps.

(cid:2) Network rules on card acceptance — The Commission proposed to
prohibit honor-all-cards and anti-steering rules across all card
networks. In addition, the draft proposals sought harmonization of
surcharging rules so that, across the EU, transactions that are
to the interchange caps may not be surcharged, but
subject
transactions
the caps could be
surcharged up to cost.

falling outside the scope of

(cid:2) Network licensing — The Commission proposed to require all
networks,
including three-party payment networks that operate
with licensing arrangements, which would include the Company’s
to establish objective, proportionate and non-
GNS business,
discriminatory criteria under which a financial institution could
qualify to be licensed to operate on the network. In addition, the
scope of network licenses would be required to cover the entire EU.
These requirements are inconsistent with the flexibility and
discretion that American Express has had to date in deciding when,
where and with whom to grant a license in the GNS business.

(cid:2) Separation of network processing — The Commission proposed to
to separate their network processing
require card networks
issuers and
functions (in which transactions between different
acquirers are processed for authorization, clearing and settlement).
This proposal does not apply to three-party payment networks, such
as American Express, but may be deemed applicable in situations
where a different GNS issuer and acquirer is involved in a
transaction, which represent a very small percentage of transactions
on the American Express network. Further clarification of the
applicability of this requirement is needed where, as with GNS,
licensing arrangements do not give rise to inter-bank transactions
or relationships.

These proposals are currently subject to debate and amendment by
the European Parliament and Council in a complex legislative process
that will also involve the EC. It is too early to assess the exact scope
and impact of any final legislation.

In certain countries, such as Australia, and in certain member
states in the EU, merchants are permitted by law to surcharge card
purchases. While surcharging continues to be actively considered in
certain jurisdictions, the benefits to customers have not been apparent
in countries that have allowed it, and in some cases regulators are
addressing concerns about excessive surcharging by merchants.
Surcharging,
impacts
American Express Card Members, which is known as differential
surcharging, could have a material adverse effect on the Company if it
becomes widespread. The Reserve Bank of Australia changed the
Australian surcharging standards beginning March 18, 2013 to allow
the Company and other networks to limit a merchant’s right to
surcharge to “the reasonable cost of card acceptance.” In the EU, the
Consumer Rights Directive, prohibits merchants from surcharging

it disproportionately

particularly where

51

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

card purchases more than the merchants’ cost of acceptance in those
member states that permit surcharging.

and GNS) retained by the Company from merchants it acquires, prior
to payments to third parties unrelated to merchant acceptance.

regulatory initiative,

Although neither a legislative nor

the
settlement by MasterCard and Visa in a U.S. merchant class litigation
required, among other things, MasterCard and Visa to permit U.S.
merchants, subject to certain conditions, to surcharge credit cards,
while allowing them to continue to prohibit surcharges on debit and
prepaid card transactions. In December 2013, we announced the
proposed settlement of a number of U.S. merchant class action
lawsuits, which if approved, would change certain surcharging
provisions in our U.S. card acceptance agreements. For a further
description of
“Legal
Proceedings” in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2013.

settlement,

proposed

Item 1.

the

see

Also, other countries in which the Company operates have been
considering, and in some cases adopting similar legislation and rules
that would impose changes on certain practices of card issuers,
merchant acquirers and payment networks. Governments in several
countries have established or are proposing to establish payment
system regulatory regimes. Broad regulatory oversight over payment
systems can include rules regarding fees involved in the operation of
card networks and, in some cases, requirements for international card
networks to be locally licensed and/or to localize aspects of their
operations. The development and enforcement of regulatory regimes
may adversely affect our ability to maintain or increase our revenues
and extend our global network.

Refer to “Consolidated Capital Resources and Liquidity” for a
discussion of capital adequacy requirements established by federal
banking regulators.

RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to the Recently Issued Accounting Standards section of Note 1
to the Consolidated Financial Statements.

GLOSSARY OF SELECTED TERMINOLOGY

Adjusted average loans — Represents average Card Member loans
excluding the impact of deferred card fees, net of direct acquisition
costs of Card Member loans and certain other immaterial items.

Adjusted net interest income — Represents net interest income
attributable to the Company’s Card Member loans portfolio excluding
the impact of interest expense and interest income not attributable to
the Company’s Card Member loans portfolio.

Asset securitizations — Asset securitization involves the transfer
and sale of receivables or loans to a special-purpose entity created for
the securitization activity, typically a trust. The trust, in turn, issues
securities, commonly referred to as asset-backed securities, that are
secured by the transferred receivables or loans. The trust uses the
proceeds from the sale of such securities to pay the purchase price for
the underlying receivables or loans. The receivables and loans of the
Company’s Charge Trust II and Lending Trust being securitized are
reported as assets on the Company’s Consolidated Balance Sheets.

Average discount rate — This calculation is designed to reflect
pricing at merchants accepting general purpose American Express
cards. It represents the percentage of billed business (both proprietary

52

Basel III supplementary leverage ratio — Refer to the Capital
and

“Consolidated Capital Resources

section under

Strategy
Liquidity” for the definition.

supplemental cards

Basic cards-in-force — Proprietary basic consumer cards-in-force
includes basic cards issued to the primary account owner and does not
include additional
issued on that account.
Proprietary basic small business and corporate cards-in-force include
basic and supplemental cards issued to employee Card Members.
Non-proprietary basic cards-in-force includes cards that are issued
and outstanding under network partnership agreements, except for
supplemental cards and retail co-brand Card Member accounts which
have had no out-of-store spend activity during the prior 12-month
period.

Billed business — Includes activities (including cash advances)
related to proprietary cards, cards issued under network partnership
agreements (non-proprietary billed business), corporate payments and
certain insurance fees charged on proprietary cards. In-store spend
activity within retail co-brand portfolios in GNS, from which the
Company earns no revenue, is not included in non-proprietary billed
business. Card billed business is reflected in the U.S. or outside the
U.S. based on where the Card Member is domiciled.

Capital asset pricing model — Generates an appropriate discount
rate using internal and external inputs to value future cash flows based
on the time value of money and the price for bearing uncertainty
inherent in an investment.

Capital ratios — Represents the minimum standards established by
the regulatory agencies as a measure to determine whether the
regulated entity has sufficient capital to absorb on- and off-balance
sheet losses beyond current loss accrual estimates.

Card acquisition — Primarily represents the issuance of new cards
to either new or existing Card Members through marketing and
promotion efforts.

Card Member — The individual holder of an issued American

Express branded charge or credit card.

Card Member loans — Represents the outstanding amount due
from Card Members for charges made on their American Express
credit cards, as well as any interest charges and card-related fees. Card
Member loans also include revolving balances on certain American
Express charge card products and are net of deferred card fees.

Card Member receivables — Represents the outstanding amount
due from Card Members for charges made on their American Express
charge cards as well as any card-related fees.

Charge cards — Represents cards that generally carry no pre-set
spending limits and are primarily designed as a method of payment
and not as a means of financing purchases. Charge Card Members
generally must pay the full amount billed each month. No finance
charges are assessed on charge cards. Each charge card transaction is
authorized based on its likely economics reflecting a customer’s most
information and spend patterns. Some charge card
recent credit
accounts have an additional
lending-on-charge feature that allows
revolving certain balances.

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

Credit cards — Represents cards that have a range of revolving

payment terms, grace periods, and rate and fee structures.

Discount revenue — Represents revenue earned from fees generally
charged to merchants with whom the Company has entered into a
card acceptance agreement for processing Card Member transactions.
The discount fee generally is deducted from the Company’s payment
reimbursing the merchant for Card Member purchases. Discount
revenue is reduced by other payments made to merchants, third-party
card issuing partners, cash-back reward costs, corporate incentive
payments and other contra-revenue items.

loans,

charge

Interest expense — Interest expense includes interest

incurred
primarily to fund Card Member
card product
receivables, general corporate purposes, and liquidity needs, and is
recognized as incurred. Interest expense is divided principally into two
categories: (i) deposits, which primarily relates to interest expense on
deposits taken from customers and institutions and (ii) long-term
debt, which primarily relates to interest expense on the Company’s
long-term financing and short-term borrowings, which primarily
relates to interest expense on commercial paper,
funds
purchased, bank overdrafts and other short-term borrowings.

federal

Interest income — Interest income includes (i) interest on loans,
(ii) interest and dividends on investment securities and (iii) interest
income on deposits with banks and others.

Interest on loans — is assessed using the average daily balance
method for loans. Unless the loan is classified as non-accrual, interest
is recognized based upon the principal amount outstanding in
accordance with the terms of the applicable account agreement until
the outstanding balance is paid or written off.

Interest and dividends on investment securities — primarily relates
to the Company’s performing fixed-income securities. Interest income
is accrued as earned using the effective interest method, which adjusts
fees and other
the yield for security premiums and discounts,
payments, so that
security recognizes a
constant rate of return on the outstanding balance throughout its
term. These amounts are recognized until these securities are in
default or when it is likely that future interest payments will not be
made as scheduled.

the related investment

Interest income on deposits with banks and other — is recognized as
earned, and primarily relates to the placement of cash in excess of
near-term funding requirements in interest-bearing time deposits,
overnight sweep accounts, and other interest bearing demand and call
accounts.

Merchant acquisition — Represents the signing of merchants to

accept American Express-branded cards.

Net card fees — Represents the card membership fees earned
during the period. These fees are recognized as revenue over the
covered card membership period (typically one year), net of provision
for projected refunds for cancellation of card membership.

Net interest yield on Card Member loans — Net interest yield on
Card Member loans is computed by dividing adjusted net interest
income by adjusted average loans, computed on an annualized basis.

53

The calculation of net interest yield on Card Member loans includes
interest that is deemed uncollectible. For all presentations of net
interest yield on Card Member loans, reserves and net write-offs
related to uncollectible interest are recorded through provisions for
losses — Card Member loans; therefore, such reserves and net write-
offs are not included in the net interest yield calculation.

Net loss ratio — Represents the ratio of ICS and GCS charge card
write-offs consisting of principal (resulting from authorized and
unauthorized transactions) and fee components, less recoveries, on
Card Member receivables expressed as a percentage of gross amounts
billed to Card Members.

Net write-off rate — principal only — Represents the amount of
Card Member loans or USCS Card Member receivables written off
consisting of principal (resulting from authorized transactions), less
recoveries, as a percentage of the average loan balance or USCS
average receivables during the period.

Net write-off rate — principal, interest and fees — Includes, in the
calculation of the net write-off rate, amounts for interest and fees in
addition to principal for Card Member loans, and fees in addition to
principal for USCS Card Member receivables.

Operating expenses — Represents salaries and employee benefits,
professional services, occupancy and equipment, communications and
other expenses.

Return on average equity — Calculated by dividing one-year period

net income by one-year average total shareholders’ equity.

Return on average segment capital — Calculated by dividing one-

year period segment income by one-year average segment capital.

Return on average tangible segment capital — Computed in the
the
same manner as return on average segment capital except
computation of average tangible segment capital excludes from
average segment capital average goodwill and other intangibles.

Risk-weighted assets — Refer to the Capital Strategy section under
“Consolidated Capital Resources and Liquidity” for the definitions
under Basel I and Basel III.

Segment capital — Represents the capital allocated to a segment
based upon specific business operational needs, risk measures and
regulatory capital requirements.

Three-party network — A payment network, such as American

Express, that acts as both the card issuer and merchant acquirer.

Tier 1 common risk-based capital ratio — Refer to the Capital
and

“Consolidated Capital Resources

Strategy
Liquidity” for the definitions under Basel I and Basel III.

section under

Tier 1 leverage ratio — Refer to the Capital Strategy section under
“Consolidated Capital Resources and Liquidity” for the definitions
under Basel I and Basel III.

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

online/mobile commerce, as well as the actual amount of any
potential gain arising from the proposed GBT joint venture
transaction the Company decides to invest in growth initiatives,
which will be based in part on management’s assessment of
competitive opportunities and the Company’s performance and the
ability to control operating, infrastructure, advertising, promotion
and rewards expenses as business expands or changes, including the
changing behavior of Card Members;

(cid:2) changes affecting the Company’s ability or desire to repurchase up
to $1.0 billion of its common shares in the first quarter of 2014,
such as acquisitions, results of operations, capital needs and the
amount of shares issued by the Company to employees upon the
exercise of options, among other factors, which will significantly
impact the potential decrease in the Company’s capital ratios;

(cid:2)

(cid:2)

(cid:2)

the possibility of not achieving the expected timing and financial
impact of
the Company’s reengineering plans, which could be
caused by factors such as the Company’s inability to mitigate the
operational and other risks posed by planned staff reductions, the
Company’s
technology
resources to realize cost savings, underestimating hiring needs
related to some of the job positions being eliminated and other
lower than expected
employee needs not currently anticipated,
attrition rates and higher than expected redeployment rates;

to develop and implement

inability

the ability of the Company to meet its on-average and over-time
growth targets for revenues net of interest expense, earnings per
share and return on average equity, which will depend on factors
such as the Company’s success in implementing its strategies and
business initiatives including growing the Company’s share of
overall spending, increasing merchant coverage, enhancing its pre-
paid offerings, expanding the GNS business and controlling
expenses, and on factors outside management’s control including
the willingness of Card Members
the
effectiveness of marketing and loyalty programs, regulatory and
market pressures on pricing, credit trends, currency and interest
rate fluctuations, and changes in general economic conditions, such
as GDP growth, consumer confidence, unemployment and the
housing market;

to sustain spending,

the ability of the Company to meet its on-average and over-time
objective to return 50 percent of capital generated to shareholders
through dividends and share repurchases, which will depend on
factors such as approval of the Company’s capital plans by its
regulators, the amount the Company spends on acquisitions, the
Company’s results of operations and capital needs in any given
period, and the amount of shares issued by the Company to
employees upon the exercise of options;

Tier 1 risk-based capital ratio — Refer to the Capital Strategy
section under “Consolidated Capital Resources and Liquidity” for the
definitions under Basel I and Basel III.

Total cards-in-force — Represents the number of cards that are
issued and outstanding. Non-proprietary cards-in-force includes all
cards that are issued and outstanding under network partnership
agreements, except for retail co-brand Card Member accounts which
have no out-of-store spend activity during the prior 12-month period.

Total risk-based capital ratio — Refer to the Capital Strategy
section under “Consolidated Capital Resources and Liquidity” for the
definition.

Travel

sales — Represents the total dollar amount of

travel
transaction volume for airline, hotel, car rental and other travel
arrangements made for consumers and corporate clients. The
Company earns
revenue on these transactions by charging a
transaction or management fee.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This report includes forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which are
subject to risks and uncertainties. The forward-looking statements,
which address
the Company’s expected business and financial
performance, among other matters, contain words such as “believe,”
“expect,”
“plan,”
“aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar
expressions. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on
which they are made. The Company undertakes no obligation to
update or revise any forward-looking statements. Factors that could
cause actual results to differ materially from these forward-looking
statements, include, but are not limited to, the following:

“optimistic,”

“anticipate,”

“estimate,”

“intend,”

(cid:2)

(cid:2)

the ability to hold annual operating expense growth to less than 3
percent during 2014, which will depend in part on unanticipated
increases in significant categories of operating expenses, such as
consulting or professional fees, compliance or regulatory-related
costs and technology costs, the payment of monetary damages and
penalties, disgorgement and restitution, the Company’s decision to
increase or decrease discretionary operating expenses depending on
overall business performance, the Company’s ability to achieve the
expected benefits of the Company’s reengineering plans, which will
be impacted by, among other things, the factors identified in the
third bullet below, the Company’s ability to balance expense control
and investments in the business, the impact of changes in foreign
the impact of
currency exchange rates on costs and results,
accounting
level of
acquisition activity and related expenses;

and reclassifications,

and the

changes

the actual amount to be spent by the Company on investments in
the business, including on marketing, promotion, rewards and Card
Member services and certain operating expenses and in such areas
as affluent
small businesses, business-to-business
payments, merchant coverage, international growth, prepaid and

consumers,

54

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

(cid:2)

(cid:2)

including events

(cid:2) uncertainties associated with creation of a joint venture for the
Company’s GBT operations,
impacting the
likelihood and timing of the creation of the joint venture, execution
of transaction documentation and completion of the transaction,
such as continued negotiations, ongoing diligence, regulatory and
other approvals and consultation requirements; the ability of the
potential investors to fund their investment in the joint venture;
uncertainty relating to the timing and magnitude of the recognition
of a gain by American Express as a result of the transaction, such as
the amount of the funds ultimately raised by the joint venture and
when assets are transferred to the joint venture; the underlying
assumptions related to the transaction proving to be inaccurate or
unrealized, such as the ability of the transaction to accelerate the
transformation and growth of the corporate travel business and the
ability to realize strategic linkages between the business operations
of
following the
transaction, including the acceleration of growth in the corporate
payments business; and the joint venture’s ability to successfully
investment capacity and enhance the suite of
create additional
products and services available upon consummation of
the
transaction;

and American Express

joint venture

the

(cid:2) uncertainty relating to the outcomes and costs associated with
including the success or failure of the
merchant class actions,
proposed settlement agreement, such as objections to the settlement
agreement by plaintiffs and other parties and uncertainty and
timing related to the approval of the settlement agreement by the
Court, which can be impacted by appeals;

(cid:2) changes in global economic and business conditions,

including
consumer and business spending, the availability and cost of credit,
all of which may
unemployment
cards,
significantly
delinquency rates, loan balances and other aspects of the Company’s
business and results of operations;

conditions,
on American Express

and political
spending

affect

(cid:2) changes in capital and credit market conditions, including sovereign
creditworthiness, which may significantly affect
the Company’s
ability to meet its liquidity needs, expectations regarding capital and
liquidity ratios, access to capital and cost of capital,
including
changes in interest rates; changes in market conditions affecting the
valuation of
the Company’s assets; or any reduction in the
Company’s credit ratings or those of its subsidiaries, which could
materially increase the cost and other terms of the Company’s
funding, restrict
in
contingent payments under contracts;

its access to the capital markets or result

(cid:2)

funding plan for

the full year 2014 being
the Company’s
implemented in a manner inconsistent with current expectations,
which will depend on various factors such as future business
growth, the impact of global economic, political and other events on
market capacity, demand for securities offered by the Company,
regulatory changes, ability to securitize and sell receivables and the
performance of
receivables previously sold in securitization
transactions;

55

remedies against

litigation,
such as class actions or proceedings brought by
governmental and regulatory agencies (including the lawsuit filed
against the Company by the U.S. Department of Justice and certain
state attorneys general), that could result in (i) the imposition of
the Company
behavioral
voluntarily making certain changes to its business practices, the
effects of which in either case could have a material adverse impact
on the Company’s financial performance; (ii) the imposition of
substantial monetary damages and penalties, disgorgement and
restitution; and/or (iii) damage to the Company’s global reputation
and brand;

the Company or

large,

legal and regulatory developments wherever the Company does
business, including legislative and regulatory reforms in the U.S.,
such as the establishment of the CFPB and Dodd-Frank’s stricter
institutions, which
regulation of
interconnected financial
could make fundamental changes to many of
the Company’s
business practices or materially affect
its capital or liquidity
requirements, results of operations, or ability to pay dividends or
repurchase its stock; actions and potential future actions by the
FDIC and credit rating agencies applicable to securitization trusts,
which could impact the Company’s ABS program; or potential
changes to the taxation of the Company’s businesses, the allowance
the incidence of
significant expenses, or
of deductions
consumption taxes on the Company’s transactions, products and
services;

for

(cid:2) changes in the substantial and increasing worldwide competition in
the payments industry, including competitive pressure that may
impact the prices the Company charges merchants that accept the
Company’s cards and the success of marketing, promotion or
rewards programs;

(cid:2) changes in the financial condition and creditworthiness of the
Company’s business partners, such as bankruptcies, restructurings
or consolidations, involving merchants that represent a significant
portion of the Company’s business, such as the airline industry, or
the Company’s partners in GNS or financial institutions that the
Company relies on for routine funding and liquidity, which could
materially affect the Company’s financial condition or results of
operations;

(cid:2)

the impact of final laws and regulations, if any, arising from the
European Commission’s legislative proposals covering a range of
issues affecting the payments industry, which will depend on
various factors, including, but not limited to, the issues presented
and decisions made in the European legislative and regulatory
processes addressing the proposed regulation of interchange fees
and other practices related to card-based payment transactions, the
amount of time these processes take to reach completion, and the
actual pricing and other requirements ultimately adopted in the
final laws and regulations in the European Union and its member
states;

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW

the ability of the Company to maintain and expand its presence in
the digital payments space, including online and mobile channels,
which will depend on the Company’s success in evolving its
business models and processes for the digital environment, building
partnerships and executing programs with companies, and utilizing
digital capabilities that can be leveraged for future growth;

in telecommunications,

factors beyond the Company’s control such as fire, power loss,
disruptions
severe weather conditions,
natural disasters, terrorism, cyber attacks or fraud, which could
significantly
cards,
delinquency rates,
loan balances and travel-related spending or
disrupt
the Company’s global network systems and ability to
process transactions; and

on American Express

spending

affect

failure of

the potential
the U.S. Congress to renew legislation
regarding the active financing exception to Subpart F of the Internal
Revenue Code, which could increase the Company’s effective tax
rate and have an adverse impact on net income.

(cid:2)

(cid:2)

(cid:2)

A further description of these uncertainties and other risks can be
found in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2013 and the Company’s other reports filed with
the Securities and Exchange Commission.

56

AMERICAN EXPRESS COMPANY
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Because of its inherent limitations,
internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

The Company’s management assessed the effectiveness of
as

the
of
Company’s
internal
the Company’s
December 31, 2013.
management used the criteria set
forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework (1992).

control
In making this assessment,

reporting

financial

over

Based on management’s assessment and those criteria, we conclude
that, as of December 31, 2013, the Company’s internal control over
financial reporting is effective.

PricewaterhouseCoopers

independent
registered public accounting firm, has issued an attestation report
appearing on the following page on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2013.

the Company’s

LLP,

MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING

The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting.

financial reporting and the preparation of

The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of
financial
statements for external purposes in accordance with GAAP in the
United States of America, and includes those policies and procedures
that:
(cid:2) Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;

(cid:2) Provide reasonable assurance that

transactions are recorded as
necessary to permit preparation of
in
accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and

statements

financial

(cid:2) Provide reasonable assurance regarding prevention or

timely
detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.

57

AMERICAN EXPRESS COMPANY
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

is

(1992)

issued by

statements,

these financial

responsible for

the Committee of

the Company maintained,

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
AMERICAN EXPRESS COMPANY:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income,
cash flows and shareholders’ equity present fairly,
in all material
respects, the financial position of American Express Company and its
subsidiaries at December 31, 2013 and 2012, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 2013,
in conformity with accounting
principles generally accepted in the United States of America. Also in
our opinion,
in all material respects,
effective internal control over financial reporting as of December 31,
2013, based on criteria established in Internal Control — Integrated
Framework
Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s
for
management
maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to
express opinions on these financial statements and on the Company’s
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits
of
the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness
exists,
and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

that

those policies and procedures

A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes
(i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the
company’s assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

New York, New York

February 25, 2014

58

AMERICAN EXPRESS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income — For the Years Ended December 31, 2013, 2012 and 2011

Consolidated Statements of Comprehensive Income — For the Years Ended December 31, 2013, 2012 and 2011

Consolidated Balance Sheets — December 31, 2013 and 2012

Consolidated Statements of Cash Flows — For the Years Ended December 31, 2013, 2012 and 2011

Consolidated Statements of Shareholders’ Equity — For the Years Ended December 31, 2013, 2012 and 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies

Note 2 — Acquisitions and Divestitures

Note 3 — Fair Values

Note 4 — Accounts Receivable and Loans

Note 5 — Reserves for Losses

Note 6 — Investment Securities

Note 7 — Asset Securitizations

Note 8 — Other Assets

Note 9 — Customer Deposits

Note 10 — Debt

Note 11 — Other Liabilities

Note 12 — Derivatives and Hedging Activities

Note 13 — Guarantees

Note 14 — Common and Preferred Shares

Note 15 — Changes in Accumulated Other Comprehensive (Loss) Income

Note 16 — Restructuring

Note 17 — Income Taxes

Note 18 — Earnings Per Common Share

Note 19 — Details of Certain Consolidated Statements of Income Lines

Includes further details of:
(cid:2) Other Commissions and Fees
(cid:2) Other Revenues
(cid:2) Marketing, Promotion, Rewards and Card Member Services
(cid:2) Other, Net

Note 20 — Stock Plans

Note 21 — Retirement Plans

Note 22 — Significant Credit Concentrations

Note 23 — Regulatory Matters and Capital Adequacy

Note 24 — Commitments and Contingencies

Note 25 — Reportable Operating Segments and Geographic Operations

Note 26 — Parent Company

Note 27 — Quarterly Financial Data (Unaudited)

PAGE
60

61

62

63

64

65

68

68

72

77

79

80

81

83

84

87

87

91

91

92

93

94

96

96

97

98

99

100

101

102

105

107

59

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31 (Millions, except per share amounts)

2013

2012

2011

Revenues

Non-interest revenues
Discount revenue
Net card fees
Travel commissions and fees
Other commissions and fees
Other

Total non-interest revenues

Interest income

Interest on loans
Interest and dividends on investment securities
Deposits with banks and other

Total interest income

Interest expense

Deposits
Long-term debt and other

Total interest expense

Net interest income

Total revenues net of interest expense

Provisions for losses

Charge card
Card Member loans
Other

Total provisions for losses

Total revenues net of interest expense after provisions for losses

Expenses

Marketing, promotion, rewards and Card Member services
Salaries and employee benefits
Other, net

Total

Pretax income from continuing operations
Income tax provision

Income from continuing operations
Income from discontinued operations, net of tax

Net income

Earnings per Common Share – Basic: (Note 18)

Income from continuing operations attributable to common shareholders(a)
Income from discontinued operations

Net income attributable to common shareholders(a)

Earnings per Common Share – Diluted: (Note 18)

Income from continuing operations attributable to common shareholders(a)
Income from discontinued operations

Net income attributable to common shareholders(a)

Average common shares outstanding for earnings per common share:

Basic
Diluted

$

$

$

$

$

$

$

18,695
2,631
1,913
2,414
2,274

27,927

6,718
201
86

7,005

442
1,516

1,958

5,047

$

17,739
2,506
1,940
2,317
2,425

26,927

6,511
246
97

6,854

480
1,746

2,226

4,628

16,734
2,448
1,971
2,269
2,164

25,586

6,272
327
97

6,696

528
1,792

2,320

4,376

32,974

31,555

29,962

789
1,229
92

2,110

742
1,149
99

1,990

770
253
89

1,112

30,864

29,565

28,850

10,267
6,191
6,518

22,976

7,888
2,529

5,359
—

5,359

4.91
—

4.91

4.88
—

4.88

1,082
1,089

$

$

$

$

$

9,944
6,597
6,573

23,114

6,451
1,969

4,482
—

4,482

3.91
—

3.91

3.89
—

3.89

1,135
1,141

$

$

$

$

$

9,930
6,252
5,712

21,894

6,956
2,057

4,899
36

4,935

4.11
0.03

4.14

4.09
0.03

4.12

1,178
1,184

(a) Represents income from continuing operations or net income, as applicable, less earnings allocated to participating share awards and other items of $47 million, $49

million and $58 million for the years ended December 31, 2013, 2012 and 2011, respectively.

See Notes to Consolidated Financial Statements.

60

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31 (Millions)

Net income
Other comprehensive (loss) income:

Net unrealized securities (losses) gains, net of tax
Net unrealized derivatives gains, net of tax
Foreign currency translation adjustments, net of tax
Net unrealized pension and other postretirement benefit gains (losses), net of tax

Other comprehensive (loss) income

Comprehensive income

2013

2012

$

5,359

$

4,482

$

(252)
—
(336)
89

(499)

27
1
(72)
(7)

(51)

2011

4,935

231
6
(179)
(17)

41

$

4,860

$

4,431

$

4,976

See Notes to Consolidated Financial Statements.

61

AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS

December 31 (Millions, except per share data)

Assets

Cash and cash equivalents
Cash and due from banks
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2013, $143; 2012, $58)
Short-term investment securities

$

Total cash and cash equivalents

Accounts receivable

Card Member receivables (includes gross receivables available to settle obligations of consolidated variable interest entities: 2013,

$7,329; 2012, $8,012), less reserves: 2013, $386; 2012, $428

Other receivables, less reserves: 2013, $71; 2012, $86

Loans

Card Member loans (includes gross loans available to settle obligations of consolidated variable interest entities: 2013, $31,245; 2012,

$32,731), less reserves: 2013, $1,261; 2012, $1,471

Other loans, less reserves: 2013, $13; 2012, $20

Investment securities
Premises and equipment, less accumulated depreciation and amortization: 2013, $5,978; 2012, $5,429
Other assets (includes restricted cash of consolidated variable interest entities: 2013, $58; 2012, $76)

2013

2012

$

2,212
16,776
498

19,486

43,777
3,408

65,977
608
5,016
3,875
11,228

2,020
19,892
338

22,250

42,338
3,576

63,758
551
5,614
3,635
11,418

Total assets

Liabilities and Shareholders’ Equity
Liabilities

Customer deposits
Travelers Cheques and other prepaid products
Accounts payable
Short-term borrowings (includes debt issued by consolidated variable interest entities: 2013, $2,000; 2012, nil)
Long-term debt (includes debt issued by consolidated variable interest entities: 2013, $18,690; 2012, $19,277)
Other liabilities

Total liabilities

Commitments and Contingencies (Note 24)
Shareholders’ Equity

Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 1,064 million shares as of December 31, 2013

and 1,105 million shares as of December 31, 2012

Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income

Net unrealized securities gains, net of tax of: 2013, $33; 2012, $175
Foreign currency translation adjustments, net of tax of: 2013, $(526); 2012, $(611)
Net unrealized pension and other postretirement benefit losses, net of tax of: 2013, $(177); 2012, $(233)

Total accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

$

153,375

$

153,140

$

$

41,763
4,240
10,615
5,021
55,330
16,910

39,803
4,601
10,006
3,314
58,973
17,557

$

133,879

$

134,254

213
12,202
8,507

63
(1,090)
(399)

(1,426)

19,496

221
12,067
7,525

315
(754)
(488)

(927)

18,886

$

153,375

$

153,140

See Notes to Consolidated Financial Statements.

62

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31 (Millions)

Cash Flows from Operating Activities
Net income
Income from discontinued operations, net of tax

Income from continuing operations
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

Provisions for losses
Depreciation and amortization
Deferred taxes and other
Stock-based compensation
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:

Other receivables
Other assets
Accounts payable and other liabilities
Travelers Cheques and other prepaid products
Premium paid on debt exchange

Net cash provided by operating activities

Cash Flows from Investing Activities
Sale of investments
Maturity and redemption of investments
Purchase of investments
Net increase in Card Member loans/receivables
Purchase of premises and equipment, net of sales: 2013, $72; 2012, $3; 2011, $16
Acquisitions/dispositions, net of cash acquired/sold
Net decrease in restricted cash

Net cash used in investing activities

Cash Flows from Financing Activities
Net increase in customer deposits
Net increase (decrease) in short-term borrowings
Issuance of long-term debt
Principal payments on long-term debt
Issuance of American Express common shares
Repurchase of American Express common shares
Dividends paid

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental cash flow information
Non-cash financing activities

Impact of debt exchange on long-term debt

2013

2012

2011

$

$

5,359
—

5,359

2,110
1,020
(283)
350

(73)
335
88
(359)
—

$

4,482
—

4,482

1,990
991
218
297

153
390
(358)
(540)
(541)

8,547

7,082

217
1,292
(1,348)
(6,301)
(1,006)
(195)
72

(7,269)

1,195
1,843
11,995
(14,763)
721
(3,943)
(939)

(3,891)

(151)

(2,764)
22,250

525
1,562
(473)
(6,671)
(1,053)
(466)
31

(6,545)

2,300
(1,015)
13,934
(14,076)
443
(3,952)
(902)

(3,268)

88

(2,643)
24,893

4,935
(36)

4,899

1,112
918
818
301

663
(635)
2,186
(494)
—

9,768

1,176
6,074
(1,158)
(8,358)
(1,189)
(610)
3,574

(491)

8,232
705
13,982
(21,029)
594
(2,300)
(861)

(677)

(63)

8,537
16,356

$

19,486

$

22,250

$

24,893

$

— $

439

$

—

See Notes to Consolidated Financial Statements.

63

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Years Ended December 31, 2013
(Millions, except per share amounts)

Balances as of December 31, 2010

Net income
Other comprehensive income
Repurchase of common shares
Other changes, primarily employee plans
Cash dividends declared common, $0.72 per share

Balances as of December 31, 2011

Net income
Other comprehensive loss
Repurchase of common shares
Other changes, primarily employee plans
Cash dividends declared common, $0.80 per share

Balances as of December 31, 2012

Net income
Other comprehensive loss
Repurchase of common shares
Other changes, primarily employee plans
Cash dividends declared common, $0.89 per share

Balances as of December 31, 2013

Total

Common
Shares

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
(Loss) Income

$ 16,230
4,935
41
(2,300)
744
(856)

18,794
4,482
(51)
(4,000)
570
(909)

18,886
5,359
(499)
(4,000)
717
(967)

$

238

$ 11,937

$

(917)

(10)
4

(494)
774

232

12,217

(14)
3

(765)
615

221

12,067

(11)
3

(648)
783

41

(876)

(51)

(927)

(499)

Retained
Earnings

$ 4,972
4,935

(1,796)
(34)
(856)

7,221
4,482

(3,221)
(48)
(909)

7,525
5,359

(3,341)
(69)
(967)

$ 19,496

$

213

$ 12,202

$

(1,426) $ 8,507

See Notes to Consolidated Financial Statements.

64

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

card products

NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
American Express Company (the Company) is a global services
company that provides customers with access to products, insights
and experiences that enrich lives and build business success. The
Company’s principal products and services are charge and credit
payment
and travel-related services offered to
consumers and businesses around the world. 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.

PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements of the Company are prepared
in conformity with U.S. generally accepted accounting principles
(GAAP). Significant intercompany transactions are eliminated.

interest.” For voting interest entities,

The Company consolidates entities in which it holds a “controlling
the Company is
financial
considered to hold a controlling financial interest when it is able to
exercise control over the investees’ operating and financial decisions.
For variable interest entities (VIEs),
is considered to hold a
controlling financial interest when it is determined to be the primary
beneficiary. A primary beneficiary is the party that has both: (1) the
power to direct the activities that most significantly impact that
entity’s economic performance, and (2) the obligation to absorb losses
of, or the right to receive benefits from, the VIE that could potentially
be significant to the VIE. The determination of whether an entity is a
VIE is based on the amount and characteristics of the entity’s equity.

it

Entities in which the Company’s voting interest in common equity
does not provide it with control, but allows the Company to exert
significant influence over the operating and financial decisions, are
accounted for under the equity method. All other investments in
equity securities, to the extent that they are not considered marketable
securities, are accounted for under the cost method.

FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars based upon exchange rates prevailing at the end of
each year. The resulting translation adjustments, along with any
related qualifying hedge and tax effects, are included in accumulated
component of
other
income
shareholders’ equity. Translation adjustments,
including qualifying
hedge and tax effects, are reclassified to earnings upon the sale or

comprehensive

(AOCI),

(loss)

a

65

substantial liquidation of investments in foreign operations. Revenues
and expenses are translated at the average month-end exchange rates
during the year. Gains and losses related to transactions in a currency
other than the functional currency, including operations outside the
U.S. where the functional currency is the U.S. dollar, are reported net
in the Company’s Consolidated Statements of Income, in other non-
interest revenue, interest income, interest expense, or other expenses,
depending on the nature of
foreign currency
transaction gains amounted to approximately $108 million, $120
million and $145 million in 2013, 2012 and 2011, respectively.

the activity. Net

estimates are based,

AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS
Accounting estimates are an integral part of
the Consolidated
in part, on
Financial Statements. These
management’s assumptions concerning future events. Among the
more significant assumptions are those that relate to reserves for Card
Member losses on loans and receivables, the proprietary point liability
for Membership Rewards costs, fair value measurement, goodwill and
income taxes. These accounting estimates reflect the best judgment of
management, but actual results could differ.

TOTAL REVENUES NET OF INTEREST EXPENSE
Discount Revenue
Discount revenue represents fees generally charged to merchants with
which the Company, or a Global Network Services (GNS) partner, has
entered into card acceptance agreements for facilitating transactions
between the merchants and the Company’s Card Members. The
discount fee generally is deducted from the payment to the merchant
and recorded as discount revenue at the time the charge is captured.

Net Card Fees
Card fees, net of direct card acquisition costs and a reserve for
projected membership cancellations, are deferred and recognized on a
straight-line basis over the 12-month card membership period as Net
Card Fees
Income. The
unamortized net card fee balance is reported net in Other Liabilities
on the Consolidated Balance Sheets (refer to Note 11).

in the Consolidated Statements of

Travel Commissions and Fees
The Company earns travel commissions and fees by charging clients
transaction or management fees for selling and arranging travel and
for travel management services. Client transaction fee revenue is
recognized at the time the client books the travel arrangements. Travel
management services revenue is recognized over the contractual term
of the agreement. The Company’s travel suppliers (e.g., airlines, hotels
and car rental companies) pay commissions and fees on tickets issued,
sales
agreements.
based
Commissions and fees from travel suppliers are generally recognized
at the time a ticket is purchased or over the term of the contract.
Commissions and fees that are based on services rendered (e.g., hotel
stays and car rentals) are recognized based on usage.

on contractual

services

other

and

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Commissions and Fees
Other commissions and fees include foreign currency conversion fees,
Card Member delinquency fees, service fees and other card related
assessments, which are recognized primarily in the period in which
they are charged to the Card Member (refer to Note 19). In addition,
service fees are also earned from other customers (e.g., merchants) for
a variety of services and are recognized when the service is performed,
which is generally in the period the fee is charged. Also included are
fees related to the Company’s Membership Rewards program, which
are deferred and recognized over the period covered by the fee. The
unamortized Membership Rewards fee balance is included in other
liabilities on the Consolidated Balance Sheets (refer to Note 11).

Contra-revenue
The Company regularly makes payments
through contractual
arrangements with merchants, corporate payments clients, Card
Members and certain other customers. Payments to such customers,
including cash rebates paid to Card Members, are generally classified
as contra-revenue unless a specifically identifiable benefit (e.g., goods
or services) is received by the Company or its Card Members in
consideration for that payment, and the fair value of such benefit is
determinable and measurable. If no such benefit is identified, then the
entire payment is classified as contra-revenue and included in the
Consolidated Statements of Income in the revenue line item where the
related transactions are recorded (e.g., discount revenue,
travel
commissions and fees and other commissions and fees). If such a
benefit is identified, then the payment is classified as expense up to the
estimated fair value of the benefit.

Interest Income
Interest on Card Member loans is assessed using the average daily
balance method. Unless the loan is classified as non-accrual, interest is
recognized based upon the outstanding balance, in accordance with
the terms of the applicable account agreement, until the outstanding
balance is paid or written off.

Interest and dividends on investment securities primarily relates to
the Company’s performing fixed-income securities. Interest income is
accrued as earned using the effective interest method, which adjusts
the yield for security premiums and discounts,
fees and other
payments, so that a constant rate of return is recognized on the
investment security’s outstanding balance. Amounts are recognized
until such time as a security is in default or when it is likely that future
interest payments will not be received as scheduled.

Interest on deposits with banks and other is recognized as earned,
and primarily relates to the placement of cash in interest-bearing time
deposits, overnight
interest-bearing
demand and call accounts.

sweep accounts, and other

Interest Expense
Interest expense includes interest incurred primarily to fund Card
Member loans, charge card product receivables, general corporate
purposes, and liquidity needs, and is recognized as incurred. Interest
expense is divided principally into two categories: (i) deposits, which
primarily relates to interest expense on deposits taken from customers
and institutions, and (ii) long-term debt and other, which primarily
relates to interest expense on the Company’s long-term financing and
short-term borrowings, and the realized impact of derivatives hedging
interest rate risk.

BALANCE SHEET
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from banks,
interest-bearing bank balances, including securities purchased under
resale agreements, and other highly liquid investments with original
maturities of 90 days or less.

Premises and Equipment
Premises and equipment,
including leasehold improvements, are
carried at cost less accumulated depreciation. Costs incurred during
construction are capitalized and are depreciated once an asset is
placed in service. Depreciation is generally computed using the
straight-line method over the estimated useful lives of assets, which
range from 3 to 10 years for equipment,
furniture and building
improvements. Premises are depreciated based upon their estimated
useful life at the acquisition date, which generally ranges from 30 to 50
years.

Leasehold improvements are depreciated using the straight-line
method over the lesser of the remaining term of the leased facility or
the economic life of the improvement, which ranges from 5 to 10
years. The Company maintains operating leases worldwide for
facilities and equipment. Rent expense for facility leases is recognized
ratably over the lease term, and includes adjustments for rent
concessions, rent escalations and leasehold improvement allowances.
The Company recognizes lease restoration obligations at the fair value
of
the
the restoration liabilities when incurred, and amortizes
restoration assets over the lease term.

The Company capitalizes certain costs associated with the
internal-use software. Once the
acquisition or development of
software is ready for its intended use, these costs are amortized on a
straight-line basis over the software’s estimated useful life, generally 5
years.

66

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OTHER SIGNIFICANT ACCOUNTING POLICIES
The following table identifies the Company’s other significant accounting policies, the Note and page where the Note can be found.

Significant Accounting Policy

Fair Value Measurements

Accounts Receivable

Loans

Reserves for Losses

Investment Securities

Asset Securitizations

Goodwill and Other Intangible Assets

Membership Rewards

Note
Number

Note 3

Fair Values

Note Title

Note 4

Accounts Receivable and Loans

Note 4

Accounts Receivable and Loans

Note 5

Reserves for Losses

Note 6

Investment Securities

Note 7

Asset Securitizations

Note 8 Other Assets

Note 11 Other Liabilities

Derivative Financial Instruments and Hedging Activities

Note 12

Derivatives and Hedging Activities

Income Taxes

Stock-based Compensation

Retirement Plans

Note 17

Income Taxes

Note 20

Stock Plans

Note 21

Retirement Plans

Regulatory Matters and Capital Adequacy

Note 23

Regulatory Matters and Capital Adequacy

Legal Contingencies

Reportable Operating Segments

Note 24

Commitments and Contingencies

Note 25

Reportable Operating Segments and Geographic Operations

Page

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recently

Standards Board

Financial Accounting

RECENTLY ISSUED ACCOUNTING STANDARDS
The
issued
Accounting Standards Update (ASU) No. 2014-01, Investments –
Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Qualified Affordable Housing Projects. Provided
certain conditions are met, this standard permits entities to account
for investments in qualified affordable housing projects using the
proportional amortization method, which results in amortizing the
initial cost of the investment in proportion to the tax credits and other
tax benefits received, and recognizing the net investment performance
in the income statement as a component of income tax expense.
standard requires new disclosures about all
Additionally,

the

investments in qualified affordable housing projects irrespective of the
method used to account for the investments. The standard, which is to
be retrospectively applied, will be effective beginning in the first
quarter of 2015; however, early adoption is permitted. This standard is
not expected to have a material impact on the Company’s financial
position or results of operations upon adoption.

CLASSIFICATION OF VARIOUS ITEMS
Certain reclassifications of prior period amounts have been made to
conform to the current period presentation. These reclassifications did
not have a material
impact on the Company’s financial position,
results of operations or cash flows.

67

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3
FAIR VALUES
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
the measurement date, based on the Company’s
participants at
principal or, in the absence of a principal, most advantageous market
for the specific asset or liability.

GAAP provides for a three-level hierarchy of inputs to valuation

techniques used to measure fair value, defined as follows:
(cid:2) Level 1 — Inputs that are quoted prices (unadjusted) for identical

assets or liabilities in active markets that the entity can access.

(cid:2) Level 2 — Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or liability,
including:

– Quoted prices for similar assets or liabilities in active markets;

– Quoted prices for identical or similar assets or liabilities in

markets that are not active;

– Inputs other than quoted prices that are observable for the asset

or liability; and

– Inputs that are derived principally from or corroborated by

observable market data by correlation or other means.

(e.g.,

circumstances

(cid:2) Level 3 — Inputs that are unobservable and reflect the Company’s
own estimates about the estimates market participants would use in
pricing the asset or liability based on the best information available
in the
internally derived assumptions
surrounding the timing and amount of expected cash flows). The
Company did not measure any financial instruments presented on
the Consolidated Balance Sheets at fair value on a recurring basis
using significant unobservable inputs (Level 3) during the years
ended December 31, 2013 and 2012, although the disclosed fair
value of certain assets that are not carried at fair value, as presented
later in this Note, are classified within Level 3.

The Company monitors the market conditions and evaluates the fair
value hierarchy levels at least quarterly. For any transfers in and out of
the levels of the fair value hierarchy, the Company discloses the fair
value measurement at the beginning of the reporting period during
which the transfer occurred.

NOTE 2
ACQUISITIONS AND DIVESTITURES
Loyalty Partner Acquisition
On March 1, 2011, the Company completed the acquisition of a
controlling interest in Loyalty Partner, a leading marketing services
company that operates loyalty programs in Germany, Poland, India
and Mexico. Loyalty Partner also provides market analysis, operating
platforms and consulting services that help merchants grow their
businesses. Total consideration was $616 million. Upon acquisition,
the Company had an option to acquire the remaining non-controlling
equity interest (NCI) over a three-year period beginning at the end of
2013 at a price based on business performance, which had an
estimated fair value of $148 million at the acquisition date.

This acquisition did not have a significant impact on either the
Company’s consolidated results of operations or the International
Card Services segment (ICS) for the years ended December 31, 2013,
2012 and 2011.

The following table summarizes the assets acquired and liabilities
assumed for this acquisition as of the acquisition date:

(Millions)

Goodwill
Definite-lived intangible assets
Other assets

Total assets
Total liabilities (including NCI)

Net assets acquired

Loyalty
Partner(a)

$

539
295
208

1,042
426

$

616

(a) The final purchase price allocation was completed in 2012. The above
amounts do not differ significantly from the estimates at the acquisition date.

In November 2013, the Company entered into an agreement to
extinguish a portion of the NCI in exchange for a cash payment of
$132 million and to convert the remaining NCI to an option that is
accounted for as a long-term liability with an initial value of $121
million. The Company reduced equity by $107 million in connection
with this agreement.

GLOBAL BUSINESS TRAVEL DIVESTITURE
As announced during the third quarter of 2013, the Company plans to
create a new joint venture for its Global Business Travel (GBT)
operations. It is expected that GBT’s operations, business relationships
and other assets would be held and operated by the joint venture
entity. As presently contemplated, at the closing of the transaction the
Company would maintain an approximate 50 percent ownership stake
in the joint venture, while an investor group would own the remaining
interest. The transaction remains subject to the execution of definitive
agreements and receipt of regulatory and other approvals. Assuming
these conditions are met, the Company would plan to close the
transaction in the second quarter of 2014.

68

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 described in the preceding paragraphs), as of December 31:

(Millions)

Assets:
Investment securities:(a)

Equity securities
Debt securities and other

Derivatives(a)

Total assets

Liabilities:
Derivatives(a)

Total liabilities

2013

2012

Total

Level 1

Level 2

Total

Level 1

Level 2

$

$

124
4,892
701

5,717

124
320
—

444

$

— $

4,572
701

5,273

$

296
5,318
942

6,556

213

—

213

329

296
338
—

634

—

$

213

$

— $

213

$

329

$

— $

$

—
4,980
942

5,922

329

329

(a) Refer to Note 6 for the fair values of investment securities and to Note 12 for the fair values of derivative assets and liabilities, on a further disaggregated basis.

VALUATION TECHNIQUES USED IN THE FAIR VALUE
MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES CARRIED AT FAIR VALUE
For the financial assets and liabilities measured at fair value on a
recurring basis (categorized in the valuation hierarchy table above) the
Company applies the following valuation techniques:

Investment Securities
When available, quoted prices of identical investment securities in
active markets are used to estimate fair value. Such investment
securities are classified within Level 1 of the fair value hierarchy.

for

the fair values

When quoted prices of identical investment securities in active
markets are not available,
the Company’s
investment securities are obtained primarily from pricing services
engaged by the Company, and the Company receives one price for
each security. The fair values provided by the pricing services are
estimated using pricing models, where the inputs to those models are
based on observable market
trades of similar
securities. Such investment securities are classified within Level 2 of
the fair value hierarchy. The inputs to the valuation techniques
applied by the pricing services vary depending on the type of security
being priced but are typically benchmark yields, benchmark security
prices, credit spreads, prepayment speeds, reported trades and broker-
dealer quotes, all with reasonable levels of transparency. The pricing
services did not apply any adjustments to the pricing models used. In
addition,
the Company did not apply any adjustments to prices
received from the pricing services.

inputs or recent

its understanding of

The Company reaffirms

the valuation
techniques used by its pricing services at least annually. In addition,
the Company corroborates the prices provided by its pricing services
for reasonableness by comparing the prices from the respective pricing
services to valuations obtained from different pricing sources as well
as comparing prices to the sale prices received from sold securities at
least quarterly. In instances where price discrepancies are identified
between different pricing sources,
the Company evaluates such
discrepancies to ensure that the prices used for its valuation represent
the fair value of the underlying investment securities. Refer to Note 6
for additional fair value information.

Derivative Financial Instruments
The fair value of the Company’s derivative financial instruments is
estimated by third-party valuation services that use proprietary
pricing models or by internal pricing models, where the inputs to
those models are readily observable from actively quoted markets. The
pricing models used are
the
contractual terms of the derivatives as described below. The Company
reaffirms its understanding of the valuation techniques used by the
third-party valuation services at
least annually. The Company’s
derivative instruments are classified within Level 2 of the fair value
hierarchy.

consistently applied and reflect

The fair value of the Company’s interest rate swaps is determined
based on a discounted cash flow method using the following
significant inputs: the contractual terms of the swap such as the
notional amount, fixed coupon rate, floating coupon rate (based on
interbank rates consistent with the frequency and currency of the
interest cash flows) and tenor, as well as discount rates consistent with
the underlying economic factors of the currency in which the cash
flows are denominated.

The fair value of the Company’s total return contract, which serves
as a hedge against the Hong Kong dollar (HKD) change in fair value
in the Industrial and
associated with the Company’s investment
is determined based on a
Commercial Bank of China (ICBC),
discounted cash flow method using the following significant inputs as
of the valuation date: number of shares of the Company’s underlying
ICBC investment, the quoted market price of the shares in HKD and
the monthly settlement terms of the contract inclusive of price and
tenor.

The fair value of foreign exchange forward contracts is determined
based on a discounted cash flow method using the following
significant inputs: the contractual terms of the forward contracts such
as the notional amount, maturity dates and contract rate, as well as
relevant
rates
consistent with the underlying economic factors of the currency in
which the cash flows are denominated.

foreign currency forward curves, and discount

69

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit valuation adjustments
are necessary when the market
parameters, such as a benchmark curve, used to value derivatives are
its
credit quality of
not

the Company or

indicative of

the

counterparties. The Company considers the counterparty credit risk
by applying an observable forecasted default rate to the current
exposure. Refer to Note 12 for additional fair value information.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT OTHER THAN FAIR VALUE

The following table discloses the estimated fair value for the Company’s financial assets and financial liabilities that are not required to be carried
at fair value on a recurring basis, as of December 31, 2013 and 2012:

2013 (Billions)

Financial Assets:

Financial assets for which carrying values equal or approximate fair value

Cash and cash equivalents
Other financial assets(b)

Financial assets carried at other than fair value

Loans, net

Financial Liabilities:

Financial liabilities for which carrying values equal or approximate fair value
Financial liabilities carried at other than fair value

Certificates of deposit(d)
Long-term debt

2012 (Billions)

Financial Assets:

Financial assets for which carrying values equal or approximate fair value

Cash and cash equivalents
Other financial assets(b)

Financial assets carried at other than fair value

Loans, net

Financial Liabilities:

Financial liabilities for which carrying values equal or approximate fair value
Financial liabilities carried at other than fair value

Certificates of deposit(d)
Long-term debt

Carrying
Value

Corresponding Fair Value Amount

Total

Level 1

Level 2

Level 3

$

2(a) $

$

$

19
48

67

60

7
55

$

$

19
48

67(c)

60

8

$

58(c) $

17
—

—

—

—
— $

48

—

60

8
58

$

Carrying
Value

Corresponding Fair Value Amount

Total

Level 1

Level 2

Level 3

$

1(a) $

$

$

22
47

64

55

10
59

$

$

$

22
47

65(c)

55

21
—

—

—

10
62(c) $

—
— $

47

—

55

10
62

$

—
—

67

—

—
—

—
—

65

—

—
—

(a) Reflects time deposits.
(b) Includes accounts receivable (including fair values of Card Member receivables of $7.3 billion and $8.0 billion held by consolidated VIEs as of December 31, 2013 and

2012, respectively), restricted cash and other miscellaneous assets.

(c) Includes fair values of loans of $31.0 billion and $32.4 billion, and long-term debt of $18.8 billion and $19.5 billion, held by consolidated VIEs as of December 31, 2013

and 2012, respectively.

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

70

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of these financial instruments are estimates based upon
the market conditions and perceived risks as of December 31, 2013,
and require management
judgment. These figures may not be
indicative of future fair values. The fair value of the Company cannot
be reliably estimated by aggregating the amounts presented.

Cheques and other prepaid products outstanding, accounts payable,
short-term borrowings and certain other liabilities for which the
carrying values approximate fair value because they are short term in
duration, have no defined maturity or have a market-based interest
rate.

VALUATION TECHNIQUES USED IN THE FAIR VALUE
MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES CARRIED AT OTHER THAN FAIR VALUE
For the financial assets and liabilities that are not required to be
carried at fair value on a recurring basis (categorized in the valuation
hierarchy table above) the Company applies the following valuation
techniques to measure fair value:

Financial Liabilities Carried At Other Than Fair Value
Certificates of Deposit
Certificates of deposit (CDs) are recorded at their historical issuance
cost on the Consolidated Balance Sheets. Fair value is estimated using
a discounted cash flow methodology based on the future cash flows
and the discount rate that reflects the Company’s current rates for
similar types of CDs within similar markets.

is

recorded at historical

Long-term Debt
Long-term debt
issuance cost on the
Consolidated Balance Sheets adjusted for the impact of fair value
hedge accounting on certain fixed-rate notes and current translation
rates for foreign-denominated debt. The fair value of the Company’s
long-term debt is measured using quoted offer prices when quoted
market prices are available. If quoted market prices are not available,
the fair value is determined by discounting the future cash flows of
each instrument at rates currently observed in publicly-traded debt
markets for debt of similar terms and credit risk. For long-term debt,
where there are no rates currently observable in publicly traded debt
markets of similar terms and comparable credit risk, the Company
uses market interest rates and adjusts those rates for necessary risks,
including its own credit risk. In determining an appropriate spread to
reflect its credit standing, the Company considers credit default swap
spreads, bond yields of other long-term debt offered by the Company,
and interest rates currently offered to the Company for similar debt
instruments of comparable maturities.

NONRECURRING FAIR VALUE MEASUREMENTS
The Company has certain assets that are subject to measurement at
fair value on a nonrecurring basis. For these assets, measurement at
fair value in periods subsequent
to their initial recognition is
applicable if determined to be impaired. During the twelve months
ended December 31, 2013 and 2012, the Company did not have any
material assets that were measured at fair value due to impairment.

Financial Assets For Which Carrying Values Equal or Approximate
Fair Value
Financial assets for which carrying values equal or approximate fair
value include cash and cash equivalents, Card Member receivables,
accrued interest and certain other assets. For these assets, the carrying
values approximate fair value because they are short term in duration,
have no defined maturity or have a market-based interest rate.

are

less

cost,

recorded at historical

Financial Assets Carried At Other Than Fair Value
Loans
Loans
reserves, on the
Consolidated Balance Sheets. In estimating the fair value for the
Company’s loans the Company uses a discounted cash flow model.
Due to the lack of a comparable whole loan sales market for similar
credit card receivables and the lack of observable pricing inputs
thereof, the Company uses various inputs derived from an equivalent
securitization market
to estimate fair value. Such inputs include
projected income (inclusive of future interest payments and late fee
revenue), estimated pay-down rates, discount rates and relevant credit
costs.

Financial Liabilities For Which Carrying Values Equal Or Approximate
Fair Value
Financial liabilities for which carrying values equal or approximate
fair value include accrued interest, customer deposits (excluding
certificates of deposit, which are described further below), Travelers

71

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

by

balance

CARD MEMBER AND OTHER LOANS
Card Member loans, representing revolving amounts due on lending
card products, are recorded at the time a Card Member enters into a
point-of-sale transaction with a merchant, as well as amounts due
from charge Card Members who elect to revolve a portion of the
outstanding
revolving payment
arrangement with the Company. These loans have a range of terms
such as credit limits, interest rates, fees and payment structures, which
can be revised over time based on new information about Card
Members and in accordance with applicable regulations and the
respective product’s terms and conditions. Card Members holding
revolving loans are typically required to make monthly payments
based on pre-established amounts. The amounts that Card Members
choose to revolve are subject to finance charges.

entering

into

a

Card Member loans are presented on the Consolidated Balance
Sheets net of reserves for losses (refer to Note 5), and include
principal, accrued interest and fees receivable. The Company’s policy
generally is to cease accruing interest on a Card Member loan at the
time the account is written off, and establish reserves for interest that
the Company believes will not be collected.

Loans as of December 31, 2013 and 2012 consisted of:

(Millions)

U.S. Card Services(a)
International Card Services
Global Commercial Services

Card Member loans
Less: Reserve for losses

Card Member loans, net

Other loans, net(b)

2013

2012

$ 58,395
8,790
53

$ 55,953
9,236
40

67,238
1,261

65,977

65,229
1,471

63,758

$

608

$

551

(a) Includes approximately $31.2 billion and $32.7 billion of gross Card Member
loans available to settle obligations of consolidated VIEs as of December 31,
2013 and 2012, 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 $20 million as of December 31, 2013 and 2012, respectively.

NOTE 4
ACCOUNTS RECEIVABLE AND LOANS
As described below, the Company’s charge and lending payment card
products result in the generation of Card Member receivables and
Card Member loans, respectively.

CARD MEMBER AND OTHER RECEIVABLES
Card Member receivables, representing amounts due on charge card
products, are recorded at the time a Card Member enters into a point-
of-sale transaction with a merchant. Each charge card transaction is
authorized based on its likely economics reflecting a Card Member’s
most recent credit
information and spend patterns. Additionally,
global spend limits are established to limit the maximum exposure for
the Company.

Charge Card Members generally must pay the full amount billed
each month. Card Member receivable balances are presented on the
Consolidated Balance Sheets net of reserves for losses (refer to
Note 5), and include principal and any related accrued fees.

Accounts receivable as of December 31, 2013 and 2012 consisted of:

(Millions)

U.S. Card Services(a)
International Card Services
Global Commercial Services(b)
Global Network & Merchant Services(c)

Card Member receivables(d)
Less: Reserve for losses

Card Member receivables, net

Other receivables, net(e)

2013

2012

$ 21,842
7,771
14,391
159

44,163
386

43,777

$ 21,124
7,778
13,671
193

42,766
428

42,338

$ 3,408

$

3,576

(a) Includes $7.3 billion and $7.5 billion of gross Card Member receivables
available to settle obligations of consolidated VIEs as of December 31, 2013
and 2012, respectively.

(b) Includes $476 million of gross Card Member receivables available to settle
obligations of a consolidated VIE as of December 31, 2012. Also includes $836
million and $913 million due from airlines, of which Delta Air Lines (Delta)
comprises $628 million and $676 million as of December 31, 2013 and 2012,
respectively.

(c) Includes receivables primarily related to the Company’s International

Currency Card portfolios.

(d) Includes approximately $13.8 billion and $13.7 billion of Card Member

receivables outside the U.S. as of December 31, 2013 and 2012, respectively.

(e) Other receivables primarily represent amounts related to (i) purchased joint
venture receivables, (ii) certain merchants for billed discount revenue, and
(iii) GNS partner banks for items such as royalty and franchise fees. Other
receivables are presented net of reserves for losses of $71 million and $86
million as of December 31, 2013 and 2012, respectively.

72

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 represents the aging of Card Member loans and
receivables as of December 31, 2013 and 2012:

2013 (Millions)

Current

30-59
Days
Past
Due

60-89
Days
Past
Due

90+
Days
Past
Due

Total

Card Member Loans:
U.S. Card Services
International Card

Services

Card Member
Receivables:

U.S. Card Services
International Card

Services(a)

Global Commercial

Services(a)

$ 57,772

$ 183

$ 134

$ 306

$ 58,395

8,664

43

28

55

8,790

$ 21,488

$ 125

$ 69

$ 160

$ 21,842

(b)

(b)

(b)

(b)

(b)

(b)

83

7,771

132

14,391

2012 (Millions)

Current

30-59
Days
Past
Due

60-89
Days
Past
Due

90+
Days
Past
Due

Total

Card Member Loans:
U.S. Card Services
International Card

Services

Card Member
Receivables:

U.S. Card Services
International Card

Services(a)

Global Commercial

Services(a)

$ 55,281

$ 200

$ 147

$ 325

$ 55,953

9,099

47

30

60

9,236

$ 20,748

$

116

$

76

$ 184

$ 21,124

(b)

(b)

(b)

(b)

(b)

(b)

74

112

7,778

13,671

(a) For Card Member receivables in ICS and 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 considered as 90 days past billing. These amounts are shown
above as 90+ Days Past Due for presentation purposes.

(b) Data for periods prior to 90 days past billing are not available due to financial
reporting system constraints. Therefore, it has not been relied upon 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.

73

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CREDIT QUALITY INDICATORS FOR CARD MEMBER LOANS AND RECEIVABLES
The following tables present the key credit quality indicators as of or for the years ended December 31:

Card Member Loans:
U.S. Card Services
International Card Services
Card Member Receivables:
U.S. Card Services

Card Member Receivables:
International Card Services
Global Commercial Services

2013

2012

Net Write-Off Rate

Net Write-Off Rate

Principal
Only(a)

Principal,
Interest, &

Fees(a)

1.8%
1.9%

1.7%

2.0%
2.3%

1.9%

30 Days
Past Due
as a % of
Total

1.1%
1.4%

1.6%

Principal

Only(a)

Principal,
Interest, &

Fees(a)

2.1%
1.9%

1.9%

2.3%
2.4%

2.1%

30 Days
Past Due
as a % of
Total

1.2%
1.5%

1.8%

2013

2012

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

0.20%
0.08%

1.1%
0.9%

0.16%
0.06%

0.9%
0.8%

(a) The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition,
because the Company’s practice is to include uncollectible interest and/or fees as part of its total provision for losses, a net write-off rate including principal, interest
and/or fees is also presented.

to Note 5 for additional

Refer
environmental qualitative factors, management considers
monthly evaluation process for reserves for losses.

including external
in its

indicators,

IMPAIRED CARD MEMBER LOANS AND RECEIVABLES
Impaired loans and receivables are defined by GAAP as individual
larger balance or homogeneous pools of smaller balance loans and
receivables for which it is probable that the Company will be unable to
collect all amounts due according to the original contractual terms of
the Card Member agreement. The Company considers impaired loans
and receivables to include: (i) loans over 90 days past due still accruing
interest, (ii) non-accrual loans and (iii) loans and receivables modified
as troubled debt restructurings (TDRs).

The Company may modify, through various company sponsored
programs, Card Member loans and receivables in instances where the
Card Member is experiencing financial difficulty in order to minimize
losses and improve collectability while providing Card Members with
temporary or permanent financial relief. The Company has classified
Card Member loans and receivables in these modification programs as
TDRs. Such modifications to the loans and receivables primarily
include (i) temporary interest rate reductions (possibly as low as zero
percent, in which case the loan is characterized as non-accrual in the
Company’s TDR disclosures), (ii) placing the Card Member on a fixed

74

to exceed 60 months and (iii)

suspending
payment plan not
the Card Member exits the modification
delinquency fees until
program. Upon entering the modification program,
the Card
Member’s ability to make future purchases is either cancelled or in
certain cases suspended until the Card Member successfully exits the
modification program. In accordance with the modification agreement
with the Card Member, loans revert back to the original contractual
terms (including the contractual interest rate) when the Card Member
exits the modification program, which is either (i) when all payments
have been made in accordance with the modification agreement or
(ii) when the Card Member defaults out of the modification program.
In either case, the Company establishes a reserve for Card Member
interest charges and fees considered to be uncollectible.

Reserves for Card Member loans and receivables modified as TDRs
are determined as the difference between the cash flows expected to be
received from the Card Member (taking into consideration the
probability of subsequent defaults), discounted at the original effective
interest rates, and the carrying value of the Card Member loan or
receivable balance. The Company determines the original effective
interest rate as the interest rate in effect prior to the imposition of any
penalty interest rate. All changes in the impairment measurement are
included in the provision for losses in the Consolidated Statements of
Income.

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides additional information with respect to the Company’s impaired Card Member loans, which are not significant for
GCS, and Card Member receivables, which are not significant for ICS and GCS, as of or for the years ended December 31:

As of December 31, 2013

For the Year Ended
December 31, 2013

Loans over
90 Days
Past Due
& Accruing
Interest(a)

Non-
Accrual
Loans(b)

Loans &
Receivables
Modified
as a TDR(c)

Total
Impaired
Loans &
Receivables

Unpaid
Principal
Balance(d)

Allowance
for TDRs(e)

Average
Balance of
Impaired
Loans

Interest
Income
Recognized

170 $
54

244 $
4

373 $
5

787 $
63

731 $
62

84 $
—

—

—

50

50

49

38

943 $

67

81

224 $

248 $

428 $

900 $

842 $

122 $

1,091 $

46
16

—

62

As of December 31, 2012

For the Year Ended
December 31, 2012

Loans over
90 Days
Past Due
& Accruing
Interest(a)

Non-
Accrual
Loans(b)

Loans &
Receivables
Modified
as a TDR(c)

Total
Impaired
Loans &
Receivables

Unpaid
Principal
Balance(d)

Allowance
for TDRs(e)

Average
Balance of
Impaired
Loans

Interest
Income
Recognized

$

73
59

—

$

426
5

—

$

627
6

117

$

1,126
70

$

1,073
69

117

111

152
1

91

$

$

1,221
75

135

132

$

431

$

750 $

1,313

$

1,253

$

244

$

1,431

$

47
16

—

63

As of December 31, 2011

For the Year Ended
December 31, 2011

Loans over
90 Days
Past Due
& Accruing
Interest(a)

Non-
Accrual
Loans(b)

Loans &
Receivables
Modified
as a TDR(c)

Total
Impaired
Loans &
Receivables

Unpaid
Principal
Balance(d)

Allowance
for TDRs(e)

Average
Balance of
Impaired
Loans

Interest
Income
Recognized

$

64
67

—

$

529
6

—

131

$

535

$

736
8

174

918

$

$

$

1,329
81

$

1,268
80

174

165

174
2

118

$

$

1,498
98

145

1,584

$

1,513

$

294

$

1,741

$

52
26

—

78

$

$

$

$

$

$

2013 (Millions)

Card Member Loans:
U.S. Card Services
International Card Services
Card Member Receivables:
U.S. Card Services

Total

2012 (Millions)

Card Member Loans:
U.S. Card Services
International Card Services
Card Member Receivables:
U.S. Card Services

Total

2011 (Millions)

Card Member Loans:
U.S. Card Services
International Card Services
Card Member Receivables:
U.S. Card Services

Total

(a) The Company’s policy is generally to accrue interest through the date of write-off (at 180 days past due). The Company establishes reserves for interest that the

Company believes will not be collected. Excludes loans modified as a TDR.

(b) Non-accrual loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has

ceased accruing interest.

(c) Total loans and receivables modified as a TDR includes $92 million, $320 million and $410 million that are non-accrual and $26 million, $6 million and $4 million that

are past due 90 days and still accruing interest as of December 31, 2013, 2012 and 2011, respectively.

(d) Unpaid principal balance consists of Card Member charges billed and excludes other amounts charged directly by the Company such as interest and fees.
(e) Represents the reserve for losses for TDRs, which are evaluated individually for impairment. The Company records a reserve for losses for all impaired loans. Refer to
Card Member Loans Evaluated Individually and Collectively for Impairment in Note 5 for further discussion of the reserve for losses on loans over 90 days past due
and accruing interest and non-accrual loans, which are evaluated collectively for impairment.

75

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CARD MEMBER LOANS AND RECEIVABLES MODIFIED AS TDRS
The following table provides additional information with respect to
the Card Member loans and receivables modified as TDRs, which are
not significant for ICS and GCS, during the years ended December 31:

(cid:2) Placing Card Members on a Fixed Payment Plan: For the years
ended December 31, 2013, 2012 and 2011, the average payment
term extension was approximately 12 months, 13 months, and 15
months, respectively, for USCS Card Member receivables. For USCS
Card Member loans, there have been no payment term extensions.

information for

The following table provides
the years ended
December 31, 2013, 2012, and 2011, with respect to the Card Member
loans and receivables modified as TDRs that subsequently defaulted
within 12 months of modification. A Card Member will default from 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.

2013
(Accounts in thousands,
Dollars in millions)

Troubled Debt Restructurings That

Subsequently Defaulted:

U.S. Card Services –

Card Member Loans

U.S. Card Services –

Card Member Receivables

Total

Number of
Accounts

Aggregated
Outstanding
Balances(a,b)

60

$

448

20

80

$

247

695

Number of
Accounts

Aggregated
Outstanding
Balances(a,b)

106

$

37

143

779

425

$

1,204

Number of
Accounts

Aggregated
Outstanding
Balances(a,b)

2013
(Accounts in thousands,
Dollars in millions)

Troubled Debt Restructurings:
U.S. Card Services –

Card Member Loans

U.S. Card Services –

Card Member Receivables

Total

2012
(Accounts in thousands,
Dollars in millions)

Troubled Debt Restructurings:
U.S. Card Services –

Card Member Loans

U.S. Card Services –

Card Member Receivables

Total

2011
(Accounts in thousands,
Dollars in millions)

Troubled Debt Restructurings:
U.S. Card Services –

Card Member Loans

U.S. Card Services –

Card Member Receivables

Total

147

$

1,110

50

197

$

402

1,512

2012
(Accounts in thousands,
Dollars in millions)

Troubled Debt Restructurings That

Subsequently Defaulted:

(a) Represents the outstanding balance immediately prior to modification. In
certain modifications the principal balance was reduced in the aggregate
amount of $4 million, $24 million and $59 million for the years ended
December 31, 2013, 2012 and 2011, respectively.

U.S. Card Services –

Card Member Loans

U.S. Card Services –

Card Member Receivables

(b) Includes principal and accrued interest.

Total

Interest Rate Reduction: For

The Company has evaluated the primary financial effects of the impact
of the changes to an account upon modification as follows:
(cid:2) Temporary

ended
December 31, 2013, 2012 and 2011,
the average interest rate
reduction was 10 percentage points, 12 percentage points and 11
percentage points,
rate
respectively. None of
reductions had a significant impact on interest on loans in the
Consolidated Statements of Income. The Company does not offer
interest rate reduction programs for U.S. Card Services (USCS)
Card Member receivables as these receivables are non-interest
bearing.

interest

years

these

the

2011
(Accounts in thousands,
Dollars in millions)

Troubled Debt Restructurings That

Subsequently Defaulted:

U.S. Card Services –

Card Member Loans

U.S. Card Services –

Card Member Receivables

Total

Aggregated
Outstanding
Balances
Upon Default(a)

Number of
Accounts

18

$

3

21

$

159

38

197

Aggregated
Outstanding
Balances
Upon Default(a)

Number of
Accounts

23

$

1

24

$

182

37

219

Aggregated
Outstanding
Balances
Upon Default(a)

Number of
Accounts

46

$

6

52

$

343

45

388

(a) The outstanding balance includes principal, fees, and accrued interest on
Card Member Loans and principal and fees on Card Member Receivables.

76

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5
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.

factors,

risk management

Reserves for losses are primarily based upon statistical and
analytical models that analyze portfolio performance and reflect
management’s judgment regarding the quantitative components of the
reserve. The models take into account several
including
delinquency based loss migration rates, loss emergence periods and
average losses and recoveries over an appropriate historical period.
Management considers whether to adjust the models for specific
qualitative factors such as increased risk in certain portfolios, impact
of
initiatives on portfolio performance and
concentration of credit risk based on factors such as vintage, industry
or geographic regions. In addition, management may increase or
decrease the reserves for losses on Card Member loans for other
external
various
indicators related to employment, spend, sentiment, housing and
credit, as well as the legal and regulatory environment. Generally, due
to the short-term nature of Card Member receivables, the impact of
additional external qualitative factors on the probable losses inherent
within the Card Member receivables portfolio is not significant. As
part of this evaluation process, management also considers various
reserve coverage metrics, such as reserves as a percentage of past due
amounts, reserves as a percentage of Card Member receivables or
loans and net write-off coverage.

environmental

qualitative

including

factors,

Card Member loans and receivables balances are written off when
management considers amounts to be uncollectible, which is generally
determined by the number of days past due and is typically no later
than 180 days past due. Card Member loans and receivables in
bankruptcy or owed by deceased individuals are generally written off
upon notification, and recoveries are recognized as they are collected.

CHANGES IN CARD MEMBER RECEIVABLES RESERVE FOR LOSSES
The following table presents changes in the Card Member receivables
reserve for losses for the years ended December 31:

(Millions)

Balance, January 1
Additions:

Provisions(a)
Other(b)

Total provision

Deductions:

Net write-offs(c)
Other(d)

2013

2012

2011

$

428

$

438

$

386

647
142

789

601
141

742

603
167

770

(669)
(162)

(640)
(112)

(560)
(158)

Balance, December 31

$

386

$

428

$

438

(a) Provisions for principal (resulting from authorized transactions) and fee

reserve components.

(b) Provisions for unauthorized transactions.
(c) Consists of principal (resulting from authorized transactions) and fee
components, less recoveries of $402 million, $383 million and $349 million,
including net write-offs from TDRs of $12 million, $87 million and $82 million,
for the years ended 2013, 2012 and 2011, respectively.

(d) Includes net write-offs resulting from unauthorized transactions of $(160)
million, $(141) million and $(161) million for the years ended December 31,
2013, 2012 and 2011, respectively; foreign currency translation adjustments
of $(4) million, $2 million and $(2) million for the years ended December 31,
2013, 2012 and 2011, respectively; a reclassification of Card Member
bankruptcy reserves of $18 million from other liabilities to credit reserves in
2012 and other items of $2 million, $9 million and $5 million for the years
ended December 31, 2013, 2012 and 2011, 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
December 31:

(Millions)

2013

2012

2011

Card Member receivables evaluated

individually for impairment(a)

Related reserves(a)

Card Member receivables evaluated

collectively for impairment

Related reserves

$
$

50
38

$
$

117
91

$
$

174
118

$ 44,113
348
$

$ 42,649
337
$

$ 40,716
320
$

(a) Represents receivables modified in a TDR and related reserves. Refer to the
Impaired Card Member Loans and Receivables discussion in Note 4 for
further information.

77

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CARD MEMBER LOANS EVALUATED INDIVIDUALLY AND
COLLECTIVELY FOR IMPAIRMENT
The
evaluated
table presents Card Member
individually and collectively for impairment and related reserves as of
December 31:

following

loans

(Millions)

2013

2012

2011

Card Member loans evaluated
individually for impairment(a)

Related reserves(a)

Card Member loans evaluated
collectively for impairment(b)

Related reserves(b)

$
$

378
84

$
$

633
153

$
$

744
176

$ 66,860
1,177
$

$ 64,596
1,318
$

$ 61,877
1,698
$

(a) Represents loans modified in a TDR and related reserves. Refer to the
Impaired Card Member Loans and Receivables discussion in Note 4 for
further information.

(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 and related
reserves. The reserves include the quantitative results of analytical models
that are specific to individual pools of
loans and reserves for external
environmental qualitative factors that apply to loans in geographic markets
that are collectively evaluated for impairment and are not specific to any
individual pool of loans.

CHANGES IN CARD MEMBER LOANS RESERVE FOR LOSSES
The following table presents changes in the Card Member loans
reserve for losses for the years ended December 31:

(Millions)

Balance, January 1
Additions:

Provisions(a)
Other(b)

Total provision

Deductions:

Net write-offs
Principal(c)
Interest and fees(c)

Other(d)

2013

2012

2011

$

1,471

$

1,874

$ 3,646

1,114
115

1,229

1,031
118

1,149

145
108

253

(1,141)
(150)
(148)

(1,280)
(157)
(115)

(1,720)
(201)
(104)

Balance, December 31

$

1,261

$

1,471

$

1,874

(a) Provisions for principal (resulting from authorized transactions), interest and

fee reserves components.

(b) Provisions for unauthorized transactions.
(c) Consists of principal write-offs (resulting from authorized transactions), less
recoveries of $452 million, $493 million and $578 million, including net write-
offs from TDRs of $(1) million, $25 million and $29 million, for the years
ended December 31, 2013, 2012 and 2011, respectively. Recoveries of interest
and fees were de minimis.

(d) Includes net write-offs resulting from unauthorized transactions of $(130)
million, $(116) million and $(103) million for the years ended December 31,
2013, 2012 and 2011, respectively; foreign currency translation adjustments
of $(12) million, $7 million and $(2) million for the years ended December 31,
2013, 2012 and 2011, respectively; a reclassification of Card Member
bankruptcy reserves of $4 million from other liabilities to credit reserves in
2012 and other items of $(6) million, $(10) million and $1 million, for the years
ended December 31, 2013, 2012 and 2011, respectively.

78

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6
INVESTMENT SECURITIES
Investment securities include debt and equity securities classified as
available for sale. The Company’s investment securities, principally
debt securities, are carried at fair value on the Consolidated Balance
Sheets with unrealized gains (losses) recorded in AOCI, net of income

The following is a summary of investment securities as of December 31:

taxes. Realized gains and losses are recognized in results of operations
upon disposition of the securities using the specific identification
method on a trade date basis. Refer to Note 3 for a description of the
Company’s methodology for determining the fair value of investment
securities.

2013

2012

Description of Securities (Millions)

State and municipal obligations
U.S. Government agency obligations
U.S. Government treasury obligations
Corporate debt securities
Mortgage-backed securities(a)
Equity securities(b)
Foreign government bonds and obligations
Other(c)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

$

$

54
—
3
3
5
95
5
—

$

(79) $ 4,035
3
320
46
164
124
276
48

—
(1)
—
(1)
—
(1)
(2)

Cost

4,280
3
330
73
210
64
134
51

Cost

$ 4,060
3
318
43
160
29
272
50

$

Total

$

4,935

$

165

$

(84) $

5,016

$

5,145

$

(a) Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
(b) Primarily represents the Company’s investment in ICBC.
(c) Other comprises investments in various mutual funds.

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

199
—
8
6
14
232
15
—

474

$

(5) $
—
—
—
—
—
—
—

4,474
3
338
79
224
296
149
51

$

(5) $

5,614

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 December 31:

Description of Securities (Millions)

State and municipal obligations
Foreign government bonds and obligations
U.S. Government treasury obligations
Mortgage-backed securities
Other

Total

2013

2012

Less than 12 months

12 months or more

Less than 12 months

12 months or more

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

$

$

1,320
208
166
35
30

(63) $
(1)
(1)
(1)
(1)

$

1,759

$

(67) $

106
—
—
—
17

123

$

(16) $

—
—
—
(1)

$

(17) $

100
—
—
—
—

100

$

$

(1) $
—
—
—
—

(1) $

73
—
—
—
—

73

$

$

(4)
—
—
—
—

(4)

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

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

Less than 12 months

12 months or more

Total

2013:
90% – 100%
Less than 90%

Total as of December 31, 2013

2012:
90% – 100%

Total as of December 31, 2012

228
13

241

46

46

$

$

$

$

1,665
94

1,759

100

100

$

$

$

$

(53)
(14)

(67)

(1)

(1)

79

6
5

11

4

4

$

$

$

$

24
99

123

73

73

$

$

$

$

(2)
(15)

(17)

(4)

(4)

234
18

252

50

50

$

$

$

$

1,689
193

1,882

173

173

$

$

$

$

(55)
(29)

(84)

(5)

(5)

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

transferred to the American Express Credit Account Master Trust (the
Lending Trust). The Charge Trust II and the Lending Trust are
consolidated by American Express Travel Related Services Company,
Inc. (TRS), which is a consolidated subsidiary of the Company. The
trusts are considered VIEs as they have insufficient equity at risk to
finance their activities, which are to issue securities
that are
collateralized by the underlying Card Member receivables and loans.

issued by

the Lending Trust

TRS, in its role as servicer of the Charge Trust II and the Lending
Trust, has the power to direct the most significant activity of the
trusts, which is the collection of
the underlying Card Member
receivables and loans in the trusts. In addition, TRS, excluding its
approximately $1.1 billion of
consolidated subsidiaries, owns
subordinated securities
as of
December 31, 2013. These subordinated securities have the obligation
to absorb losses of the Lending Trust and provide the right to receive
benefits from the Lending Trust, both of which are significant to the
VIE. TRS’ role as servicer for the Charge Trust II does not provide it
with a significant obligation to absorb losses or a significant right to
receive benefits. However, TRS’ position as the parent company of the
entities that transferred the receivables to the Charge Trust II makes it
the party most closely related to the Charge Trust II. Based on these
considerations, TRS is the primary beneficiary of both the Charge
Trust II and the Lending Trust.

The debt securities issued by the Charge Trust II and the Lending
Trust are non-recourse to the Company. Securitized Card Member
receivables and loans held by the Charge Trust II and the Lending
Trust are available only for payment of the debt securities or other
obligations issued or arising in the securitization transactions. The
long-term debt of each trust is payable only out of collections on their
respective underlying securitized assets.

There was approximately $2 million and $3 million of restricted
cash held by the Charge Trusts as of December 31, 2013 and 2012,
respectively, and approximately $56 million and $73 million of
restricted cash held by the Lending Trust as of December 31, 2013 and
2012,
included in other assets on the Company’s
Consolidated Balance Sheets. 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 payable on investor
certificates, credit losses and upcoming debt maturities.

respectively,

Under the respective terms of the Charge Trust II 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 certificates. During
the year ended December 31, 2013, no such triggering events
occurred.

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 identified above, (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
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.

the Company expects

that

SUPPLEMENTAL INFORMATION
Gross realized gains and losses on the sales of investment securities,
included in other non-interest revenues, were as follows:

(Millions)

Gains
Losses

Total

2013

2012

2011

$

$

136
—

136

$

$

127
(1)

126

$

$

16
—

16

Contractual maturities of
investment securities, excluding equity
securities and other securities, as of December 31, 2013 were as
follows:

(Millions)

Due within 1 year
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Due after 10 years

Total

$

Cost

505
489
215
3,647

Estimated
Fair Value

$

505
496
224
3,619

$ 4,856

$ 4,844

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.

NOTE 7
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.

Card Member receivables are transferred to the American Express
Issuance Trust II (the Charge Trust II).7 Card Member loans are

7 During 2013, the Company transferred Card Member receivables from
the American Express Issuance Trust (the Charge Trust) to the Charge
Trust II, collectively referred to as the Charge Trusts, and as such, the
Charge Trust was dissolved, and the Company intends to utilize the
Charge Trust II for securitization of Card Member receivables.

80

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8
OTHER ASSETS
The following is a summary of other assets as of December 31:

(Millions)

Goodwill
Deferred tax assets, net(a)
Prepaid expenses(b)
Other intangible assets, at amortized cost
Restricted cash(c)
Derivative assets(a)
Other

Total

2013

$ 3,198
2,443
1,998
817
486
329
1,957

$

2012

3,181
2,458
1,960
993
568
593
1,665

$ 11,228

$ 11,418

(a) Refer to Notes 17 and 12 for a discussion of deferred tax assets, net, and
derivative assets, respectively, as of December 31, 2013 and 2012. Derivative
assets reflect the impact of master netting agreements.

(b) Includes prepaid miles and reward points acquired primarily from airline
partners of approximately $1.5 billion and $1.4 billion, as of December 31,
2013 and 2012, respectively, including approximately $0.9 billion and $1.1
billion, respectively, from Delta.

(c) Includes restricted cash of approximately $58 million and $76 million,
respectively, as of December 31, 2013 and 2012, which is primarily held for
coupon and certain asset-backed securitization maturities.

GOODWILL
Goodwill represents the excess of acquisition cost of an acquired
company over the fair value of assets acquired and liabilities assumed.
The Company assigns goodwill to its reporting units for the purpose
of impairment testing. A reporting unit is defined as an operating
segment, or a business that is one level below an operating segment for
information is regularly reviewed by the
which discrete financial

operating segment manager. The Company evaluates goodwill for
impairment annually as of June 30 and between annual tests if events
occur or circumstances change that would more likely than not reduce
the fair value of the reporting unit below its carrying value. The
goodwill impairment test utilizes a two-step approach. The first step in
the impairment test identifies whether there is potential impairment
by comparing the fair value of a reporting unit to the carrying amount,
including goodwill. If the fair value of a reporting unit is less than its
carrying amount, the second step of the impairment test is required to
measure the amount of any impairment loss. As of December 31, 2013
and 2012, goodwill was not impaired and there were no accumulated
impairment losses.

Goodwill

impairment

testing involves management

judgment,
requiring an assessment of whether the carrying value of the reporting
unit can be supported by its fair value using widely accepted valuation
techniques. The Company uses a combination of the income approach
(discounted cash flows) and market approach (market multiples).

When preparing discounted cash flow models under the income
approach, the Company uses internal forecasts to estimate future cash
flows expected to be generated by the reporting units. Actual results
may differ from forecasted results. The Company calculates discount
rates based on the expected cost of equity financing, estimated using a
capital asset pricing model, to discount future cash flows for each
reporting unit. The Company believes
the discount rates used
the risks and uncertainties in the financial
appropriately reflect
markets generally and specifically in the Company’s
internally
developed forecasts. When using market multiples under the market
approach,
traded
companies’ multiples (e.g. earnings, revenues) to its reporting units’
actual results.

comparable publically

the Company

applies

The changes in the carrying amount of goodwill reported in the Company’s reportable operating segments and Corporate & Other were as
follows:

(Millions)

Balance as of January 1, 2012
Acquisitions
Dispositions
Other, including foreign currency translation

Balance as of December 31, 2012
Acquisitions
Dispositions
Other, including foreign currency translation

$

$

$

$

USCS

175
—
—
—

175
—
—
(1)

$

$

ICS

1,023
1
(2)
9

1,031
—
—
21

$

$

GCS

1,543
—
(1)
2

1,544
—
—
(1)

GNMS

Corporate &
Other

$

$

160
—
—
—

160
—
—
—

$

$

271
—
—
—

271
—
—
(2)

Total

3,172
1
(3)
11

3,181
—
—
17

Balance as of December 31, 2013

$

174

$

1,052

$

1,543

$

160

$

269

$

3,198

OTHER INTANGIBLE ASSETS
Intangible assets, primarily customer relationships, are amortized over
their estimated useful lives of 1 to 22 years on a straight-line basis. The
Company reviews intangible assets for impairment quarterly and
whenever events and circumstances indicate their carrying amounts

may not be recoverable. In addition, on an annual basis, the Company
performs an impairment evaluation of all intangible assets by assessing
the recoverability of the asset values based on the cash flows generated
by the relevant assets or asset groups. An impairment is recognized if
the carrying amount is not recoverable and exceeds the asset’s fair
value.

81

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of other intangible assets were as follows:

(Millions)

Customer relationships(a)
Other

Total

2013

2012

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

$

$

1,297
269

1,566

$

$

(660) $

(89)

(749) $

637
180

817

$

$

1,238
428

1,666

$

$

(526)
(147)

(673)

$

$

712
281

993

(a) Includes net intangibles acquired from airline partners of $290 million and $358 million as of December 31, 2013 and 2012, respectively, including approximately $117

million and $156 million, respectively, from Delta.

Amortization expense for the years ended December 31, 2013, 2012 and 2011 was $193 million, $198 million and $189 million, respectively.
Intangible assets acquired in both 2013 and 2012 are being amortized, on average, over 6 years.

Estimated amortization expense for other intangible assets over the next five years is as follows:

(Millions)

Estimated amortization expense

2014

2015

2016

2017

2018

$

184

$

164

$

123

$

72

$

61

OTHER
The Company had $541 million and $427 million in affordable housing and other tax credit investment partnership interests as of December 31,
2013 and 2012, respectively, included in other assets in the table above. The Company is a non-controlling partner in these tax credit investment
partnerships, and therefore accounts for its ownership interests in accordance with GAAP governing equity method investments and joint
ventures.

82

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9
CUSTOMER DEPOSITS
As of December 31, customer deposits were categorized as interest-bearing or non-interest-bearing as follows:

(Millions)

U.S.:

Interest-bearing
Non-interest-bearing (includes Card Member credit balances of:

2013, $340 million; 2012, nil)(a)

Non-U.S.:

Interest-bearing
Non-interest-bearing (includes Card Member credit balances of:

2013, $437 million; 2012, nil)(a)

Total customer deposits

2013

2012

$ 40,831

$ 39,649

360

121

451

10

135

9

$ 41,763

$ 39,803

(a) Beginning the first quarter of 2013, the Company reclassified prospectively its Card Member credit balances from Card Member loans, Card Member receivables and

other liabilities to customer deposits.

Customer deposits by deposit type as of December 31 were as follows:

(Millions)

U.S. retail deposits:

Savings accounts – Direct
Certificates of deposit:

Direct
Third-party

Sweep accounts – Third-party

Other retail deposits:

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

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

Total customer deposits

The scheduled maturities of certificates of deposit as of December 31, 2013 were as follows:

(Millions)

2014
2015
2016
2017
2018
After 5 years

Total

As of December 31, certificates of deposit in denominations of $100,000 or more were as follows:

(Millions)

U.S.
Non-U.S.

Total

2013

2012

$ 24,550

$ 18,713

489
6,929
8,863

155
777

725
8,851
11,360

154
—

$ 41,763

$ 39,803

U.S.

Non-U.S.

Total

$

$ 2,735
1,223
1,658
571
1,040
191

$ 7,418

$

3
—
—
—
—
—

3

$ 2,738
1,223
1,658
571
1,040
191

$ 7,421

2013

2012

$

$

324
2

326

$

$

475
1

476

83

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10
DEBT
SHORT-TERM BORROWINGS
The Company’s short-term borrowings outstanding, defined as borrowings with original maturities of less than one year, as of December 31 were
as follows:

(Millions, except percentages)

Commercial paper
Other short-term borrowings(b)(c)

Total

2013

2012

Outstanding Balance

Rate on Debt(a) Outstanding Balance

Year-End Stated

Year-End Stated
Rate on Debt(a)

$

$

200
4,821

5,021

0.19% $
1.08

1.03% $

—
3,314

3,314

—%

1.46

1.46%

(a) For floating-rate debt issuances, the stated interest rates are based on the floating rates in effect as of December 31, 2013 and 2012, respectively.
(b) Includes interest-bearing overdrafts with banks of $489 million and $615 million as of December 31, 2013 and 2012, respectively. In addition, balances include fully
drawn secured borrowing facility (maturing on September 15, 2015, which was repaid on February 18, 2014), certain book overdrafts (i.e., primarily timing differences
arising in the ordinary course of business), short-term borrowings from banks, as well as interest-bearing amounts due to merchants in accordance with merchant
service agreements. The secured borrowing facility gives the Company the right to sell up to $2.0 billion face amount of eligible certificates issued from the Lending
Trust.

(c) The Company paid $12.5 million and $1.4 million in fees to maintain the secured borrowing facility in 2013 and 2012, respectively.

84

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LONG-TERM DEBT
The Company’s long-term debt outstanding, defined as debt with original maturities of one year or greater, as of December 31 was as follows:

(Millions, except percentages)

American Express Company
(Parent Company only)
Fixed Rate Senior Notes
Floating Rate Senior Notes
Subordinated Debentures(d)
American Express Credit Corporation
Fixed Rate Senior Notes
Floating Rate Senior Notes
Borrowings under Bank Credit Facilities
American Express Centurion Bank
Fixed Rate Senior Notes
Floating Rate Senior Notes
American Express Bank, FSB
Fixed Rate Senior Notes
Floating Rate Senior Notes
American Express Charge Trust II
Floating Rate Senior Notes
Floating Rate Subordinated Notes
American Express Lending Trust
Fixed Rate Senior Notes
Floating Rate Senior Notes
Fixed Rate Subordinated Notes
Floating Rate Subordinated Notes
Other
Fixed Rate Instruments(e)
Floating Rate Borrowings
Unamortized Underwriting Fees

Total Long-Term Debt

2013

2012

Maturity
Dates

Outstanding
Balance(a)

Year-End
Stated Rate
on Debt(b)

Year-End
Effective
Interest
Rate with
Swaps(b)(c)

Outstanding
Balance(a)

Year-End
Stated Rate
on Debt(b)

Year-End
Effective
Interest
Rate with
Swaps(b)(c)

$

2014-2042
2018
2036

2014-2018
2014-2016
2015-2016

2015-2017
2015-2018

2017
2017

2016-2018
2016-2018

2015-2016
2014-2018
2015
2014-2018

2014-2030
2014-2016

8,784
850
749

14,875
2,855
4,012

2,102
675

999
300

4,200
87

2,600
10,685
300
847

239
276
(105)

5.43%
0.84
6.80

4.60% $
—
—

3.13
1.14
4.18

4.12
0.67

6.00
0.47

0.49
0.80

0.72
0.81
1.08
0.81

3.95
0.62

2.03
—
—

3.32
—

—
—

—
—

—
—
—
—

—
—%

8,848
—
749

17,163
2,203
4,672

2,120
550

2,764
300

3,000
—

2,100
12,810
300
1,091

123
292
(112)

5.78%
—
6.80

4.95%
—
—

4.20
1.59
4.87

4.12
0.76

5.68
0.51

0.49
—

0.65
0.90
1.08
0.93

5.94
0.65

2.39
—
—

3.32
—

3.68
—

—
—

—
—
—
—

—
—%

$

55,330

2.56%

$

58,973

3.04%

(a) The outstanding balances include (i) unamortized discount and premium, (ii) the impact of movements in exchange rates on foreign currency denominated debt and
(iii) the impact of fair value hedge accounting on certain fixed-rate notes that have been swapped to floating rate through the use of interest rate swaps. Under fair
value hedge accounting, the outstanding balances on these fixed-rate notes are adjusted to reflect the impact of changes in fair value due to changes in interest rates.
Refer to Note 12 for more details on the Company’s treatment of fair value hedges.

(b) For floating-rate debt issuances, the stated and effective interest rates are based on the floating rates in effect as of December 31, 2013 and 2012, respectively.
(c) Effective interest rates are only presented when swaps are in place to hedge the underlying debt.
(d) The maturity date will automatically be extended to September 1, 2066, except in the case of either (i) a prior redemption or (ii) a default. See further discussion on

this page.

(e) Includes $109 million and $118 million as of December 31, 2013 and 2012, respectively, related to capitalized lease transactions.

As of December 31, 2013 and 2012, the Parent Company had $750
million principal outstanding of Subordinated Debentures that accrue
interest at an annual rate of 6.8 percent until September 1, 2016, and at
an annual rate of three-month LIBOR plus 2.23 percent thereafter. At
the Company’s option, the Subordinated Debentures are redeemable
for cash after September 1, 2016 at 100 percent of the principal
amount plus any accrued but unpaid interest. If the Company fails to
achieve specified performance measures, it will be required to issue
common shares and apply the net proceeds to make interest payments
on the Subordinated Debentures. No dividends on the Company’s
common or preferred shares could be paid until such interest

payments are made. The Company would fail to meet these specific
performance measures if (i) the Company’s tangible common equity is
less than 4 percent of total adjusted assets for the most recent quarter
or (ii) if the trailing two quarters’ consolidated net income is equal to
or less than zero and tangible common equity as of the trigger
determination date, and as of the end of the quarter end six months
prior, has in each case declined by 10 percent or more from tangible
common equity as of the end of the quarter 18 months prior to the
trigger determination date. The Company met
specified
performance measures in 2013.

the

85

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aggregate annual maturities on long-term debt obligations (based on final maturity dates) as of December 31, 2013 were as follows:

(Millions)

American Express Company (Parent Company only)
American Express Credit Corporation
American Express Centurion Bank
American Express Bank, FSB
American Express Charge Trust II
American Express Lending Trust
Other

Unamortized Underwriting Fees
Unamortized Discount and Premium
Impacts due to Fair Value Hedge Accounting

Total Long-Term Debt

$

2014

1,250
4,420
—
—
—
4,000
179

2015

$

— $

7,010
1,305
—
—
5,423
143

$

2016

600
7,293
—
—
3,000
500
161

2017

1,500
1,500
1,300
1,300
—
1,623
—

2018

Thereafter

Total

$

3,850
1,340
125
—
1,287
2,886
—

$

3,939
—
1
—
—
—
32

$ 11,139
21,563
2,731
1,300
4,287
14,432
515

$ 9,849

$ 13,881

$ 11,554

$

7,223

$ 9,488

$

3,972

55,967

(105)
(960)
428

$ 55,330

to sell up to $3.0 billion face amount of eligible notes issued from the
Charge Trust II at any time through July 15, 2016. As of December 31,
2013, $3.0 billion was drawn on this facility. This facility was repaid on
January 15, 2014.

The Company paid $44.9 million and $46.7 million in fees to
maintain these lines in 2013 and 2012, respectively. These committed
facilities do not contain material adverse change clauses, which might
otherwise preclude borrowing under the credit facilities, nor are they
dependent on the Company’s credit rating.

The Company paid total interest primarily related to short- and
long-term debt, corresponding interest rate swaps and customer
deposits of $2.0 billion, $2.2 billion and $2.4 billion in 2013, 2012 and
2011, respectively.

As of December 31, 2013 and 2012, the Company maintained total
bank lines of credit of $7.0 billion and $7.7 billion, respectively. Of the
total credit lines, $3.0 billion was undrawn as of both December 31,
support commercial paper
2013 and 2012. Undrawn amounts
borrowings and contingent funding needs. $4.8 billion and $2.2 billion
of these credit facilities will expire in 2015 and 2016, respectively. The
to the Company’s
availability of
is
the
compliance with certain financial
maintenance by American Express Credit Corporation (Credco) of a
1.25 ratio of combined earnings and fixed charges to fixed charges. As
of December 31, 2013 and 2012, the Company was not in violation of
any of its debt covenants.

subject
covenants, principally,

these credit

lines

Additionally,

the Company maintained a 3-year committed,
revolving, secured borrowing facility that gives the Company the right

86

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11
OTHER LIABILITIES
The following is a summary of other liabilities as of December 31:

(Millions)

Membership Rewards liability
Employee-related liabilities(a)
Rebate and reward accruals(b)
Deferred card and other fees, net
Book overdraft balances
Other(c)

Total

$

2013

6,151
2,227
2,210
1,314
442
4,566

2012

$ 5,832
2,224
2,079
1,286
532
5,604

$ 16,910

$ 17,557

(a) Employee-related liabilities include employee benefit plan obligations and

incentive compensation.

(b) Rebate and reward accruals include payments to third-party card-issuing

partners and cash-back reward costs.

(c) Other includes accruals for general operating expenses, client incentives,
advertising and promotion, restructuring and reengineering reserves and
derivatives.

liability that

MEMBERSHIP REWARDS
The Membership Rewards program allows enrolled Card Members to
earn points that can be redeemed for a broad range of rewards
including travel, entertainment, retail certificates and merchandise.
The Company records a balance sheet
represents
management’s best estimate of the cost of points earned that are
expected to be redeemed. An ultimate redemption rate and weighted
cost per point are key factors used to approximate
average
Membership Rewards
statistical and
liability. Management uses
actuarial models to estimate ultimate redemption rates based on
redemption trends, current enrollee redemption behavior, card
tenure, card spend levels and credit
product
attributes. The weighted-average cost per point is determined using
actual redemptions during the previous 12 months, adjusted as
appropriate for certain changes in redemption costs that are not
representative of future cost expectations.

type, enrollment

The expense for Membership Rewards points is included in
marketing, promotion, rewards and Card Member services expenses.
The Company periodically evaluates its liability estimation process
and assumptions based on developments in redemption patterns, cost
per point redeemed, partner contract changes and other factors.

DEFERRED CARD AND OTHER FEES, NET
The carrying amount of deferred card and other fees, net of deferred
direct acquisition costs and reserves for membership cancellations as
of December 31 was as follows:

(Millions)

Deferred card and other fees(a)
Deferred direct acquisition costs
Reserves for membership cancellations

$

2013

1,609
(164)
(131)

$

2012

1,566
(154)
(126)

Deferred card and other fees, net

$

1,314

$

1,286

(a) Includes deferred fees for Membership Rewards program participants.

87

NOTE 12
DERIVATIVES AND HEDGING ACTIVITIES
The Company uses derivative financial instruments (derivatives) to
manage exposures to various market risks. Derivatives derive their
value from an underlying variable or multiple variables, including
interest rate,
foreign exchange, and equity index or price. 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.

Market risk is the risk to earnings or value resulting from
movements in market prices. The Company’s market risk exposure is
primarily generated by:
(cid:2)

Interest rate risk in its card, insurance and Travelers Cheque and
other prepaid products businesses, as well as
investment
portfolios; and

its

(cid:2) Foreign exchange risk in its operations outside the U.S. and the

associated funding of such operations.

The Company centrally monitors market risks using market risk limits
and escalation triggers as defined in its Asset/Liability Management
Policy.

The Company’s market exposures are in large part byproducts of
the delivery of its products and services. Interest rate risk arises
through the funding of Card Member receivables and fixed-rate loans
with variable-rate borrowings as well as through the risk to net
interest margin from changes in the relationship between benchmark
rates such as Prime and LIBOR.

Interest rate exposure within the Company’s charge card and fixed-
rate lending products is managed by varying the proportion of total
funding provided by short-term and variable-rate debt and deposits
compared to fixed-rate debt and deposits. In addition, interest rate
swaps are used from time to time to economically convert fixed-rate
debt obligations to variable-rate obligations or to convert variable-rate
debt obligations to fixed-rate obligations. The Company may change
the mix between variable-rate and fixed-rate funding based on changes
in business volumes and mix, among other factors.

Foreign exchange risk is generated by Card Member cross-
currency charges, foreign currency balance sheet exposures, foreign
subsidiary equity and foreign currency earnings in entities outside the
U.S. The Company’s foreign exchange risk is managed primarily by
entering into agreements to buy and sell currencies on a spot basis or
by hedging this market exposure to the extent it is economically
justified through various means, including the use of derivatives such
as foreign exchange forwards and cross-currency swap contracts,
which can help mitigate the Company’s exposure to specific
currencies.

In addition to the exposures identified above, effective August 1,
2011, the Company entered into a total return contract (TRC) to hedge
its exposure to changes in the fair value of its equity investment in ICBC
in local currency. Under the terms of the TRC, the Company receives
from the TRC counterparty an amount equivalent to any reduction in
the fair value of its investment in ICBC in local currency, and the
Company pays to the TRC counterparty an amount equivalent to any
increase in the fair value of its investment in local currency, along with

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

all dividends paid by ICBC, as well as ongoing hedge costs. The TRC
matures on August 1, 2014.

Derivatives may give rise to counterparty credit risk, which is the
risk that a derivative counterparty will default on, or otherwise be
to, an uncollateralized derivative
unable to perform pursuant
exposure. The Company manages this risk by considering the current
exposure, which is
the replacement cost of contracts on the
measurement date, as well as estimating the maximum potential value
of the contracts over the next 12 months, considering such factors as
the volatility of
the underlying or reference index. To mitigate
derivative credit risk, counterparties are required to be pre-approved
by the Company and rated as investment grade. Counterparty risk
exposures are centrally monitored by the Company. Additionally, in
order to mitigate the bilateral counterparty credit risk associated with
derivatives, the Company has in certain instances entered into master
netting agreements with its derivative counterparties, which provide a
right of offset for certain exposures between the parties. A significant
the Company’s derivative assets and liabilities as of
portion of
December 31, 2013 and 2012 is subject
to such master netting
agreements with its derivative counterparties. There are no instances
in which management makes an accounting policy election to not net
assets and liabilities
to an enforceable master netting
agreement on the Company’s Consolidated Balance Sheets. To further

subject

mitigate bilateral counterparty credit risk, the Company exercises its
rights under executed credit support agreements with certain of its
derivative counterparties. These agreements require that, in the event
the fair value change in the net derivatives position between the two
parties exceeds certain dollar thresholds, the party in the net liability
position posts collateral to its counterparty. All derivative contracts
cleared through a central clearinghouse are collateralized to the full
amount of the fair value of the contracts.

In relation to the 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 December 31, 2013 and
2012, the Company does not have derivative positions that warrant
credit valuation adjustments.

The Company’s derivatives are carried at

fair value on the
Consolidated Balance Sheets. The accounting for changes in fair value
depends on the instruments’ intended use and the resulting hedge
designation,
if any, as discussed below. Refer to Note 3 for a
description of the Company’s methodology for determining the fair
value of derivatives.

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

(Millions)

Derivatives designated as hedging instruments:
Interest rate contracts
Fair value hedges
Total return contract
Fair value hedge

Foreign exchange contracts
Net investment hedges

Total derivatives designated as hedging instruments

Derivatives not designated as hedging instruments:

Foreign exchange contracts, including certain embedded derivatives(a)

Total derivatives not designated as hedging instruments

Total derivatives, gross

Cash collateral netting(b)

Derivative asset and derivative liability netting(c)

Total derivatives, net(d)

Other Assets
Fair Value

Other Liabilities
Fair Value

2013

2012

2013

2012

$

455

$

824

$

2

$

8

174

637

64

64

701

(336)

(36)

—

43

867

75

75

942

(326)

(23)

—

116

118

95

95

213

—

(36)

—

19

150

169

160

160

329

(21)

(23)

$

329

$

593

$

177

$

285

(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 noncash
collateral in the form of security interest in U.S. Treasury securities with a fair value of nil and $335 million as of December 31, 2013 and 2012, respectively, none of
which was sold or repledged. Such noncash collateral effectively further reduces the Company’s risk exposure to $329 million and $258 million as of December 31,
2013 and 2012, respectively, but does not reduce the net exposure on the Company’s Consolidated Balance Sheets. Additionally, the Company posted $26 million
and nil as of December 31, 2013 and 2012, respectively, as initial margin on its centrally cleared interest rate swaps 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.

88

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DERIVATIVE FINANCIAL INSTRUMENTS THAT QUALIFY FOR HEDGE
ACCOUNTING
Derivatives executed for hedge accounting purposes are documented
and designated as such when the Company enters into the contracts.
the Company
In accordance with its risk management policies,
structures its hedges with terms similar to that of the item being
hedged. The Company formally assesses, at inception of the hedge
accounting relationship and on a quarterly basis, whether derivatives
designated as hedges are highly effective in offsetting the fair value or
cash flows of the hedged items. These assessments usually are made
through the application of a regression analysis method. If
it is
determined that a derivative is not highly effective as a hedge, the
Company will discontinue the application of hedge accounting.

FAIR VALUE HEDGES
A fair value hedge involves a derivative designated to hedge the
Company’s exposure to future changes in the fair value of an asset or a
liability, or an identified portion thereof that is attributable to a
particular risk.

Interest Rate Contracts
The Company is exposed to interest rate risk associated with its fixed-
rate long-term debt. The Company uses interest rate swaps to
economically convert certain fixed-rate long-term debt obligations to
floating-rate obligations at the time of issuance. As of December 31,
2013 and 2012, the Company hedged $14.7 billion and $18.4 billion,
respectively, of its fixed-rate debt to floating-rate debt using interest
rate swaps.

To the extent the fair value hedge is effective, the gain or loss on
the hedging instrument offsets the loss or gain on the hedged item
attributable to the hedged risk. Any difference between the changes in

the fair value of the derivative and the hedged item is referred to as
hedge ineffectiveness and is reflected in earnings as a component of
other expenses. Hedge ineffectiveness may be caused by differences
between the debt’s interest coupon and the benchmark rate, primarily
due to credit spreads at inception of the hedging relationship that are
not reflected in the valuation of the interest rate swap. Furthermore,
hedge ineffectiveness may be caused by changes in the relationship
between 3-month LIBOR and 1-month LIBOR, as well as between the
overnight indexed swap rate (OIS) and 1-month LIBOR, as basis
spreads may impact the valuation of the interest rate swap without
causing an offsetting impact in the value of the hedged debt. If a fair
value hedge is de-designated or no longer considered to be effective,
changes in fair value of the derivative continue to be recorded through
earnings but the hedged asset or liability is no longer adjusted for
changes in fair value resulting from changes in interest rates. The
existing basis adjustment of the hedged asset or liability is amortized
or accreted as an adjustment to yield over the remaining life of that
asset or liability.

Total Return Contract
The Company hedges its exposure to changes in the fair value of its
equity investment in ICBC in local currency. The Company uses a
TRC to transfer this exposure to its derivative counterparty. As of
December 31, 2013 and 2012, the fair value of the equity investment in
ICBC was $122 million (180.7 million shares) and $295 million (415.9
million shares), respectively. To the extent the hedge is effective, the
gain or loss on the TRC offsets the loss or gain on the investment in
ICBC. Any difference between the changes in the fair value of the
derivative and the hedged item results in hedge ineffectiveness and is
recognized in other expenses in the Consolidated Statements of
Income.

The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s hedges of its fixed-rate
long-term debt and its investment in ICBC for the years ended December 31:

(Millions)

Derivative contract

Hedged item

Gains (losses) recognized in income

Derivative relationship

Income Statement
Line Item

Amount

2013

2012

2011

Income Statement
Line Item

Amount

Net hedge
ineffectiveness

2013

2012

2011

2013

2012

2011

Interest rate contracts
Total return contract

Other expenses
Other non-interest revenues

$(370) $(178) $ 128 Other expenses
$ 15

$ (53) $ 100 Other non-interest revenues

$ 132
$ 351
$ (15) $ 54

$(102) $ (19) $ (46) $ 26
$ (12)
$ (112) $ — $

1

The Company also recognized a net reduction in interest expense on
long-term debt of $346 million, $491 million and $503 million for the
years ended December 31, 2013, 2012 and 2011, respectively, primarily
related to the net settlements (interest accruals) on the Company’s
interest rate derivatives designated as fair value hedges.

CASH FLOW HEDGES
A cash flow hedge involves a derivative designated to hedge the
Company’s exposure to variable future cash flows attributable to a
particular risk. Such exposures may relate to either an existing
recognized asset or liability or a forecasted transaction. The Company
hedges existing long-term variable-rate debt, the rollover of short-
term borrowings and the anticipated forecasted issuance of additional
funding through the use of derivatives, primarily interest rate swaps.
These derivative instruments economically convert floating-rate debt

to fixed-rate obligations

the
obligations
instrument. As of December 31, 2013 and 2012, the Company did not
hedge any of its floating-rate debt using interest rate swaps.

the duration of

for

For derivatives designated as cash flow hedges, the effective portion
of the gain or loss on the derivatives is recorded in AOCI and
reclassified into earnings when the hedged cash flows are recognized
in earnings. The amount that is reclassified into earnings is presented
in the Consolidated Statements of Income in the same line item in
which the hedged instrument or transaction is recognized, primarily
in interest expense. During the years ended December 31, 2013, 2012
and 2011, the Company reclassified nil, $(1) million and $(13) million,
respectively, from AOCI into earnings as a component of interest
expense. Any ineffective portion of the gain or loss on the derivatives
is reported as a component of other expenses. If a cash flow hedge is

89

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

de-designated or terminated prior to maturity, the amount previously
recorded in AOCI is recognized into earnings over the period that the
hedged item impacts earnings. If a hedge relationship is discontinued
because it is probable that the forecasted transaction will not occur
according to the original strategy, any related amounts previously
recorded in AOCI are recognized into earnings immediately. No
ineffectiveness associated with cash flow hedges was reclassified from
AOCI into income for the years ended December 31, 2013, 2012 and
2011.

In the normal course of business, as the hedged cash flows are
recognized into earnings, the Company does not expect to reclassify
any amount of net pretax losses on derivatives from AOCI into
earnings during the next 12 months.

NET INVESTMENT HEDGES
A net investment hedge is used to hedge future changes in currency
exposure of a net investment in a foreign operation. The Company
primarily designates foreign currency derivatives, typically foreign
exchange forwards, and on occasion foreign currency denominated
debt, as hedges of net investments in certain foreign operations. These
instruments reduce exposure to changes in currency exchange rates on
the Company’s investments in non-U.S. subsidiaries. The effective
portion of the gain or (loss) on net investment hedges, net of taxes,
recorded in AOCI as part of the cumulative translation adjustment,
was $253 million, $(288) million and $(26) million for the years ended
2013, 2012 and 2011, respectively. Any ineffective portion of the gain
or (loss) on net investment hedges is recognized in other expenses
during the period of change. Ineffectiveness associated with net
investment hedges of nil, nil and $(3) million were recognized as a

component of other expenses for the years ended December 31, 2013,
2012 and 2011,
respectively. No amounts associated with net
investment hedges were reclassified from AOCI to income during the
years ended December 31, 2013, 2012 and 2011.

DERIVATIVES NOT DESIGNATED AS HEDGES
The Company has derivatives that act as economic hedges, but are not
designated as such for hedge accounting purposes. Foreign currency
transactions and non-U.S. dollar cash flow exposures from time to
time may be partially or fully economically hedged through foreign
currency contracts, primarily foreign exchange forwards, options and
cross-currency swaps. These hedges generally mature within one year.
Foreign currency contracts involve the purchase and sale of a
designated currency at an agreed upon rate for settlement on a
specified date. The changes in the fair value of
the derivatives
effectively offset the related foreign exchange gains or losses on the
underlying balance sheet exposures. From time to time, the Company
may enter into interest rate swaps to specifically manage funding costs
related to its proprietary card business.

The Company has certain operating agreements containing
payments that may be linked to a market rate or price, primarily
foreign currency rates. The payment components of these agreements
may meet the definition of an embedded derivative, in which case the
embedded derivative is accounted for separately and is classified as a
foreign exchange contract based on its primary risk exposure.

For derivatives that are not designated as hedges, changes in fair

value are reported in current period earnings.

The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the Consolidated
Statements of Income for the years ended December 31:

Description (Millions)

Interest rate contracts
Foreign exchange contracts(a)

Total

Pretax gains (losses)

Amount

Income Statement Line Item

2013

2012

2011

Other expenses
Interest and dividends on investment securities
Interest expense on short-term borrowings
Interest expense on long-term debt and other
Other expenses

$

$

1
—
—
—
72

73

$

$

$

(1)
—
—
(1)
(56)

(58)

$

3
9
3
130
51

196

(a) Foreign exchange contracts include embedded foreign currency derivatives. Gains (losses) on these embedded derivatives are included in other expenses.

90

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14
COMMON AND PREFERRED SHARES
The
shows authorized shares and provides a
reconciliation of common shares issued and outstanding for the years
ended December 31:

following table

(Millions, except where indicated)

Common shares authorized (billions)(a)

Shares issued and outstanding at

beginning of year

Repurchases of common shares
Other, primarily stock option exercises
and restricted stock awards granted

Shares issued and outstanding as of

2013

3.6

1,105
(55)

2012

3.6

1,164
(69)

2011

3.6

1,197
(48)

14

10

15

December 31

1,064

1,105

1,164

(a) Of the common shares authorized but unissued as of December 31, 2013,
approximately 63 million shares are reserved for issuance under employee
stock and employee benefit plans.

On March 25, 2013, the Board of Directors authorized the repurchase
of 150 million common shares over time, in accordance with the
Company’s capital distribution plans submitted to the Federal Reserve
and subject to market conditions. This authorization replaces all prior
the Company
repurchase authorizations. During 2013 and 2012,
repurchased 55 million common shares with a cost basis of $4.0 billion
and 69 million common shares with a cost basis of $4.0 billion,
respectively. The cost basis includes commissions paid of $1.1 million
and $1.0 million in 2013 and 2012, respectively. As of December 31,
2013, the Company has 108 million common shares remaining under
the Board share repurchase authorization. Such authorization does not
have an expiration date.

Common shares are generally retired by the Company upon
repurchase (except for 3.5 million, 3.9 million and 4.2 million shares
held as treasury shares as of December 31, 2013, 2012 and 2011,
respectively); retired common shares and treasury shares are excluded
from the shares outstanding in the table above. The treasury shares,
with a cost basis of $260 million, $236 million and $217 million as of
December 31, 2013, 2012 and 2011, respectively, are included as a
reduction to additional paid-in capital in shareholders’ equity on the
Consolidated Balance Sheets.

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. There were no preferred shares
or warrants issued and outstanding as of December 31, 2013, 2012 and
2011.

NOTE 13
GUARANTEES
The Company provides Card Member protection plans that cover
losses associated with purchased products, as well as certain other
guarantees in the ordinary course of business which are within the
scope of GAAP governing the accounting for guarantees. For the
Company, guarantees primarily consist of card and travel protection
programs, including:
(cid:2) Return Protection — refunds the price of qualifying purchases made
with the eligible cards where the merchant will not accept the return
for up to 90 days from the date of purchase; and

(cid:2) Merchant Protection — protects Card Members primarily against
non-delivery of goods and services, usually in the event of
bankruptcy or liquidation of a merchant. When this occurs, the
Card Member may dispute the transaction for which the Company
will generally credit the Card Member’s account. If the Company is
unable to collect the amount from the merchant, it will bear the loss
for the amount credited to the Card Member.

follows,

In relation to its maximum potential undiscounted future payments as
shown in the table that
the Company has not
experienced any significant
related to guarantees. The
losses
Company’s initial recognition of guarantees is at fair value, which has
been determined in accordance with GAAP governing fair value
measurement. In addition, the Company establishes reserves when a
loss is probable and the amount can be reasonably estimated.

to date,

The following table provides information related to such guarantees as
of December 31:

Maximum potential
undiscounted future
payments(a)
(Billions)

Related liability(b)
(Millions)

Type of Guarantee

2013

2012

2013

2012

Card and travel operations(c)
Other(d)

Total

$

$

44
1

45

$

$

44
1

45

$ 88
73

$ 93
93

$ 161

$ 186

(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
Merchant Protection guarantee is calculated using management’s best
estimate of maximum exposure based on all eligible claims as measured
against annual billed business volumes.

(b) Included in other liabilities on the Company’s Consolidated Balance Sheets.
(c) Primarily includes Return Protection and Merchant Protection.
(d) Primarily includes guarantees related to the Company’s business dispositions

and real estate.

91

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
AOCI is a balance sheet item in the Shareholders’ Equity section of the Company’s Consolidated Balance Sheets. It is comprised of items that have
not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component of AOCI
for the three years ended December 31 were as follows:

(Millions), net of tax(a)

Net Unrealized
Gains (Losses)
on Investment
Securities

Net Unrealized
Gains (Losses)
on Cash Flow
Hedges

Foreign Currency
Translation
Adjustments

Net Unrealized
Pension and Other
Postretirement
Benefit Losses

Accumulated Other
Comprehensive
(Loss) Income

Balances as of December 31, 2010

$

57

$

(7) $

(503) $

(464) $

Net unrealized gains (losses)
Reclassification for realized (gains) losses into earnings
Net translation of investments in foreign operations
Net losses related to hedges of investment in foreign operations
Pension and other postretirement benefit losses

Net change in accumulated other comprehensive (loss) income

Balances as of December 31, 2011

Net unrealized gains (losses)
Reclassification for realized (gains) losses into earnings
Net translation of investments in foreign operations
Net losses related to hedges of investment in foreign operations
Pension and other postretirement benefit losses

Net change in accumulated other comprehensive (loss) income

Balances as of December 31, 2012

Net unrealized gains (losses)
Reclassification for realized (gains) losses into earnings
Net translation of investments in foreign operations
Net gains related to hedges of investment in foreign operations
Pension and other postretirement benefit gains

245
(14)

231

288

106
(79)

27

315

(159)
(93)

(2)
8

6

(1)

1

1

—

Net change in accumulated other comprehensive (loss) income

(252)

—

(153)
(26)

(179)

(682)

1
215
(288)

(72)

(754)

(589)
253

(336)

(17)

(17)

(481)

(7)

(7)

(488)

89

89

(917)

243
(6)
(153)
(26)
(17)

41

(876)

106
(77)
215
(288)
(7)

(51)

(927)

(159)
(93)
(589)
253
89

(499)

Balances as of December 31, 2013

$

63

$

— $

(1,090) $

(399) $

(1,426)

(a) The following table shows the tax impact for the three years ended December 31 for the changes in each component of accumulated other comprehensive (loss)

income:

(Millions)

Investment securities
Cash flow hedges
Foreign currency translation adjustments
Net investment hedges
Pension and other postretirement benefit losses

Total tax impact

2013

2012

2011

$

(142) $
—
(49)
135
56

$

7
1
24
(176)
—

$

— $

(144) $

149
3
(40)
(14)
(7)

91

The following table presents the effects of reclassifications out of AOCI and into the Consolidated Statement of Income for the year ended
December 31, 2013:

(Millions)

Description

Net gain in AOCI reclassifications for previously unrealized net gains on investment securities
Related income tax expense

Total

Income Statement Line Item

Other non-interest revenues
Income tax provision

Amount

$ 145
(52)

$

93

92

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16
RESTRUCTURING
From time to time, the Company initiates restructuring programs to
become more efficient and effective, and to support new business
strategies. In connection with these programs, the Company typically
will incur severance and other exit costs.

During 2013, the Company recorded $(4) million of restructuring

charges, consisting of revisions to prior estimates.

During 2012, the Company recorded $403 million of restructuring
charges, net of revisions to prior estimates. The 2012 activity primarily
relates to $400 million of restructuring charges recorded in the fourth
quarter as the Company committed to undertake a Company-wide
restructuring plan designed to contain future operating expenses,

adapt parts of the business as more customers transact online or
through mobile channels, and provide the resources for additional
growth initiatives worldwide.

During 2011, the Company recorded $119 million of restructuring
charges, net of revisions to prior estimates. The 2011 activity primarily
relates to $105 million of restructuring charges the Company recorded
throughout
reduce its operating costs by
reorganizing certain operations that occurred across all business units,
markets and staff groups.

to further

the year

Restructuring charges related to severance obligations are included
in salaries and employee benefits in the Company’s Consolidated
Statements of Income, while charges pertaining to other exit costs are
included in occupancy and equipment and other expenses.

The following table summarizes the Company’s restructuring reserves activity for the years ended December 31, 2013, 2012 and 2011:

(Millions)

Liability balance as of December 31, 2010

Restructuring charges, net of $27 in revisions(c)
Payments
Other non-cash(d)

Liability balance as of December 31, 2011

Restructuring charges, net of $16 in revisions(c)
Payments

Liability balance as of December 31, 2012
Restructuring charges, $4 in revisions(c)
Payments
Other non-cash(d)

Liability balance as of December 31, 2013(e)

Severance(a)

Other(b)

$

$

199
96
(121)
(4)

170
366
(124)

412
(7)
(206)
(3)

$

16
23
(8)
(1)

30
37
(9)

58
3
(23)
(1)

$

196

$

37

$

Total

215
119
(129)
(5)

200
403
(133)

470
(4)
(229)
(4)

233

(a) Accounted for in accordance with GAAP governing the accounting for nonretirement postemployment benefits and for costs associated with exit or disposal

activities.

(b) Other primarily includes facility exit and contract termination costs.
(c) Revisions primarily relate to higher than anticipated redeployments of displaced employees to other positions within the Company, business changes and

modifications to existing initiatives.

(d) Consists primarily of foreign exchange impacts.
(e) The majority of cash payments related to the remaining restructuring liabilities are expected to be completed in 2014, and to a lesser extent certain contractual long-

term severance arrangements and lease obligations are expected to be completed in 2015 and 2019, respectively.

The following table summarizes the Company’s restructuring charges, net of revisions, by reportable operating segment and Corporate & Other
for the year ended December 31, 2013, and the cumulative amounts relating to the restructuring programs that were in progress during 2013 and
initiated at various dates between 2009 and 2013.

(Millions)

USCS
ICS
GCS
GNMS
Corporate & Other

Total

2013

Cumulative Restructuring Expense Incurred To Date On
In-Progress Restructuring Programs

Total Restructuring
Charges, net
revisions

Severance

Other

Total

$

$

(7)
(8)
(4)
7
8

(4)

$

$

$

71
110
204
55
89

529

$

6
1
18
—
68

93

$

$

77
111
222
55
157(a)

622(b)

(a) Corporate & Other includes certain severance and other charges of $147 million related to Company-wide support functions which were not allocated to the

Company’s reportable operating segments, as these were corporate initiatives, which is consistent with how such charges were reported internally.

(b) As of December 31, 2013, the total expenses to be incurred for previously approved restructuring activities that were in progress are not expected to be materially

different than the cumulative expenses incurred to date for these programs.

93

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17
INCOME TAXES
The components of
the years ended
December 31 included in the Consolidated Statements of Income were
as follows:

income tax expense for

(Millions)

2013

2012

2011

Current income tax expense:

U.S. federal
U.S. state and local
Non-U.S.

Total current income tax expense

Deferred income tax expense (benefit):

U.S. federal
U.S. state and local
Non-U.S.

Total deferred income tax expense
Total income tax expense on continuing

operations

Income tax benefit from discontinued

operations

$

$

$

$

1,730
288
514

2,532

$

982
189
445

1,616

958
156
434

1,548

113
4
(120)

(3)

359
39
(45)

353

464
68
(23)

509

2,529

$

1,969

$

2,057

— $

— $

(36)

A reconciliation of the U.S. federal statutory rate of 35 percent to the
Company’s actual income tax rate for the years ended December 31 on
continuing operations was as follows:

U.S. statutory federal income tax rate
Increase (decrease) in taxes resulting from:

Tax-exempt income
State and local income taxes, net of

federal benefit

Non-U.S. subsidiaries earnings(a)
Tax settlements(b)
All other

2013

2012

2011

35.0%

35.0%

35.0%

(1.6)

(1.6)

(1.5)

3.1
(2.8)
(1.9)
0.3

2.5
(5.2)
(0.2)
—

2.6
(4.4)
(1.9)
(0.2)

Actual tax rates(a)

32.1%

30.5%

29.6%

(a) Results for all years primarily included tax benefits associated with the
undistributed earnings of certain non-U.S. subsidiaries that were deemed to
be reinvested indefinitely. In addition, 2012 and 2011 included tax benefits of
$146 million and $77 million, which decreased the actual tax rates by 2.3
percent and 1.1 percent, respectively, related to the realization of certain
foreign tax credits.

(b) Relates to the resolution of tax matters in various jurisdictions.

The Company records a deferred income tax (benefit) provision when
there are differences between assets and liabilities measured for
financial reporting and for income tax return purposes. These
temporary differences result in taxable or deductible amounts in
future years and are measured using the tax rates and laws that will be
in effect when such differences are expected to reverse.

The significant components of deferred tax assets and liabilities as of
December 31 are reflected in the following table:

(Millions)

Deferred tax assets:

2013

2012

Reserves not yet deducted for tax purposes
Employee compensation and benefits
Other

$ 3,813
721
546

$ 3,828
761
537

Gross deferred tax assets
Valuation allowance

Deferred tax assets after valuation allowance

Deferred tax liabilities:

Intangibles and fixed assets
Deferred revenue
Deferred interest
Asset Securitization
Other

Gross deferred tax liabilities

Net deferred tax assets

5,080
(121)

4,959

1,325
453
363
130
245

2,516

5,126
(162)

4,964

1,346
403
378
73
306

2,506

$ 2,443

$ 2,458

A valuation allowance is established when management determines
that it is more likely than not that all or some portion of the benefit of
the deferred tax assets will not be realized. The valuation allowances as
of December 31, 2013 and 2012 are associated with net operating
losses and other deferred tax assets in certain non-U.S. operations of
the Company.

Accumulated earnings of certain non-U.S. subsidiaries, which
totaled approximately $9.6 billion as of December 31, 2013, are
intended to be permanently reinvested outside the U.S. The Company
does not provide for federal
income taxes on foreign earnings
intended to be permanently reinvested outside the U.S. Accordingly,
federal taxes, which would have aggregated approximately $3.0 billion
as of December 31, 2013, have not been provided on those earnings.

Net income taxes paid by the Company (including amounts related
to discontinued operations) during 2013, 2012 and 2011, were
approximately $2.0 billion, $1.9 billion and $0.7 billion, respectively.
These amounts include estimated tax payments and cash settlements
relating to prior tax years.

The Company is subject to the income tax laws of the U.S., its
states and municipalities and those of the foreign jurisdictions in
which the Company operates. These tax laws are complex, and the
manner in which they apply to the taxpayer’s facts is sometimes open
to interpretation. Given these inherent complexities, the Company
must make judgments in assessing the likelihood that a tax position
will be sustained upon examination by the taxing authorities based on
the technical merits of the tax position. A tax position is recognized
regarding the
only when, based on management’s
application of income tax laws, it is more likely than not that the tax
position will be sustained upon examination. The amount of benefit
recognized for financial reporting purposes is based on management’s
best judgment of the largest amount of benefit that is more likely than
not to be realized on ultimate settlement with the taxing authority
given the facts, circumstances and information available at
the
reporting date. The Company adjusts the level of unrecognized tax
benefits when there is new information available to assess the
likelihood of the outcome.

judgment

94

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

examination and open for

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 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.

The following table presents changes in unrecognized tax benefits:

(Millions)

Balance, January 1
Increases:

2013

2012

2011

$ 1,230

$

1,223

$

1,377

Current year tax positions
Tax positions related to prior years

Decreases:

Tax positions related to prior years
Settlements with tax authorities
Lapse of statute of limitations
Effects of foreign currency translations

124
176

(371)
(94)
(21)
—

51
64

(44)
(25)
(37)
(2)

77
247

(457)
(2)
(19)
—

Balance, December 31

$ 1,044

$

1,230

$

1,223

Included in the unrecognized tax benefits of $1.0 billion for
December 31, 2013 and $1.2 billion for both December 31, 2012 and
2011, are approximately $427 million, $452 million and $440 million,
respectively, that, if recognized, would favorably affect the effective tax
rate in a future period.

it

that

to amounts

reasonably possible

The Company believes

its
is
unrecognized tax benefits could decrease within the next 12 months
by as much as $632 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 $632
million of unrecognized tax benefits, approximately $474 million
relates
recognized would be recorded to
shareholders’ equity and would not impact the effective tax rate. With
respect to the remaining $158 million, it is not possible to quantify the
impact that the decrease could have on the effective tax rate and net
income due to the inherent complexities and the number of tax years
open for examination in multiple jurisdictions. Resolution of the prior
years’
items that comprise this remaining amount could have an
impact on the effective tax rate and on net income, either favorably
(principally as a result of settlements that are less than the liability for
unrecognized tax benefits) or unfavorably (if such settlements exceed
the liability for unrecognized tax benefits).

that

if

Interest and penalties relating to unrecognized tax benefits are
reported in the income tax provision. During the years ended
December 31, 2013, 2012 and 2011, the Company recognized benefits
of approximately $31 million, $8 million and $63 million, respectively,
of
interest and penalties. The Company has approximately $144
million and $155 million accrued for the payment of interest and
penalties as of December 31, 2013 and 2012, respectively.

Discontinued operations for 2011 included the impact of a $36
million tax benefit related to the favorable resolution of certain prior
years’ tax items related to American Express Bank, Ltd., which was
sold to Standard Chartered PLC during the quarter ended March 31,
2008.

95

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18
EARNINGS PER COMMON SHARE (EPS)
The computations of basic and diluted EPS for the years ended
December 31 were as follows:

(Millions, except per share amounts)

2013

2012

2011

Numerator:

Basic and diluted:

Income from continuing operations
Earnings allocated to participating share

$ 5,359 $ 4,482 $ 4,899

awards(a)

(47)

(49)

(58)

Income from discontinued operations, net

—

—

36

NOTE 19
DETAILS OF CERTAIN CONSOLIDATED
STATEMENTS OF INCOME LINES
The following is a detail of other commissions and fees for the years
ended December 31:

(Millions)

Foreign currency conversion revenue
Delinquency fees
Service fees
Other(a)

$

2013

2012

877 $
667
375
495

855 $
604
362
496

2011

861
567
355
486

Total other commissions and fees

$

2,414 $

2,317 $

2,269

(a) Other primarily includes fee revenue from the Loyalty Partner business and

$ 5,312 $ 4,433 $

4,877

fees related to Membership Rewards programs.

of tax

Net income attributable to
common shareholders

Denominator:(a)

Basic: Weighted-average common stock
Add: Weighted-average stock options(b)

Diluted

Basic EPS:

1,082
7

1,089

1,135
6

1,141

1,178
6

1,184

Income from continuing operations

attributable to common shareholders

$

Income from discontinued operations

4.91 $
—

3.91 $
—

4.11
0.03

Net income attributable to common

shareholders

$

4.91 $

3.91 $

4.14

Diluted EPS:

Income from continuing operations

attributable to common shareholders

$

Income from discontinued operations

4.88 $
—

3.89 $
—

4.09
0.03

Net income attributable to common

shareholders

$

4.88 $

3.89 $

4.12

(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) For the years ended December 31, 2013, 2012 and 2011, the dilutive effect of
unexercised stock options excludes 0.1 million, 7.6 million and 19.2 million
options, respectively, from the computation of EPS because inclusion of the
options would have been anti-dilutive.

For the years ended December 31, 2013, 2012 and 2011, the Company
met specified performance measures related to the Subordinated
Debentures of $750 million issued in 2006, which resulted in no
impact to EPS. 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.

The following is a detail of other revenues for the years ended
December 31:

(Millions)

2013

2012

2011

Global Network Services partner

revenues

Net gain on investment securities
Other(a)

Total other revenues

$

650 $
136
1,488

664 $
126
1,635

$

2,274 $

2,425 $

655
16
1,493

2,164

(a) Other includes revenues arising from insurance premiums earned from Card
Member travel and other insurance programs, Travelers Cheques-related
revenues, publishing revenues and other miscellaneous revenue and fees.

The following is a detail of marketing, promotion, rewards and Card
Member services for the years ended December 31:

(Millions)

Marketing and promotion
Card Member rewards
Card Member services

2013

2012

$

3,043 $
6,457
767

2,890 $
6,282
772

2011

2,996
6,218
716

Total marketing, promotion, rewards

and Card Member services

$

10,267 $

9,944 $

9,930

Marketing and promotion expense includes advertising costs, which
are expensed in the year in which the advertising first takes place.
rewards
Card Member
programs,
co-brand
arrangements. Card Member services expense includes protection
plans and complimentary services provided to Card Members.

rewards expense includes

including Membership

the costs of

Rewards

and

The following is a detail of other, net for the years ended December 31:

(Millions)

Professional services
Occupancy and equipment
Communications
MasterCard and Visa settlements, net of

legal fees

Other(a)

2013

2012

$

3,102 $
1,904
379

2,963 $
1,823
383

—
1,133

—
1,404

2011

2,951
1,685
378

(562)
1,260

Total other, net

$

6,518 $

6,573 $

5,712

(a) 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 and certain Loyalty Partner
expenses.

96

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20
STOCK PLANS
STOCK OPTION AND AWARD PROGRAMS
Under the 2007 Incentive Compensation Plan and previously under
the 1998 Incentive Compensation Plan, awards may be granted to
employees and other key individuals who perform services for the
Company and its participating subsidiaries. These awards may be in
the form of stock options, restricted stock awards or units (RSAs),
incentives, and similar awards
portfolio grants
designed to meet the requirements of non-U.S. jurisdictions.

(PGs) or other

For the Company’s Incentive Compensation Plans, there were a
total of 35 million, 36 million and 38 million common shares unissued
and available for grant as of December 31, 2013, 2012 and 2011,
respectively, as authorized by the Company’s Board of Directors and
shareholders.

The Company granted stock option awards to its Chief Executive
Officer (CEO)
in November 2007 and January 2008 that have
performance-based and market-based conditions. These option
awards are separately disclosed and are excluded from the information
and tables presented in the following paragraphs.

A summary of stock option and RSA activity as of December 31, 2013,
and changes during the year is presented below:

Stock Options

RSAs

(Shares in thousands)

Shares

Outstanding as of December 31,

Weighted-
Average
Exercise
Price

2012
Granted
Exercised/vested
Forfeited
Expired

$

31,861
463
(13,672)
(22)
(15)

43.62
61.76
42.39
39.25
45.61

Weighted-
Average
Grant
Price

$

40.31
60.13
33.24
50.31
—

Shares

11,800
3,867
(5,559)
(530)
—

Outstanding as of December 31,

2013

18,615

44.98

9,578

$

51.88

Options vested and expected to
vest as of December 31, 2013

Options exercisable as of

December 31, 2013

18,600

44.98

16,842

$

44.51

—

—

—

—

The Company recognizes the cost of employee stock awards granted in
exchange for employee services based on the grant-date fair value of
the award, net of expected forfeitures. Those costs are recognized
ratably over the vesting period.

STOCK OPTIONS
Each stock option has an exercise price equal to the market price of
the Company’s common stock on the date of grant and a contractual
term of 10 years from the date of grant. Stock options generally vest
25 percent per year beginning with the first anniversary of the grant
date.

The weighted-average remaining contractual
life and the aggregate
intrinsic value (the amount by which the fair value of the Company’s
stock exceeds the exercise price of the option) of the stock options
outstanding, exercisable, and vested and expected to vest as of
December 31, 2013 are as follows:

Outstanding

Exercisable

Vested and
Expected to
Vest

Weighted-average remaining
contractual life (in years)

Aggregate intrinsic value (millions)

$

4.4
852

$

4.0
778

$

4.4
851

The intrinsic value for options exercised during 2013, 2012 and 2011
was $374 million, $209 million and $206 million, respectively (based
upon the fair value of the Company’s stock price at the date of
exercise). Cash received from the exercise of stock options in 2013,
2012 and 2011 was $580 million, $368 million and $503 million,
respectively. The tax benefit realized from income tax deductions from
stock option exercises, which was recorded in additional paid-in
capital, in 2013, 2012 and 2011 was $84 million, $45 million and $60
million, respectively.

The fair value of each option is estimated on the date of grant using a
Black-Scholes-Merton option-pricing model. The following weighted-
average assumptions were used for grants issued in 2013, 2012 and
2011, the majority of which were granted in the beginning of each
year:

2013

2012

2011

Dividend yield
Expected volatility(a)
Risk-free interest rate
Expected life of stock option (in years)(b)
Weighted-average fair value per option

1.4%
39%
1.3%
6.3
$ 21.11

1.5%
41%
1.3%
6.3
$ 17.48

$

1.6%
40%
2.3%
6.2
16.21

(a) The expected volatility is based on both weighted historical and implied

volatilities of the Company’s common stock price.

(b) In 2013, 2012 and 2011, the expected life of stock options was determined

using both historical data and expectations of option exercise behavior.

STOCK OPTIONS WITH PERFORMANCE-BASED AND MARKET-
BASED CONDITIONS
On November 30, 2007 and January 31, 2008, the Company’s CEO was
granted in the aggregate 2,750,000 of non-qualified stock option
awards with performance-based and market-based conditions. Both
awards have a contractual term of 10 years and a vesting period of 6
years.

The aggregate grant date fair value of options with performance-
based conditions was approximately $33.8 million. Compensation
expense for these awards will be recognized over the vesting period
when it is determined it is probable that the performance metrics will
be achieved. No compensation expense for these awards was recorded
in 2013, 2012 and 2011.

97

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21
RETIREMENT PLANS
DEFINED CONTRIBUTION RETIREMENT PLANS
The Company sponsors defined contribution retirement plans, the
principal plan being the Retirement Savings Plan (RSP), a 401(k)
savings plan with a profit-sharing component. The RSP is a tax-
qualified retirement plan subject to the Employee Retirement Income
Security Act of 1974 (ERISA) and covers most employees in the U.S.
The total expense for all defined contribution retirement plans
globally was $281 million, $254 million and $252 million in 2013, 2012
and 2011, respectively.

DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT
BENEFIT PLANS
The Company’s primary defined benefit pension plans that cover
certain employees in the U.S. and United Kingdom are closed to new
entrants and existing participants do not accrue any additional
benefits. Most employees outside the U.S. and United Kingdom are
covered by local retirement plans, some of which are funded, while
other employees receive payments at
the time of retirement or
termination under applicable labor laws or agreements. The Company
complies with minimum funding requirements in all countries. The
Company sponsors unfunded other postretirement benefit plans that
provide health care and life insurance to certain retired U.S.
employees. The total expense for these plans was $59 million, $93
million and $74 million in 2013, 2012 and 2011, respectively.

The Company recognizes the funded status of its defined benefit
pension plans and other postretirement benefit plans, measured as the
difference between the fair value of the plan assets and the projected
benefit obligation,
in the Consolidated Balance Sheets. As of
December 31, 2013 and 2012, the funded status related to the defined
benefit pension plans and other postretirement benefit plans was
underfunded by $661 million and $796 million, respectively, and is
recorded in other liabilities.

The aggregate grant date fair value of options with market-based
conditions was approximately $10.5 million. Compensation expense
for these awards is recognized ratably over the vesting period
irrespective of the probability of the market metric being achieved.
Total compensation expense of approximately $0.3 million, $0.5
million and $2.4 million was recorded in 2013, 2012 and 2011,
respectively.

RESTRICTED STOCK AWARDS
RSAs are valued based on the stock price on the date of grant and
generally vest 25 percent per year, beginning with the first anniversary
of the grant date. RSA holders receive non-forfeitable dividends or
dividend equivalents. The total fair value of shares vested during 2013,
2012 and 2011 was $336 million, $296 million and $221 million,
respectively (based upon the Company’s stock price at the vesting
date).

The weighted-average grant date fair value of RSAs granted in

2013, 2012 and 2011, is $60.13, $49.80 and $45.11, respectively.

LIABILITY-BASED AWARDS
Certain employees are awarded PGs and other incentive awards that
can be settled with cash or equity shares at the Company’s discretion
and final Compensation and Benefits Committee payout approval.
These awards earn value based on performance, market and service
conditions and vest over periods of one to three years.

PGs and other incentive awards are generally settled with cash and
thus are classified as liabilities and,
the fair value is
determined at the date of grant and remeasured quarterly as part of
compensation expense over the vesting period. Cash paid upon vesting
of these awards in 2013, 2012 and 2011 was $45 million, $66 million
and $58 million, respectively.

therefore,

Summary of Stock Plan Expense
The components of the Company’s total stock-based compensation
expense (net of forfeitures) for the years ended December 31 are as
follows:

(Millions)

2013

2012

2011

Restricted stock awards(a)
Stock options(a)
Liability-based awards
Performance/market-based stock

options

Total stock-based compensation

expense(b)

$

$

208
23
119

—

$

197
29
70

1

176
40
83

2

$

350

$

297

$

301

(a) As of December 31, 2013, the total unrecognized compensation cost related
to unvested RSAs and options of $232 million and $14 million, respectively,
will be recognized ratably over the weighted-average remaining vesting period
of 2.1 years and 1.8 years, respectively.

(b) The total income tax benefit recognized in the Consolidated Statements of
Income for stock-based compensation arrangements for the years ended
December 31, 2013, 2012 and 2011 was $127 million, $107 million and $105
million, respectively.

98

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22
SIGNIFICANT CREDIT CONCENTRATIONS
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of counterparties
whose aggregate credit exposure is material in relation to American
Express’ total credit exposure. The Company’s customers operate in
diverse industries, economic sectors and geographic regions.

The following table details the Company’s maximum credit exposure
by category, including the credit exposure associated with derivative
financial instruments, as of December 31:

The following table details the Company’s Card Member loans and
receivables exposure (including unused lines-of-credit on Card
Member loans) in the U.S. and outside the U.S. as of December 31:

(Billions)

On-balance sheet:
U.S.
Non-U.S.

On-balance sheet(a)(b)

Unused lines-of-credit – individuals:
U.S.
Non-U.S.

2013

2012

$

89 $
22

111

219
46

85
23

108

208
45

253

(Billions)

On-balance sheet:
Individuals(a)
Financial institutions(b)
U.S. Government and agencies(c)
All other(d)

Total on-balance sheet(e)

2013

2012

Total unused lines-of-credit – individuals

$

265 $

$

98 $
22
4
17

141

(a) Represents Card Member loans to individuals as well as receivables from
individuals and corporate institutions as discussed in footnotes (a) and
(d) from the previous table.

(b) The remainder of the Company’s on-balance sheet exposure includes cash,
investments, other loans, other receivables and other assets including
derivative financial instruments. These balances are primarily within the U.S.

95
25
5
16

141

253

Unused lines-of-credit – individuals(f)

$

265 $

(a) Individuals primarily include Card Member loans and receivables.
(b) Financial

institutions primarily include debt obligations of banks, broker-

dealers, insurance companies and savings and loan associations.
(c) U.S. Government and agencies represent debt obligations of

the U.S.
Government and its agencies, states and municipalities and government-
sponsored entities.

(d) All other primarily includes Card Member receivables from other corporate

institutions.

(e) Certain distinctions between categories require management judgment.
(f) Because charge card products generally have no preset spending limit, the
associated credit limit on charge products is not quantifiable. Therefore, the
quantified unused line-of-credit amounts only include the approximate credit
line available on lending products.

As of December 31, 2013 and 2012, the Company’s most significant
concentration of credit risk was with individuals,
including Card
Member receivables and loans. These amounts are generally advanced
on an unsecured basis. However, the Company reviews each potential
customer’s credit application and evaluates the applicant’s financial
history and ability and willingness to repay. The Company also
considers credit performance by customer tenure,
industry and
geographic location in managing credit exposure.

EXPOSURE TO THE AIRLINE INDUSTRY
The Company has multiple important co-brand,
rewards and
corporate payment arrangements with airlines. The Company’s largest
airline partner is Delta and this relationship includes exclusive co-
brand credit card partnerships and other arrangements including
Membership Rewards, merchant acceptance,
travel and corporate
payments programs. American Express’ Delta SkyMiles Credit Card
the
co-brand portfolio accounts for approximately 5 percent of
Company’s worldwide billed business and less than 15 percent of
worldwide Card Member loans. Refer to Notes 4 and 8 for further
information on receivables and other assets recorded by the Company
relating to these relationships.

In recent years, the airline industry has undergone bankruptcies,
restructurings, consolidations and other similar events. Historically,
the Company has not experienced significant revenue declines when a
particular airline scales back or ceases operations due to a bankruptcy
or other financial challenges because volumes generated by that airline
are typically shifted to other participants in the industry that accept
the Company’s card products. The Company’s exposure to business
and credit risk in the airline industry is primarily through business
arrangements where the Company has remitted payment to the airline
for a Card Member purchase of tickets that have not yet been used or
“flown”. The Company mitigates this risk by delaying payment to the
airlines with deteriorating financial situations, thereby increasing cash
withheld to protect the Company in the event the airline is liquidated.
To date, the Company has not experienced significant losses from
airlines that have ceased operations.

99

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23
REGULATORY MATTERS AND CAPITAL ADEQUACY
The Company is supervised and regulated by the Federal Reserve and
is subject to the Federal Reserve’s requirements for risk-based capital
two U.S. bank operating
and leverage ratios. The Company’s
subsidiaries, American Express Centurion Bank (Centurion Bank) and
American Express Bank, FSB (FSB) (together, the Banks), are subject
to supervision and regulation,
including similar regulatory capital
requirements by the Federal Deposit Insurance Corporation (FDIC)
and the Office of
the Currency (OCC),
respectively.

the Comptroller of

The Federal Reserve’s guidelines for capital adequacy define two
categories of risk-based capital: Tier 1 and Tier 2 capital (as defined in
the regulations). Under the risk-based capital guidelines of the Federal

Reserve, the Company is required to maintain minimum ratios of Tier
1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets, as well
as a minimum leverage ratio (Tier 1 capital to average adjusted on-
balance sheet assets).

Failure to meet minimum capital requirements can initiate certain
mandatory,
actions by
regulators, that, if undertaken, could have a direct material effect on
the Company’s and the Banks’ operating activities.

additional, discretionary

and possibly

As of December 31, 2013 and 2012, the Company and its Banks
met all capital requirements to which each was subject and maintained
regulatory capital ratios in excess of those required to qualify as well
capitalized.

The following table presents the regulatory capital ratios for the Company and the Banks:

(Millions, except percentages)

December 31, 2013:

American Express Company
American Express Centurion Bank
American Express Bank, FSB

December 31, 2012:

American Express Company
American Express Centurion Bank
American Express Bank, FSB

Well-capitalized ratios(c)
Minimum capital ratios(c)

Tier 1
capital

Total
capital

Tier 1
capital ratio

Total
capital ratio

Tier 1
leverage ratio

$ 16,174
6,366
6,744

$ 18,585
6,765
7,662

$ 14,920
5,814
6,649

$ 17,349
6,227
7,556

12.5%
19.9
15.6

11.9%
17.6
16.5

6.0%
4.0%

14.4%
21.2
17.7

13.8%
18.9
18.7

10.0%
8.0%

10.9%
19.0
17.5(a)

10.2%
17.0
17.5(a)

5.0%(b)
4.0%

(a) FSB leverage ratio is calculated using ending total assets as prescribed by OCC regulations applicable to federal savings banks.
(b) Represents requirements for banking subsidiaries to be considered “well-capitalized” pursuant to regulations issued under the Federal Deposit Insurance Corporation

Improvement Act. There is no “well-capitalized” definition for the Tier 1 leverage ratio for a bank holding company.

(c) As defined by the regulations issued by the Federal Reserve, OCC and FDIC.

RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain of the Company’s subsidiaries are subject to restrictions on
the transfer of net assets under debt agreements and regulatory
requirements. These restrictions have not had any effect on the
Company’s shareholder dividend policy and management does not
anticipate any impact in the future. Procedures exist to transfer net
assets between the Company and its subsidiaries, while ensuring
compliance with the various contractual and regulatory constraints.
As of December 31, 2013, the aggregate amount of net assets of
subsidiaries that are restricted to be transferred to the Company was
approximately $9.9 billion.

BANK HOLDING COMPANY DIVIDEND RESTRICTIONS
The Company is limited in its ability to pay dividends by the Federal
Reserve, which could prohibit a dividend that would be considered an
unsafe or unsound banking practice. It is the policy of the Federal
Reserve that bank holding companies generally should pay dividends
on common stock only out of net income available to common
shareholders generated over the past year, and only if prospective
earnings retention is consistent with the organization’s current and
expected future capital needs, asset quality and overall
financial
condition. Moreover, bank holding companies are required by statute
to be a source of strength to their insured depository institution
subsidiaries and should not maintain dividend levels that undermine
their ability to do so. On an annual basis, the Company is required to
develop and maintain a capital plan, which includes planned dividends
over a two-year horizon, and to submit the capital plan to the Federal
Reserve.

100

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BANKS’ DIVIDEND RESTRICTIONS
In the years ended December 31, 2013 and 2012, Centurion Bank paid
dividends from retained earnings to its parent of $1.4 billion and $2.0
billion, respectively, and FSB paid dividends from retained earnings to
its parent of $1.8 billion and $1.5 billion, respectively.

is generally limited to the retained earnings of

The Banks are subject to statutory and regulatory limitations on
their ability to pay dividends. The total amount of dividends that may
be paid at any date, subject to supervisory considerations of the Banks’
the
regulators,
respective bank. As of December 31, 2013 and 2012, the Banks’
in the aggregate, available for the payment of
retained earnings,
dividends were $4.6 billion and $4.7 billion,
In
determining the dividends to pay its parent, the Banks must also
consider the effects on applicable risk-based capital and leverage ratio
requirements, as well as policy statements of the federal regulatory
agencies. In addition, the Banks’ banking regulators have authority to
limit or prohibit the payment of a dividend by the Banks under a
in the banking regulator’s
including if,
number of circumstances,
opinion, payment of a dividend would constitute an unsafe or
unsound banking practice in light of the financial condition of the
banking organization.

respectively.

activities

NOTE 24
COMMITMENTS AND CONTINGENCIES
LEGAL CONTINGENCIES
The Company and its subsidiaries are involved in a number of legal
proceedings concerning matters arising out of the conduct of their
respective business
to
information gathering
governmental and regulatory examinations,
requests,
(collectively,
governmental examinations). As of December 31, 2013, 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 “Legal Proceedings” in its Annual Report on
Form 10-K for the year ended December 31, 2013 (Legal Proceedings).

and are periodically

and investigations

subpoenas,

inquiries

subject

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. As discussed
below, 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

101

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 a not-yet-quantified 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
issues to
development of important factual
enable the Company to estimate a range of possible loss.

information and legal

for

and

legal

those

proceedings

Other matters have progressed sufficiently through discovery and/
or development of important factual information and legal issues so
the Company is able to estimate a range of possible loss.
that
Accordingly,
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 $440 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.

VISA AND MASTERCARD SETTLEMENTS
As previously disclosed, the Company reached settlement agreements
with Visa and MasterCard. Under the terms of
the settlement
agreements, the Company received aggregate maximum payments of
$4.05 billion. The settlement with Visa comprised an initial payment
of $1.13 billion ($700 million after-tax) that was recorded as a gain in
the Company
2007. Having met quarterly performance criteria,
recognized $280 million ($172 million after-tax) from Visa in 2011,
and $300 million ($186 million after-tax) from MasterCard in 2011.
These payments are included in other expenses within Corporate &
Other. During the second and fourth quarter of 2011, the Company
received the final payments on the MasterCard and Visa litigation
settlements, respectively.

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 25
REPORTABLE OPERATING SEGMENTS AND
GEOGRAPHIC OPERATIONS
REPORTABLE OPERATING SEGMENTS
The Company is a leading global payments and travel company that is
principally
reportable
engaged in businesses
operating segments: USCS, ICS, GCS and GNMS.

comprising

four

The Company considers a combination of factors when evaluating
the composition of its reportable operating segments, including the
results reviewed by the chief operating decision maker, economic
characteristics, products and services offered, classes of customers,
product distribution channels, geographic considerations (primarily
U.S. versus non-U.S.), and regulatory environment considerations.
The following is a brief description of the primary business activities
of the Company’s four reportable operating segments:
(cid:2) USCS issues a wide range of card products and services to
consumers and small businesses in the U.S., and provides consumer
travel services to Card Members and other consumers.

(cid:2)

ICS issues proprietary consumer and small business cards outside
the U.S.

(cid:2) GCS offers global corporate payment and travel-related products

and services to large and mid-sized companies.

(cid:2) GNMS operates a global payments network which processes and
settles proprietary and non-proprietary card transactions. GNMS
acquires merchants and provides point-of-sale products, multi-
channel marketing programs and capabilities, services and data,
leveraging the Company’s global closed-loop network. It provides
ATM services and enters into partnership agreements with third-
party card issuers and acquirers, licensing the American Express
brand and extending the reach of the global network.

functions

and auxiliary

Corporate
the
Company’s Enterprise Growth Group (including Global Payment
Options) and other Company operations, are included in Corporate &
Other.

businesses,

including

OTHER CONTINGENCIES
The Company also has contingent obligations to make payments
under contractual agreements entered into as part of the ongoing
operation of
the Company’s business, primarily with co-brand
partners. The contingent obligations under such arrangements were
approximately $2.8 billion as of December 31, 2013.

leases

RENT EXPENSE AND LEASE COMMITMENTS
and equipment under
certain facilities
The Company
noncancelable and cancelable agreements. The total rental expense
amounted to $281 million in 2013 (including lease termination
penalties of $6 million), $305 million in 2012 (including lease
termination penalties of $13 million) and $280 million in 2011.

As of December 31, 2013, the minimum aggregate rental commitment
under all noncancelable operating leases (net of subleases of $23
million) was as follows:

(Millions)

2014
2015
2016
2017
2018
Thereafter

Total

$ 237
196
157
132
114
922

$ 1,758

As of December 31, 2013, the Company’s future minimum lease
leases or other similar arrangements is
payments under capital
approximately $11 million in 2014, $4 million in 2015 through 2018,
and $14 million thereafter.

102

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents certain selected financial information as of or for the years ended December 31, 2013, 2012 and 2011:

(Millions, except where indicated)

USCS

ICS

GCS

GNMS

Other(a) Consolidated

Corporate &

2013
Non-interest revenues
Interest income
Interest expense
Total revenues net of interest expense
Total provision
Pretax income (loss) from continuing operations
Income tax provision (benefit)
Income (loss) from continuing operations

Total equity (billions)

2012
Non-interest revenues
Interest income
Interest expense
Total revenues net of interest expense
Total provision
Pretax income (loss) from continuing operations
Income tax provision (benefit)
Income (loss) from continuing operations

Total equity (billions)

2011
Non-interest revenues
Interest income
Interest expense
Total revenues net of interest expense
Total provision
Pretax income (loss) from continuing operations
Income tax provision (benefit)
Income (loss) from continuing operations

Total equity (billions)

$

12,123 $
5,565
693
16,995
1,417
4,994
1,801
3,193

9.3

11,469
5,342
765
16,046
1,429
4,069
1,477
2,592

8.7

10,804
5,074
807
15,071
687
4,129
1,449
2,680

4,644 $

1,118
361
5,401
444
643
12
631

3.1

4,561
1,147
402
5,306
330
659
25
634

2.9

4,470
1,195
426
5,239
268
762
39
723

5,085 $
13
245
4,853
159
1,244
384
860

5,229 $
32
(252)
5,513
69
2,469
894
1,575

846 $
277
911
212
21
(1,462)
(562)
(900)

3.7

2.0

1.4

4,995
11
257
4,749
136
960
316
644

3.6

4,880
9
264
4,625
76
1,075
337
738

5,005
23
(243)
5,271
74
2,219
776
1,443

2.0

4,713
5
(224)
4,942
75
1,979
686
1,293

897
331
1,045
183
21
(1,456)
(625)
(831)

1.7

719
413
1,047
85
6
(989)
(454)
(535)

27,927
7,005
1,958
32,974
2,110
7,888
2,529
5,359

19.5

26,927
6,854
2,226
31,555
1,990
6,451
1,969
4,482

18.9

25,586
6,696
2,320
29,962
1,112
6,956
2,057
4,899

$

8.8 $

2.8 $

3.6 $

2.0 $

1.6 $

18.8

(a) Corporate & Other includes adjustments and eliminations for intersegment activity.

Total Revenues Net of Interest Expense
The Company allocates discount revenue and certain other revenues
among segments using a transfer pricing methodology. Within the
USCS, ICS and GCS segments, discount revenue reflects the issuer
component of
revenue generated by each
segment’s Card Members; within the GNMS segment, discount
revenue reflects the network and acquirer component of the overall
discount revenue. Net card fees and travel commissions and fees are
directly attributable to the segment in which they are reported.

the overall discount

Interest and fees on loans and certain investment income is directly
attributable to the segment in which it is reported. Interest expense
reflects an allocated funding cost based on a combination of segment
funding requirements and internal funding rates.

Provisions for Losses
The provisions for losses are directly attributable to the segment in
which they are reported.

Expenses
Marketing and promotion expenses are reflected in each segment
based on actual expenses incurred, with the exception of brand
advertising, which is primarily reflected in the GNMS and USCS
segments. Rewards and Card Member services expenses are reflected

in each segment based on actual expenses incurred within each
segment.

Salaries and employee benefits and other operating expenses reflect
expenses such as professional services, occupancy and equipment and
communications incurred directly within each segment. In addition,
expenses related to the Company’s support services, such as technology
costs, are allocated to each segment primarily based on support service
activities directly attributable to the segment. Other overhead expenses,
such as staff group support functions, are allocated from Corporate &
Other to the other segments based on a mix of each segment’s direct
consumption of services and relative level of pretax income.

Capital
Each business segment
is allocated capital based on established
business model operating requirements, risk measures and regulatory
capital requirements. Business model operating requirements include
capital needed to support operations and specific balance sheet items.
The risk measures include considerations for credit, market and
operational risk.

Income Taxes
An income tax provision (benefit) is allocated to each business
segment based on the effective tax rates applicable to various
businesses that comprise the segment.

103

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GEOGRAPHIC OPERATIONS

The following table presents the Company’s total revenues net of interest expense and pretax income (loss) from continuing operations in
different geographic regions:

(Millions)

2013(c)

Total revenues net of interest expense
Pretax income (loss) from continuing operations

2012(c)

Total revenues net of interest expense
Pretax income (loss) from continuing operations

2011(c)

Total revenues net of interest expense
Pretax income (loss) from continuing operations

U.S.

EMEA(a)

JAPA(a)

LACC(a)

Unallocated(b) Consolidated

Other

$ 23,745
7,679

$ 3,700
524

$2,952
488

$2,900
701

$ 22,631
6,468

$ 3,594
505

$ 3,106
426

$ 2,774
605

$ 21,254
6,971

$ 3,551
620

$ 3,071
430

$ 2,706
583

$

$

$

(323) $

(1,504)

32,974
7,888

(550) $

(1,553)

31,555
6,451

(620) $

(1,648)

29,962
6,956

(a) EMEA represents Europe, the Middle East and Africa; JAPA represents Japan, Asia/Pacific and Australia; and LACC represents Latin America, Canada and the

Caribbean.

(b) Other Unallocated includes net costs which are not directly allocable to specific geographic regions, including costs related to the net negative interest spread on

excess liquidity funding and executive office operations expenses.

(c) The data in the above table is, in part, based upon internal allocations, which necessarily involve management’s judgment.

104

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 26
PARENT COMPANY
PARENT COMPANY – CONDENSED STATEMENTS OF INCOME

Years Ended December 31 (Millions)

2013

2012

2011

Revenues

Non-interest revenues

Gain on sale of securities
Other

Total non-interest revenues

Interest income
Interest expense

Total revenues net of interest expense

Expenses

Salaries and employee benefits
Other

Total

Pretax loss
Income tax benefit

$

$

$

135
5

140

134
(583)

(309)

206
261

467

(776)
(297)

121
(12)

109

137
(609)

(363)

165
214

379

(742)
(258)

15
3

18

142
(633)

(473)

173
186

359

(832)
(346)

Net loss before equity in net income of

subsidiaries and affiliates

(479)

(484)

(486)

Equity in net income of subsidiaries and

affiliates

Income from continuing operations
Income from discontinued operations,

net of tax

Net income

5,838

5,359

4,966

4,482

5,385

4,899

PARENT COMPANY – CONDENSED BALANCE SHEETS

As of December 31 (Millions)

2013

2012

Assets
Cash and cash equivalents
Investment securities
Equity in net assets of subsidiaries and affiliates of

continuing operations

Accounts receivable, less reserves
Premises and equipment, less accumulated

depreciation: 2013, $76; 2012, $59

Loans to subsidiaries and affiliates
Due from subsidiaries and affiliates
Other assets

$ 6,076
123

$

4,797
296

19,571
378

136
5,236
1,126
335

19,087
655

117
6,733
1,189
441

Total assets

32,981

33,315

Liabilities and Shareholders’ Equity
Liabilities
Accounts payable and other liabilities
Due to subsidiaries and affiliates
Short-term debt of subsidiaries and affiliates
Long-term debt

Total liabilities

Shareholders’ equity
Common shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss

1,386
926
819
10,354

13,485

213
12,202
8,507
(1,426)

19,496

1,474
1,069
2,316
9,570

14,429

221
12,067
7,525
(927)

18,886

—

—

36

Total shareholders’ equity

$ 5,359

$ 4,482

$ 4,935

Total liabilities and shareholders’ equity

$ 32,981

$ 33,315

105

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PARENT COMPANY — CONDENSED STATEMENTS OF CASH FLOWS

Years Ended December 31 (Millions)

Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:

Equity in net income of subsidiaries and affiliates:

– Continuing operations
– Discontinued operations

Dividends received from subsidiaries and affiliates
Gain on sale of securities
Other operating activities, primarily with subsidiaries and affiliates
Premium paid on debt exchange

Net cash provided by operating activities

Cash Flows from Investing Activities
Sale of investments
Purchase of investments
Purchase of premises and equipment
Loans to subsidiaries and affiliates
Investments in subsidiaries and affiliates

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities
Issuance/(principal payments) of/on long-term debt
Short-term debt of subsidiaries and affiliates
Issuance of American Express common shares and other
Repurchase of American Express common shares
Dividends paid

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental cash flow information
Non-cash financing activities

Impact of debt exchange on long-term debt

2013

2012

2011

$ 5,359

$ 4,482

$ 4,935

(5,838)
—
4,768
(135)
324
—

4,478

157
—
(39)
1,498
—

1,616

843
(1,497)
721
(3,943)
(939)

(4,966)
—
3,355
(121)
196
(541)

2,405

118
—
(38)
(1,601)
(11)

(1,532)

—
1,421
443
(3,952)
(902)

(4,815)

(2,990)

1,279
4,797

(2,117)
6,914

(5,385)
(36)
3,773
(15)
671
—

3,943

20
(2)
(35)
(189)
(18)

(224)

(400)
895
594
(2,300)
(861)

(2,072)

1,647
5,267

$ 6,076

$

4,797

$

6,914

$

— $

439

$

—

106

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27
QUARTERLY FINANCIAL DATA (UNAUDITED)

(Millions, except per share amounts)

2013

2012

Quarters Ended

12/31

9/30

6/30

3/31

12/31(b)

9/30

6/30

3/31

7,587
1,773
1,256

Total revenues net of interest expense
Pretax income
Net income
Earnings Per Common Share – Basic:

Net income attributable to common shareholders(a)

Earnings Per Common Share – Diluted:

Net income attributable to common shareholders(a)

Cash dividends declared per common share
Common share price:

High
Low

$

$

$

8,547 $
1,980
1,308

8,301 $
2,004
1,366

8,245 $
1,995
1,405

7,881 $
1,909
1,280

8,141 $
929
637

7,862 $
1,870
1,250

7,965 $
1,879
1,339

1.22 $

1.26 $

1.28 $

1.15 $

0.57 $

1.10 $

1.16 $

1.07

1.21
0.23

1.25
0.23

1.27
0.23

1.15
0.20

0.56
0.20

1.09
0.20

1.15
0.20

1.07
0.20

90.79
72.08 $

78.63
71.47 $

78.61
63.43 $

67.48
58.31 $

59.40
53.02 $

59.73
54.35 $

61.42
53.18 $

59.26
47.40

(a) Represents net income, less earnings allocated to participating share awards of $11 million for the quarter ended December 31, 2013, $12 million for the quarter ended
September 30, 2013, $13 million for the quarter ended June 30, 2013, $11 million for the quarter ended March 31, 2013, $7 million for the quarter ended December 31,
2012, and $14 million for each of the quarters ended September 30, 2012, June 30, 2012 and March 31, 2012.

(b) The results of operations for the quarter ended December 31, 2012 included a $400 million restructuring charge ($287 million after-tax), a $342 million Membership
Rewards expense ($212 million after-tax) and $153 million ($95 million after-tax) of Card Member reimbursements. The $153 million includes amounts related to
prior periods, with $49 million relating to the first three quarters of 2012 and $83 million relating to periods prior to January 1, 2012. The Company has assessed the
materiality of these errors on all prior periods and concluded that the impact was not material to those prior periods or to any quarter or full year for 2012.

107

AMERICAN EXPRESS COMPANY
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

(Millions, except per share amounts, share data, percentages and where indicated)

2013

2012

2011

2010

2009

Operating Results
Total revenues net of interest expense(a)
Expenses(a)
Provisions for losses
Income from continuing operations
Income (loss) from discontinued operations
Net income
Return on average equity(b)

Balance Sheet
Cash and cash equivalents
Accounts receivable, net
Loans, net
Investment securities
Total assets
Customer deposits
Travelers Cheques outstanding and other prepaid products
Short-term borrowings(c)
Long-term debt
Shareholders’ equity

Common Share Statistics
Earnings per share:

Income from continuing operations:

Basic
Diluted

Income (loss) from discontinued operations:

Basic
Diluted
Net income:

Basic
Diluted

Cash dividends declared per share
Book value per share
Market price per share:

High
Low
Close

Average common shares outstanding for earnings per share:

Basic
Diluted
Shares outstanding at period end

Other Statistics
Number of employees at period end (thousands):

U.S.
Outside the U.S.

Total(d)

Number of shareholders of record

$ 32,974
22,976
2,110
5,359
—
$ 5,359

$ 31,555
23,114
1,990
4,482
—
$ 4,482

$ 29,962
21,894
1,112
4,899
36
$ 4,935

$ 27,582
19,411
2,207
4,057
—
$ 4,057

$ 24,336
16,182
5,313
2,137
(7)
2,130

$

27.8%

23.1%

27.7%

27.5%

14.6%

$ 19,486
47,185
66,585
5,016
153,375
41,763
4,240
5,021
55,330
$ 19,496

$ 22,250
45,914
64,309
5,614
153,140
39,803
4,601
3,314
58,973
$ 18,886

$ 24,893
44,109
61,166
7,147
153,337
37,898
5,123
4,337
59,570
$ 18,794

$ 16,356
40,434
57,616
14,010
146,689
29,727
5,618
3,620
66,416
$ 16,230

$ 16,599
38,204
30,010
24,337
125,145
26,289
5,975
2,344
52,338
$ 14,406

4.11
4.09

0.03
0.03

4.14
4.12
0.72
16.15

53.8
41.30
47.17

1,178
1,184
1,164

$

4.91
4.88

$

3.91
3.89

$

$

—
—

4.91
4.88
0.89
18.32

90.79
58.31
90.73

1,082
1,089
1,064

26
37

63
22,238

—
—

3.91
3.89
0.80
17.09

61.42
47.40
$ 57.48

$

1,135
1,141
1,105

27
37

64
32,565

$

3.37
3.35

$

1.55
1.54

—
—

3.37
3.35
0.72
13.56

49.19
36.6
42.92

1,188
1,195
1,197

$

$

(0.01)
—

1.54
1.54
0.72
12.08

42.25
9.71
40.52

1,168
1,171
1,192

28
31

59
41,273

29
33

62
35,541

29
32

61
38,384

(a) In the first quarter of 2013, the Company reclassified $27 million on the December 31, 2012 Consolidated Statements of Income by reducing other revenue and
reducing marketing, promotion, rewards, and Card Member services expense, from amounts previously reported in order to conform to the current period
presentation.

(b) Return on average equity is calculated by dividing one-year period of net income by one-year average of total shareholders’ equity.
(c) In the first quarter of 2012, the Company reclassified $913 million and $206 million on the December 31, 2011 and 2010 Consolidated Balance Sheets, respectively, by

increasing short-term borrowings and reducing other liabilities, from amounts previously reported in order to correct the effect of a misclassification.

(d) Amounts include employees from discontinued operations.

108

AMERICAN EXPRESS COMPANY
COMPARISON OF FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS

Cumulative Value of $100 Invested on December 31, 2008

AXP

S&P 500 Index

S&P Financial Index

$550

$500

$450

$400

$350

$300

$250

$200

$150

$100

$50

$0

2008

2009

2010

2011

2012

2013

Year-end Data*

American Express

S&P 500 Index

S&P Financial Index

2008

2009

2010

2011

2012

2013

$ 100.00

$ 226.07

$ 243.78

$ 272.12

$ 336.26

$ 537.49

$ 100.00

$ 126.45

$ 133.75

$ 148.55

$ 172.29

$ 228.04

$ 100.00

$ 117.15

$ 131.47

$ 109.04

$ 140.36

$ 190.29

This chart compares the cumulative total shareholder return on our common shares with the total return on the S&P 500 Index and the S&P
Financial Index for the last five years. It shows the growth of a $100 investment on December 31, 2008, including the reinvestment of all dividends.

* Source: Bloomberg (returns compounded monthly)

109

EXECUTIVE OFFICERS

Kenneth I. Chenault
Chairman and Chief Executive Officer

Douglas E. Buckminster
President, Global Network and
International Consumer Services

James P. Bush
Executive Vice President,
World Service

Jeffrey C. Campbell
Executive Vice President and
Chief Financial Officer

L. Kevin Cox
Chief Human Resources Officer

Edward P. Gilligan
President

BOARD OF DIRECTORS

Charlene Barshefsky
Senior International Partner
WilmerHale

Marc D. Gordon
Executive Vice President and
Chief Information Officer

Ash Gupta
Chief Risk Officer and President,
Risk and Information Management

John D. Hayes
Executive Vice President and
Chief Marketing Officer

Timothy J. Heine
Senior Vice President and
Interim General Counsel

Thomas Schick
Executive Vice President,
Corporate and External Affairs

Daniel H. Schulman
Group President,
Enterprise Growth

Joshua G. Silverman
President,
U.S. Consumer Services

Susan Sobbott
President,
Global Corporate Payments

Stephen J. Squeri
Group President,
Global Corporate Services

Anré Williams
President,
Global Merchant Services

Theodore J. Leonsis
Chairman and Chief Executive Officer
Monumental Sports & Entertainment, LLC

Daniel L. Vasella
Honorary Chairman and Former Chairman
and Chief Executive Officer
Novartis AG

Ursula M. Burns
Chairman and Chief Executive Officer
Xerox Corporation

Richard C. Levin
President Emeritus
Yale University

Kenneth I. Chenault
Chairman and Chief Executive Officer
American Express Company

Richard A. McGinn
General Partner
MR Investment Partners

Robert D. Walter
Founder and Former Chairman
and Chief Executive Officer
Cardinal Health, Inc.

Ronald A. Williams
Former Chairman and
Chief Executive Officer
Aetna Inc.

Peter Chernin
Founder and Chairman
Chernin Entertainment, Inc.

Anne Lauvergeon
Partner and Managing Director
Efficiency Capital

Samuel J. Palmisano
Former Chairman, President and
Chief Executive Officer
International Business
Machines Corporation (IBM)

Steven S Reinemund
Dean of Business
Wake Forest School of Business
Retired Chairman and Chief Executive Officer
PepsiCo

ADVISORS TO THE BOARD OF DIRECTORS

Vernon E. Jordan, Jr.
Senior Managing Director
Lazard Freres & Co. LLC

Henry A. Kissinger
Chairman, Kissinger Associates, Inc.
Former Secretary of State of the United States of America

Frank P. Popoff
Former Chairman and Chief Executive Officer
The Dow Chemical Company

GENERAL INFORMATION

EXECUTIVE OFFICES

CORPORATE GOVERNANCE

Copies of American Express Company’s  
governance documents, including its Corporate 
Governance Principles, as well as the charters  
of the standing committees of the Board of 
Directors and the American Express Company 
Code of Conduct, are available on the  
company’s website at http://ir.americanexpress.
com. Copies of these materials are also  
available without charge upon written request 
to the Secretary’s Office at the address above.

DIRECT DEPOSIT OF DIVIDENDS

The company has established an Electronic 
Direct Deposit of Dividends service for the 
electronic payment of quarterly dividends 
on the company’s common shares. With this 
service, registered shareholders may have  
their dividend payments sent electronically  
to their checking account or financial 
institution on the payment date. Shareholders 
interested in enrolling in this service should 
call Computershare Shareowner Services LLC 
at 1.800.463.5911.

STOCK PURCHASE PLAN

The CIP Plan, a direct stock purchase 
plan sponsored and administered by 
Computershare, provides shareholders 
and new investors with a convenient way 
to purchase common shares through 
optional cash investments and reinvestment 
of dividends.

For more information, contact: 
Computershare Shareowner Services LLC 
P.O. Box 30170 
College Station, TX 77842-3170 
1.800.463.5911 
www.computershare.com/investor

American Express Company 
200 Vesey Street 
New York, NY 10285 
212.640.2000

INFORMATION AVAILABLE 
TO SHAREHOLDERS

Copies of the company’s Form 10-K,        
proxy statement, press releases and other  
documents, as well as information on  
financial results, products and services,  
are available on the American Express website  
at americanexpress.com. The company’s  
global Corporate Citizenship Report and a 
report on the company’s 2013 federal and  
state political contributions are available  
at americanexpress.com. Written copies of 
these materials are available without charge 
upon written request to the Secretary’s  
Office at the address above.

TRANSFER AGENT AND REGISTRAR

Computershare Shareowner Services LLC 
250 Royall Street 
Canton, MA 02021 
1.800.463.5911 or 201.680.6685 
Hearing impaired: 
1.800.231.5469 
www.computershare.com/investor

STOCK EXCHANGE LISTING

New York Stock Exchange 
(Symbol: AXP)

INDEPENDENT REGISTERED PUBLIC 
ACCOUNTING FIRM

PricewaterhouseCoopers LLP 
300 Madison Avenue 
New York, NY 10017-6204

ANNUAL MEETING

The Annual Meeting of Shareholders of 
American Express Company will be held at  
the company’s headquarters at 200 Vesey  
Street, New York, NY 10285, on Monday, May 
12, 2014, at 9:00 a.m., Eastern Time. A written 
transcript of the meeting will be available  
upon written request to the Secretary’s Office. 

SHAREHOLDER AND 
INVESTOR INQUIRIES

Written shareholder inquiries may be sent 
either to Computershare Shareowner Services 
LLC Investor Care Network, P.O. Box 30170, 
College Station, TX 77842-3170, or to the 
Secretary’s Office at American Express 
Company’s executive offices at the address 
above. Written inquiries from the investment 
community should be sent to Investor 
Relations at American Express Company’s 
executive offices at the address above.

TRADEMARKS AND SERVICE MARKS

The following American Express trademarks 
and service marks may appear in this report:

American Express®

American Express Blue Box Logo®

American Express Card Design®

American Express World Service & Design®

Bluebird®

Centurion®

The CenturionsM Lounge

Loyalty Partner®

Membership Rewards®

PAYBACK®

Platinum Card®

Serve®

Shop Small®

Small Business Saturday®

©2014 American Express Company. 
All rights reserved.

AMERICAN EXPRESS COMPANY
200 VESEY STREET, NEW YORK, NY 10285
212.640.2000 americanexpress.com