American Express
Annual Report 2017

Plain-text annual report

A M E R I C A N E X P R E S S C O M P A N Y A N N U A L R E P O R T 7 American Express Company 200 Vesey Street New York, New York 10285 336355_AEC_CVR_R1.indd 2 3/14/18 6:20 PM DDEAR SHAREHOLDERS: For many of you, this is the first American Express shareholder letter you’ve received from anyone other than Ken Chenault. Speaking personally, I’m honored to succeed Ken, proud to have the confidence of our Board of Directors, and excited to share with you my plans to lift American Express to new levels of growth. In my 32 years with American Express, I’ve come to truly love this company because of its passion for service, its commitment to integrity, and its ability to reinvent itself time and again. I’ll give it my all every day to build upon our heritage while cultivating the innovation, speed and agility required to succeed in today’s marketplace. Two years ago, we set out to transform our business in the face of renewed competition, a shifting regulatory environment, and disruptive technological change. Our game plan was clear: reduce our expense base, accelerate revenue growth and optimize investments. As we executed this plan, we added new products and benefits for both consumers and businesses, including a refresh of our U.S. Platinum Card. At the same time, we redesigned our marketing, customer service and risk management capabilities with a leaner, more agile technology infrastructure and cutting-edge data science. Now, as our 2017 results show, we are reaping the benefits of these decisive actions: (cid:120) Total cards-in-force grew by more than 2.9 million; (cid:120) Worldwide spending on our cards increased by 5 percent to a record $1.1 trillion; Card Member loans rose 12 percent, significantly outpacing the industry; and (cid:120) (cid:120) An additional 1.5 million new merchant locations-in-force joined our team. Beyond these numbers, we expanded mutually beneficial partnerships, including those with Hilton and Marriott. We also introduced an array of new mobile and artificial intelligence capabilities to better serve our customers and integrate more seamlessly with their digital lives. The Impact of Tax Legislation and 2017 Financial Results Our 2017 earnings were, of course, heavily impacted by the U.S. Tax Cuts and Jobs Act, which led us to take a $2.6 billion charge in the fourth quarter. This included about $2 billion of taxes on off-shore earnings and about $600 million for the remeasurement of U.S. deferred tax assets and liabilities. Overall, we believe the new tax law will benefit both the U.S. economy and our company. For starters, we expect it will significantly reduce our effective tax rate in 2018 and beyond. Earnings per share for the full year were $2.97 on a reported basis and $5.87 excluding the impacts of the Tax Act.1 This compares with EPS of $5.65 in 2016. Our adjusted EPS came in at the higher end of the increased guidance we gave at the end of the third quarter when we projected earnings of $5.80 to $5.90 per share for the year. We feel good about our underlying earnings momentum. We also accelerated revenue growth. Total revenues rose 4 percent to $33.5 billion in 2017, even though the prior year included two quarters of revenue from our Costco relationship. Excluding Costco-related revenues and the impact of foreign exchange, adjusted revenues rose by 8 percent for the full year.2 This reflects billings growth in our consumer and commercial businesses, higher net interest income from loan growth, and higher fee income. Over the past two years, we successfully reset our cost structure by taking $1 billion out of our expense base. That progress, along with strong 2017 revenue growth, gave us the flexibility to increase investment spending while generating healthy underlying earnings. Credit quality stayed strong throughout the year. In our lending portfolio, our write-off rate for the fourth quarter was 1.8 percent, modestly higher than the previous year. As we’ve said in the past, we expect write-off rates to continue to increase, largely due to growth in our non-cobrand lending products as well as seasoning in the portfolio. Also, as expected, we continued to build provisions for losses as loan volumes and write-offs increased. The economics of lending remain very attractive to us considering the benefits of higher net interest income. Our overall progress, along with the positive environment for equities, helped us deliver a total shareholder return of 36 percent for 2017. This compares favorably to returns of 28 percent for the Dow and 22 percent for the S&P 500. All in all, 2017 was a very strong year for the company – and we plan to build on that momentum in 2018. 1 IInvesting in the Future Through Tax Act Benefits Our outlook for 2018 includes a commitment to invest a portion of our expected tax benefits on customer-facing growth initiatives and other measures intended to boost performance in both the near and long terms. After careful analysis, our plans include: (cid:120) (cid:120) (cid:120) Investing up to $200 million more in 2018 than we originally planned for customer-facing growth initiatives. Boosting the company’s contributions to profit sharing plans in 2017 to support the financial well-being of our people and to recognize their enormous contributions to our financial performance. Using the remainder of our anticipated benefits to rebuild our capital and support earnings growth in 2018. As previously announced, we’ve also decided to build capital by suspending our share buyback program for the first half of 2018. Quarterly dividends will continue at the current level. With a lower tax rate, we expect that over time we’ll more than make up for any reductions in buybacks in 2018. Our Fundamental Beliefs We start 2018 from a position of strength with opportunities to capture growth across many different parts of our business. Looking ahead, we’ll continue to be guided by some fundamental beliefs: (cid:120) (cid:120) (cid:120) Our Trusted Brand: Our brand is a source of strength and security that is more relevant than ever in the digital age. We plan to leverage our brand to build enduring, mutually-rewarding relationships that put our customers first and enable them to fulfill their financial goals. Our Diverse, Integrated Business Model: Our business model, which includes issuing, acquiring and network businesses, offers major advantages. We plan to use this model to build value for both Card Members and merchants to drive further growth. Our Track Record: Our track record of innovation makes us an attractive partner for digital companies and fintechs, partners that can help us further extend our core businesses. Our Framework for Winning Of course, at American Express, we’ve never been content to celebrate past achievements. Our mission now is to build on our positive momentum through a focused strategy that will drive sustainable growth. First, we aim to strengthen our leadership position with premium consumers. We’ll focus on delivering personalized benefits to customers who appreciate premium servicing, access and experiences. We also plan to expand our integrated network, grow our roster of business partners around the globe, and build our premium lending portfolio through broader relationships with existing customers and industry-leading risk management expertise. Second, we’ll push to extend our leadership in the commercial payment space, capitalizing on our unmatched global footprint and commercial capabilities. We’ll continue to focus on small and mid-sized businesses globally by expanding our diverse set of products and services to help them fund and grow their businesses. Third, we’ll work to make American Express an essential part of our customers’ digital lives by providing seamless access to benefits, personalized assistance and recommendations, spending and lending controls, and more globally-connected experiences. Finally, we’ll focus on strengthening our global, integrated network to provide unique value. We aim to be the partner that merchants rely on to navigate the convergence of online and offline commerce with cutting-edge fraud protection, marketing insights, and digital connections to higher-spending Card Members. Most important, we will strive to fulfill our company’s vision, which is to provide the world’s best customer experiences every day. We will do this by listening to our customers, by anticipating their needs, and by working with them to fulfill their hopes and ambitions. And we will do it all in a way that draws upon and strengthens the American Express brand. 2 MMy Friend and Mentor, Ken Chenault I’ve saved for last a few thoughts about my friend and mentor, Ken Chenault. Ken has been a steadying force for our company in both good times and bad, never hesitating to make the tough decisions, and encouraging us to challenge the status quo. He is an inspiring leader who cares, most of all, about people – the customers we serve, the colleagues who make us successful, and the shareholders who place their trust in us. I’ve never seen a more courageous and principled business leader, and I thank Ken for helping to prepare me for the task ahead. Like Ken before me, I’m blessed to have an incredible team at American Express. We have talented and experienced leaders who always strive to improve the customer experience and amplify the unique advantages of our brand and business model. And we have some of the best and brightest frontline colleagues around the world who work hard to build enduring relationships with our customers. They always make me proud to be associated with our company. I believe that successful companies have to stay true to their strengths, while constantly challenging the status quo and embracing change. At American Express, we respect our past, but we’re here to build on it, not just preserve it. I’m determined, as Ken was, to inspire our people to imagine the possible and keep innovating. We have exciting opportunities and complex challenges ahead. With your support, I’m confident we will keep up the momentum we’ve worked hard to gain - and reach new heights. I look forward to the journey. Stephen J. Squeri Chairman & CEO American Express Company February 16, 2018 1 Diluted earnings per share, excluding the impacts of the Tax Act of $2.6 billion, is a non-GAAP measure. The estimated impacts may be refined in the future as additional guidance and interpretations become available. See Appendix I for a reconciliation to earnings per share on a GAAP basis. 2 Adjusted revenues net of interest expense on an FX-adjusted basis, a non-GAAP measure, excludes from prior-year results estimated revenues from Costco in the United States, Costco U.S. cobrand Card Members and other merchants for out-of-store spend on the Costco cobrand card. See Appendix I for a reconciliation to total revenues net of interest expense on a GAAP basis. 3 THIS PAGE INTENTIONALLY LEFT BLANK UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (cid:59) (cid:134) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-7657 American Express Company (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 200 Vesey Street New York, New York (Address of principal executive offices) 13-4922250 (I.R.S. Employer Identification No.) 10285 (Zip Code) Registrant’s telephone number, including area code: (212) 640-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Shares (par value $0.20 per Share) Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:59) No (cid:134) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:134) No (cid:59) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:59) No (cid:134) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes (cid:59) No (cid:134) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrantʼs knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:59) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:59) Accelerated filer (cid:134) Non-accelerated filer (cid:134) Smaller reporting company (cid:134) (Do not check if a smaller reporting company) Emerging growth company (cid:134) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:0) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:59) As of June 30, 2017, the aggregate market value of the registrantʼs voting shares held by non-affiliates of the registrant was approximately $74.3 billion based on the closing sale price as reported on the New York Stock Exchange. As of February 6, 2018, there were 860,278,838 common shares of the registrant outstanding. Part III: Portions of Registrantʼs Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on May 7, 2018. DOCUMENTS INCORPORATED BY REFERENCE FForm 10--KK IItem Number 11. BBusiness TTABLE OF CCONTENTS PPART I PPage 11A. 11B. 22. 33. 44. 55. 66. 77. 77A. 88. 99. 99A. 99B. IIntroduction BBusiness Operations CCompetition SSupervision and Regulation EExecutive Officers of the Company EEmployees AAdditional Information RRisk Factors UUnresolved Staff Comments PProperties LLegal Proceedings MMine Safety Disclosures PPART II MMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer PPurchases of Equity Securities SSelected FFinancial Data MManagement’s Discussion and Analysis of Financial Condition and Results of Operations ((MD&A) EExecutive Overview CConsolidated Results of Operations BBusiness Segment Results CConsolidated Capital Resources and LLiquidity OOff--BBalance Sheet Arrangements and Contractual Obligations RRisk Management CCritical Accounting Estimates OOther Matters QQuantitative and Qualitative Disclosures about Market Risk FFinancial Statements and SSupplementary Data MManagement’s Report on Internal Control Over Financial Reporting RReport of Independent Registered Public Accounting Firm IIndex to Consolidated Financial Statements CConsolidated Financial Statements NNotes to CConsolidated Financial Statements CChanges in and Disagreements with Accountants on Accounting and Financial Disclosure CControls and Procedures OOther Information i 11 22 44 55 1166 1177 1177 117 3322 3322 3333 3344 3355 3377 3388 3388 441 4488 5577 6655 6677 7733 7766 881 881 881 882 884 885 990 1144 1144 1144 110. 111. 112. 113. 114. 115. 116. PPART III DDirectors, Executive Officers and Corporate Governance EExecutive Compensation SSecurity Ownership of Certain Beneficial Owners and Management and Related SStockholder Matters CCertain Relationships and Related Transactions, and Director Independence PPrincipal Accounting Fees and Services PPART IV EExhibits, Financial Statement Schedules FForm 10--KK Summary Signatures Guide 3 — Statistical Disclosure by Bank Holding Companies Exhibit Index 1145 1145 1145 1145 1145 1146 1146 147 A--1 E--1 This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You can identify forward-looking statements by words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue” or other similar expressions. We discuss certain factors that affect our business and operations and that may cause our actual results to differ materially from these forward-looking statements under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward- looking statements. This report includes trademarks, such as American Express®, which are protected under applicable intellectual property laws and are the property of American Express Company or its subsidiaries. This report also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. Refer to the “MD&A— Glossary of Selected Terminology” for the definitions of certain key terms used in this report. ii ITEM 1. BUSINESS Overview PPART I INTRODUCTION American Express Company, together with its consolidated subsidiaries, is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit card products and travel-related services offered to consumers and businesses around the world. We were founded in 1850 as a joint stock association and were incorporated in 1965 as a New York corporation. American Express Company and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (TRS), are bank holding companies under the Bank Holding Company Act of 1956, as amended (the BHC Act), subject to supervision and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve). Our headquarters are located in lower Manhattan, New York, New York. We also have offices in other locations throughout the world. During 2017, we principally engaged in businesses comprising four reportable operating segments: U.S. Consumer Services, International Consumer and Network Services, Global Commercial Services and Global Merchant Services. Corporate functions and certain other businesses are included in Corporate & Other. You can find information regarding our reportable operating segments, geographic operations and classes of similar services in Note 25 to our “Consolidated Financial Statements.” Products and Services Our range of products and services includes: (cid:120) Charge card, credit card and other payment and financing products (cid:120) Merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants Network services Other fee services, including fraud prevention services and the design and operation of customer loyalty programs Expense management products and services Travel-related services Stored value/prepaid products (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) Our various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid- sized companies and large corporations. These products and services are sold through various channels, including online applications, direct mail, in-house teams, third-party vendors and direct response advertising. Business travel-related services are offered through our non-consolidated joint venture, American Express Global Business Travel (the GBT JV). Our general-purpose card network, card-issuing and merchant-acquiring and processing businesses are global in scope. We are a world leader in providing charge and credit cards to consumers, small businesses, mid-sized companies and large corporations. These cards include cards issued by American Express as well as cards issued by third-party banks and other institutions that are accepted by merchants on the American Express network. American Express® cards permit Card Members to charge purchases of goods and services in most countries around the world at the millions of merchants that accept cards bearing our logo. Our business as a whole has not experienced significant seasonal fluctuations, although card billed business tends to be moderately higher in the fourth quarter than in other quarters. As a result, the amount of Card Member loans and receivables outstanding tend to be moderately higher during that quarter. The average discount rate also tends to be slightly lower during the fourth quarter due to a higher level of retail-related billed business volumes. 1 TThe American Express Brand Our brand and its attributes—trust, security and service—are key assets. We invest heavily in managing, marketing, promoting and protecting our brand, including through the delivery of our products and services in a manner consistent with our brand promise. Our brand has consistently been rated one of the most valuable brands in the world. We also place significant importance on trademarks, service marks and patents, and seek to secure our intellectual property rights around the world. Our Integrated Network and Spend-Centric Model Wherever we manage both the card-issuing activities of the business and the acquiring relationship with merchants, there is a “closed loop” in that we have direct access to information at both ends of the card transaction, which distinguishes our integrated network from the bankcard networks. We maintain direct relationships with both our Card Members (as a card issuer) and merchants (as an acquirer), and we handle all key aspects of those relationships. Through contractual relationships, we also obtain data from third-party card issuers, merchant acquirers and processors with whom we do business. Our integrated network allows us to analyze information on Card Member spending and build algorithms and other analytical tools that we use to underwrite risk, reduce fraud and provide targeted marketing and other information services for merchants and special offers and services to Card Members through a variety of channels, all while respecting Card Member preferences and protecting Card Member and merchant data in compliance with applicable policies and legal requirements. Our “spend-centric” business model focuses on generating revenues primarily by driving spending on our cards and secondarily by finance charges and fees. Spending on our cards, which is higher on average on a per-card basis versus our competitors, offers superior value to merchants in the form of loyal customers and larger transactions. Because of the revenues generated from having high-spending Card Members, we are able to invest in attractive rewards and other benefits for Card Members, as well as targeted marketing and other programs and investments for merchants. This creates incentives for Card Members to spend more on their cards and positively differentiates American Express cards. We believe our integrated network and spend-centric model give us the ability to provide differentiated value to Card Members, merchants and our card-issuing partners.* Global Consumer Services BUSINESS OPERATIONS We offer a wide range of charge cards and revolving credit cards to consumers in the United States and internationally through our U.S. Consumer Services (USCS) and International Consumer & Network Services (ICNS) segments. In addition to our proprietary cards, we partner with banks and other organizations to issue American Express-branded products. Moreover, we offer several services that complement our core business, including consumer travel services and deposit and non-card financing products such as installment lending. Our global proprietary card business offers a broad set of card products, rewards and services to acquire and retain high- spending, engaged and creditworthy Card Members. Core elements of our strategy are: (cid:120) (cid:120) (cid:120) (cid:120) Designing innovative products and features that appeal to our target customer base and meet their spending and borrowing needs Using incentives to drive spending on our various card products and engender loyal Card Members, including our Membership Rewards® program, cash-back reward features and participation in loyalty programs sponsored by our cobrand and other partners Providing exceptional customer care, digital and mobile services and an array of benefits and experiences across card products to address travel and other needs and increase Card Member engagement Developing a wide range of partner relationships, including with other corporations and institutions that sponsor certain of our cards under cobrand arrangements Our charge cards are designed primarily as a method of payment with Card Members generally paying the full amount billed each month. Charges are approved based on a variety of factors, including a Card Member’s current spending patterns, payment history, credit record and financial resources. Some charge card accounts have features that allow Card Members to revolve certain charges. Revolving credit card products provide Card Members with the flexibility to pay their bill in full each month or carry a monthly balance on their cards to finance the purchase of goods or services. Some revolving credit cards in the United States have the Plan ItSM feature, which eligible Card Members can use to set up a monthly payment for certain purchases over a fixed period of time. * The use of the term “partner” or “partnering” does not mean or imply a formal legal partnership, and is not meant in any way to alter the terms of American Express’ relationship with third-party issuers and merchant acquirers. 2 Our Global Network Services (GNS) business, which is included in our ICNS segment, establishes and maintains relationships with banks and other institutions around the world that issue cards and, in certain countries, acquire local merchants onto the American Express network. In assessing whether we should pursue a proprietary or GNS strategy in a given country, or some combination thereof, we consider a wide range of country-specific factors, including the regulatory environment, the stability and attractiveness of financial returns, the size of the potential Card Member base, the strength of available marketing and credit data, the size of cobrand opportunities and how we can best create strong merchant value. Our GNS arrangements are categorized as follows: (cid:120) (cid:120) (cid:120) Independent Operator Arrangements, in which partners can be licensed to issue local currency cards in their countries and serve as the merchant acquirer and processor for local merchants Network Card License Arrangements, in which partners can be licensed to issue American Express-branded cards primarily in countries where we have a proprietary card-issuing and/or merchant acquiring business Joint Venture Arrangements, in which we join with a third party to establish a separate business to sign new merchants and issue American Express-branded cards The GNS business has established card-issuing and/or merchant-acquiring arrangements with banks and other institutions in approximately 130 countries and territories. GGlobal Commercial Services In our Global Commercial Services (GCS) segment, we offer a wide range of card and payment programs, expense management tools, consulting services, business financing and cross-border payments solutions to small businesses, mid- size companies and large corporations around the world. We have a suite of business-to-business payment solutions to help companies manage their spending and realize other potential benefits, including cost savings, process control and efficiency, and improved cash flow management. We offer local currency corporate cards and other expense management products in approximately 95 countries and territories, and have global U.S. dollar and euro corporate cards available in approximately 110 countries and territories. We also provide products and services, including charge cards, revolving credit cards and non-card payment and financing solutions, to small and mid- sized businesses in the United States and internationally. We also engage in advocacy efforts on behalf of small businesses and seek to increase awareness of the importance of small businesses in our communities, including by continuing to lead Small Business Saturday®. Global Merchant Services Our Global Merchant Services (GMS) business builds and maintains relationships with merchants, merchant acquirers, aggregators and processors, and processes card transactions and settles with merchants that choose to accept our cards for purchases. We sign merchants to accept our cards and provide fraud-prevention tools, marketing solutions, digital assets and other programs and services to merchants leveraging the capabilities provided by our integrated network. Through our direct and inbound channels, we contract with merchants, agree on the discount rate (a fee charged to the merchant for accepting our cards) and handle servicing. We also work with third parties to acquire small- and medium-sized merchants. For example, through our OptBlue® merchant-acquiring program, third-party processors contract directly with small merchants for card acceptance and determine merchant pricing. The OptBlue program provides an alternative for eligible small merchants who may prefer to deal with one acquirer for all their card acceptance needs. OptBlue processors provide relevant merchant data back to us so we can maintain our closed loop of transaction data. We continue to grow merchant acceptance of American Express cards around the world. We estimate that, as of the end of 2017, our merchant network in the United States could accommodate nearly 95 percent of general-purpose card spending. Our international spend coverage is more limited, although we continue to focus on expanding our merchant network in locations outside the United States. We estimate that our international merchant network as a whole could accommodate more than 80 percent of general-purpose card spending. These percentages are based on comparing spending on all networks’ general-purpose credit and charge cards at merchants that accept American Express cards with total general- purpose credit and charge card spending at all merchants, and are not percentages of locations accepting American Express cards. GMS also builds loyalty coalition programs, such as the Payback® program in Germany, India, Italy, Mexico and Poland. Our loyalty coalition programs enable consumers to earn rewards points and use them to save on purchases from a variety of participating merchants through multi-category rewards platforms. Merchants generally fund the consumer offers and are responsible to us for the cost of loyalty points; we earn revenue from operating the loyalty platform and by providing marketing support. 3 CCorporate & Other Corporate & Other consists of corporate functions and certain other businesses, including our prepaid services business that offers stored value/prepaid products, such as American Express Serve®, Bluebird®, the American Express® Gift Card and Travelers Cheques. In August 2017, we announced that a third party, InComm, will assume program management and issuer processing responsibilities for our prepaid reloadable and gift card products in the United States, subject to final agreement. We also expect that InComm will acquire the Serve technology platform and other assets related to the American Express prepaid reloadable and gift card products business. Our support functions, including servicing, credit, insurance and technology, are organized by process rather than business unit, which we believe serves to streamline costs, reduce duplication of work, better integrate skills and expertise and improve customer service. COMPETITION We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and Automated Clearing House, or ACH), as well as evolving and growing alternative payment and financing providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customer relationships to create payment or financing solutions. As a card issuer, we compete with financial institutions that issue general-purpose charge and revolving credit cards and debit cards. We also encounter competition from businesses that issue their own private label cards, operate their own mobile wallets or extend credit to their customers. We face increasing competition for cobrand relationships, as both card issuer and network competitors have targeted key business partners with attractive value propositions. Our global card network competes in the global payments industry with other card networks, including, among others, Visa, MasterCard, Discover (primarily in the United States), Diners Club International (which is owned by Discover Financial Services), and JCB and China UnionPay (primarily in Asia). We are the fourth largest general-purpose card network on a global basis based on purchase volume, behind China UnionPay, Visa and MasterCard. In addition to such networks, a range of companies globally, including merchant acquirers and processors, as well as regional payment networks (such as the National Payments Corporation of India), carry out some activities similar to those performed by our GMS and GNS businesses. The principal competitive factors that affect the card-issuing, network and merchant service businesses include: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) The features, value and quality of the products and services, including customer care, rewards programs, partnerships, benefits and digital and mobile services, and the costs associated with providing such features and services The number, spending characteristics and credit performance of customers The quantity, diversity and quality of the establishments where the cards can be used The attractiveness of the value proposition to card issuers, merchant acquirers, cardholders and merchants (including the relative cost of using or accepting the products and services, and capabilities such as fraud prevention and data analytics) The number and quality of other payment cards and other forms of payment available to customers The success of marketing and promotional campaigns Reputation and brand recognition The speed of innovation and investment in systems, technologies, and product and service offerings The nature and quality of expense management tools, electronic payment methods and data capture and reporting capabilities, particularly for business customers The security of cardholder and merchant information 4 Another aspect of competition is the dynamic and rapid growth of alternative payment mechanisms, systems and products, which include aggregators (e.g., PayPal, Square and Amazon), marketplace lenders, wireless payment technologies (including using mobile telephone networks to carry out transactions), web- and mobile-based payment platforms (e.g., Alipay, PayPal and Venmo), electronic wallet providers (including handset manufacturers, telecommunication providers, retailers, banks and technology companies), prepaid systems, digital currencies, gift cards, blockchain and similar distributed ledger technologies, and systems linked to payment cards or that provide payment solutions. Partnerships have been formed by various competitors to integrate more financial services into their product offerings and competitors are attempting to replicate our closed-loop functionality, such as the merchant-processing platform ChaseNet. New payments competitors continue to emerge in response to evolving technologies, consumer habits and merchant needs. In addition to the discussion in this section, see “Our operating results may suffer because of substantial and increasingly intense competition worldwide in the payments industry” in “Risk Factors” for further discussion of the potential impact of competition on our business, and “Our business is subject to comprehensive government regulation and supervision, which could adversely affect our results of operations and financial condition” and “Ongoing legal proceedings regarding provisions in our merchant contracts could have a material adverse effect on our business, result in additional litigation and/or arbitrations, subject us to substantial monetary damages and damage to our reputation and brand” in “Risk Factors” for a discussion of the potential impact on our ability to compete effectively due to government regulations or if ongoing legal proceedings limit our ability to prevent merchants from engaging in various actions to discriminate against our card products. Overview SSUPERVISION AND REGULATION As a participant in the financial services industry, we are subject to substantial regulation in the United States and in other jurisdictions, and the costs of compliance are substantial. In recent years, the financial services industry has been subject to rigorous scrutiny, high regulatory expectations, and a stringent regulatory enforcement environment. In addition, legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust actions, legislation and regulations to change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, to establish broad and ongoing regulatory oversight regimes for payment systems. See “Risk Factors—Legal, Regulatory and Compliance Risks” for a discussion of the potential impact legislative and regulatory changes may have on our results of operations and financial condition. Banking Regulation Federal and state banking laws, regulations and policies extensively regulate the Company, TRS and our two U.S. bank subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank). Both the Company and TRS are subject to comprehensive consolidated supervision, regulation and examination by the Federal Reserve under the BHC Act. Centurion Bank, a Utah-chartered industrial bank, is regulated, supervised and examined by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC). American Express Bank, a federal savings bank, is regulated, supervised and examined by the Office of the Comptroller of the Currency (OCC). The Company and its subsidiaries are also subject to the rulemaking, enforcement and examination authority of the Consumer Financial Protection Bureau (CFPB). Banking regulators have broad examination and enforcement power, including the power to impose substantial fines, limit dividends and other capital distributions, restrict operations and acquisitions and require divestitures. Many aspects of our business also are subject to rigorous regulation by other U.S. federal and state regulatory agencies and by non-U.S. government agencies and regulatory bodies. On August 31, 2017, applications were made to the OCC for approval to convert Centurion Bank into a national bank and subsequently to merge American Express Bank into the successor national bank. The applications were conditionally approved on December 4, 2017. Subject to satisfaction of certain additional legal and regulatory requirements, we expect the conversion and merger to be completed in the first half of 2018. After completion, the former Centurion Bank and American Express Bank will be combined into a single national bank, to be known as American Express National Bank, subject to the regulation, supervision and examination of the OCC. 5 Activities The BHC Act generally limits bank holding companies to activities that are considered to be banking activities and certain closely related activities. Each of the Company and TRS is a bank holding company and each has elected to become a financial holding company, which is authorized to engage in a broader range of financial and related activities. In order to remain eligible for financial holding company status, we must meet certain eligibility requirements. Those requirements include that the Company and each of its subsidiary U.S. depository institutions must be “well capitalized” and “well managed,” and each of its subsidiary U.S. depository institutions must have received at least a “satisfactory” rating on its most recent assessment under the Community Reinvestment Act of 1977 (the CRA). The Company and TRS engage in various activities permissible only for financial holding companies, including, in particular, providing travel agency services, acting as a finder and engaging in certain insurance underwriting and agency services. If the Company fails to meet eligibility requirements for financial holding company status, it is likely to be barred from engaging in new types of financial activities or making certain types of acquisitions or investments in reliance on its status as a financial holding company, and ultimately could be required to either discontinue the broader range of activities permitted to financial holding companies or divest its subsidiary U.S. depository institutions. In addition, the Company and its subsidiaries are prohibited by law from engaging in practices that the relevant regulatory authority deems unsafe or unsound (which such authorities generally interpret broadly). Acquisitions and Investments Applicable federal and state laws place limitations on the ability of persons to invest in or acquire control of us without providing notice to or obtaining the approval of one or more of our regulators. In addition, we are subject to banking laws and regulations that limit our investments and acquisitions and, in some cases, subject them to the prior review and approval of our regulators, including the Federal Reserve, the OCC and the FDIC. The banking agencies have broad discretion in evaluating proposed acquisitions and investments that are subject to their prior review or approval. SStress Testing and Capital Planning The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Federal Reserve’s implementing regulations impose heightened prudential requirements on bank holding companies with at least $50 billion in total consolidated assets, such as the Company, that are more stringent than those applicable to smaller bank holding companies. Under the Federal Reserve’s regulations, the Company is subject to annual supervisory and semiannual company-run stress testing requirements that are designed to evaluate whether a bank holding company has sufficient capital on a total consolidated basis to absorb losses and support operations under adverse economic conditions. Centurion Bank and American Express Bank are also subject to annual stress testing requirements. We publish the stress test results for the Company, Centurion Bank and American Express Bank on our Investor Relations website. The results of the Company’s annual stress test are incorporated into our annual capital plan, which must cover a “planning horizon” of at least nine quarters and which we are required to submit to the Federal Reserve for review under its Comprehensive Capital Analysis and Review (CCAR) process. As part of CCAR, the Federal Reserve evaluates whether the Company has sufficient capital to continue operations under various scenarios of economic and financial market stress (developed by both the Company and the Federal Reserve), including after taking into account planned capital distributions, such as dividend payments and common stock repurchases. Sufficient capital for these purposes is likely to require us to maintain capital ratios appreciably above applicable minimum requirements and buffers. The scenarios are designed to stress our risks and vulnerabilities and assess our pro-forma capital position and ratios under hypothetical stress environments. We are required to submit our capital plans and stress testing results to the Federal Reserve on or before April 5 of each year. The Federal Reserve is expected to publish the decisions for all the bank holding companies participating in CCAR in 2018, including the reasons for any objection to capital plans, by June 30, 2018. In addition, the Federal Reserve will publish separately the results of its supervisory stress test under both the supervisory severely adverse and adverse scenarios. The information to be released will include, among other things, the Federal Reserve’s projection of company-specific information, including post-stress capital ratio information over the planning horizon. We may be required to revise and resubmit our capital plan as required by the Federal Reserve following certain events, such as a significant acquisition. In addition to other limitations, our ability to make any capital distributions (including dividends and share repurchases) is contingent on the Federal Reserve’s non-objection to our capital plan. 6 DDividends and Other Capital Distributions The Company and TRS, as well as Centurion Bank, American Express Bank and the Company’s insurance subsidiaries, are limited in their ability to pay dividends by statutes, regulations and supervisory policy. Dividend payments by the Company to shareholders are subject to the oversight of the Federal Reserve. See “Stress Testing and Capital Planning.” Even if the Federal Reserve has not objected to a distribution, the Company may still not make a distribution without Federal Reserve approval if, among other things, the Company would not meet a minimum regulatory capital ratio after giving effect to the capital distribution, changes in facts would require resubmission of our capital plan or the Company’s earnings are materially underperforming its projections in the capital plan. In general, federal and applicable state banking laws prohibit, without first obtaining regulatory approval, insured depository institutions, such as Centurion Bank and American Express Bank, from making dividend distributions to, in our case, TRS, if such distributions are not paid out of available recent earnings or would cause the institution to fail to meet capital adequacy standards. In addition to specific limitations on the dividends the Company’s bank subsidiaries can pay to TRS, federal banking regulators have authority to prohibit or limit the payment of a dividend if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the institution. Capital, Leverage and Liquidity Regulation Capital Rules The Company, Centurion Bank and American Express Bank are required to comply with the applicable capital adequacy rules established by federal banking regulators. These rules are intended to ensure that bank holding companies and depository institutions (collectively, banking organizations) have adequate capital given the level of assets and off-balance sheet obligations. The federal banking regulators’ current capital rules, which, subject to phase-in provisions, generally became applicable to the Company, Centurion Bank and American Express Bank in 2014 (the Capital Rules), largely implement the Basel Committee on Banking Supervision’s (the Basel Committee) framework for strengthening international capital regulation, known as Basel III. The minimum capital and buffer requirements under the Capital Rules will be fully phased in by January 1, 2019. For additional information regarding our capital ratios, see “Consolidated Capital Resources and Liquidity” under “MD&A.” Under the Capital Rules, banking organizations are required to maintain minimum ratios for Common Equity Tier 1 (CET1), Tier 1 and Total capital to risk-weighted assets. In addition, all banking organizations remain subject to a minimum leverage ratio of Tier 1 capital to average total consolidated assets (as defined for regulatory purposes). The Company, as an advanced approaches institution, became subject to a supplementary leverage ratio (SLR) on January 1, 2018. Since 2014, we have reported our capital adequacy ratios on a parallel basis to federal banking regulators using both risk- weighted assets calculated under the Basel III standardized approach, as adjusted for certain items, and the requirements for an advanced approaches institution. During this parallel period, federal banking regulators assess our compliance with the advanced approaches requirements. The parallel period will continue until we receive regulatory notification to exit parallel reporting, at which point we will begin publicly reporting regulatory risk-based capital ratios calculated under both the advanced approaches and the standardized approach under the Capital Rules, and will be required to use the lower of these ratios in order to determine whether we are in compliance with minimum capital and buffer requirements for the Company, Centurion Bank and American Express Bank. Depending on how the advanced approaches are ultimately implemented for our asset types, our capital ratios calculated under the advanced approaches may be lower than under the standardized approach. The standardized approach is currently the applicable measurement used in CCAR. The Company, Centurion Bank and American Express Bank must each maintain CET1, Tier 1 capital (that is, CET1 plus additional Tier 1 capital) and Total capital (that is, Tier 1 capital plus Tier 2 capital) ratios of at least 4.5 percent, 6.0 percent and 8.0 percent, respectively. The Capital Rules also implement a 2.5 percent capital conservation buffer composed entirely of CET1, on top of these minimum risk-weighted asset ratios. As a result, the minimum ratios are effectively 7.0 percent, 8.5 percent and 10.5 percent for the CET1, Tier 1 capital and Total capital ratios, respectively, on a fully phased-in basis. Implementation of the capital conservation buffer began on January 1, 2016 at the 0.625 percent level and increases in equal increments at the beginning of each year (i.e., 1.875 percent as of January 1, 2018) until it is fully implemented on January 1, 2019. The required minimum capital ratios for the Company may be further increased by a countercyclical capital buffer composed entirely of CET1 up to 2.5 percent, which may be assessed when federal banking regulators determine that such a buffer is necessary to protect the banking system from disorderly downturns associated with excessively expansionary periods. In December 2017, the Federal Reserve affirmed the countercyclical capital buffer of zero percent. Assuming full phase in of the capital conservation buffer and the maximum countercyclical capital buffer were in place, the Company’s effective minimum CET1, Tier 1 capital and Total capital ratios could be 9.5 percent, 11.0 percent and 13.0 percent, respectively. 7 Banking institutions whose ratio of CET1, Tier 1 Capital or Total capital to risk-weighted assets is above the minimum but below the capital conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on discretionary distributions such as dividends, repurchases and redemptions of capital securities, and executive compensation based on the amount of the shortfall. In December 2017, the Basel Committee published standards that, among other things, revise the standardized approach for credit risk (including by recalibrating risk weights and introducing additional capital requirements for certain “unconditionally cancellable commitments” such as unused credit card lines of credit) and provide a new standardized calculation for operational risk capital requirements. If adopted in the United States as issued by the Basel Committee, the new standards could result in higher capital requirements for us. Leverage Requirements We are also required to comply with minimum leverage ratio requirements. The leverage ratio is the ratio of a banking organization’s Tier 1 capital to its average total consolidated assets (as defined for regulatory purposes). All banking organizations are required to maintain a leverage ratio of at least 4.0 percent. The Capital Rules also establish an SLR requirement for advanced approaches banking organizations such as the Company. The SLR is the ratio of Tier 1 capital to an expanded concept of leverage exposure that includes both on-balance sheet and certain off-balance sheet exposures. The Capital Rules require a minimum SLR of 3.0 percent beginning January 1, 2018. The SLR will be factored into our 2018 CCAR submission and evaluation of our capital plan by the Federal Reserve. Liquidity Regulation The Federal Reserve’s enhanced prudential standards rule includes heightened liquidity and overall risk management requirements. The rule requires the maintenance of a liquidity buffer, consisting of highly liquid assets, that is sufficient to meet projected net outflows for 30 days over a range of liquidity stress scenarios. In addition, the Company, Centurion Bank and American Express Bank are subject to a liquidity coverage ratio (LCR) requirement, which is provided for in the Basel III liquidity framework and is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets that can be converted into cash to meet its liquidity needs for a 30-day time horizon under an acute liquidity stress scenario specified by supervisors. The LCR measures the ratio of a firm’s high-quality liquid assets to its projected net outflows. The Company, Centurion Bank and American Express Bank are required to calculate the LCR each business day and maintain a minimum ratio of 100 percent. Beginning with the second quarter of 2018, we will be required to disclose certain LCR calculation data and other information on a quarterly basis. A second standard provided for in the Basel III liquidity framework, referred to as the net stable funding ratio (NSFR), requires a minimum amount of longer-term funding based on the assets and activities of banking entities. The LCR and NSFR requirements may cause banking entities generally to increase their holdings of cash, U.S. Treasury securities and other sovereign debt as a proportion of total assets and/or increase the proportion of longer-term debt. Federal banking regulators issued a proposed rule in May 2016 that would implement the NSFR for advanced approaches banking organizations, such as the Company. A final rule has not yet been issued and timing for implementation of the NSFR requirements is uncertain. The NSFR would also apply to Centurion Bank and American Express Bank. If implemented as proposed, the rule would require that “available stable funding” be no less than “required stable funding” for the Company, Centurion Bank, and American Express Bank, as each such measure is calculated under the rule. PPrompt Corrective Action The Federal Deposit Insurance Act (FDIA) requires, among other things, that federal banking regulators take prompt corrective action in respect of FDIC-insured depository institutions (such as Centurion Bank and American Express Bank) that do not meet minimum capital requirements. The FDIA establishes five capital categories for FDIC-insured banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The FDIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the capital category in which an institution is classified. In order to be considered “well capitalized,” Centurion Bank and American Express Bank must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage ratios of 6.5 percent, 8.0 percent, 10.0 percent and 5.0 percent, respectively. 8 Under the FDIA, each of Centurion Bank and American Express Bank could be prohibited from accepting brokered deposits (i.e., deposits raised through third-party brokerage networks) or offering interest rates on any deposits significantly higher than the prevailing rate in its normal market area or nationally (depending upon where the deposits are solicited), unless (1) it is well capitalized or (2) it is adequately capitalized and receives a waiver from the FDIC. A significant amount of our outstanding U.S. retail deposits are considered brokered deposits for bank regulatory purposes. If a federal regulator determines that we are in an unsafe or unsound condition or that we are engaging in unsafe or unsound banking practices, the regulator may reclassify our capital category or otherwise place restrictions on our ability to accept or solicit brokered deposits. RResolution Planning The Company is required to prepare and provide to regulators a plan for its rapid and orderly resolution under the U.S. Bankruptcy Code in the event of material distress or failure. This resolution planning requirement may, as a practical matter, present additional constraints on our structure, operations and business strategy, and on transactions and business arrangements between our bank and non-bank subsidiaries, because we must consider the impact of these matters on our ability to prepare and submit a resolution plan that demonstrates that we may be resolved under the Bankruptcy Code in a rapid and orderly manner. If the Federal Reserve and the FDIC determine that the Company’s plan is not credible and we fail to cure the deficiencies, we may be subject to more stringent capital, leverage or liquidity requirements; or restrictions on our growth, activities or operations; or may ultimately be required to divest certain assets or operations to facilitate an orderly resolution. Separately, American Express Bank is required to prepare and provide a separate resolution plan to the FDIC that would enable the FDIC, as receiver, to effectively resolve American Express Bank under the FDIA in the event of failure. Orderly Liquidation Authority The Company could become subject to the Orderly Liquidation Authority (OLA), a resolution regime under which the Treasury Secretary may appoint the FDIC as receiver to liquidate a systemically important financial company, if the Company is in danger of default and is determined to present a systemic risk to U.S. financial stability. As under the FDIC resolution model, under the OLA, the FDIC has broad power as receiver. Substantial differences exist, however, between the OLA and the FDIC resolution model for depository institutions, including the right of the FDIC under the OLA to disregard the strict priority of creditor claims in limited circumstances, the use of an administrative claims procedure to determine creditor claims (as opposed to the judicial procedure used in bankruptcy proceedings), and the right of the FDIC to transfer claims to a “bridge” entity. The OLA is separate from the Company’s resolution plan discussed in “Resolution Planning.” The FDIC has developed a strategy under OLA, referred to as the “single point of entry” or “SPOE” strategy, under which the FDIC would resolve a failed financial holding company by transferring its assets (including shares of its operating subsidiaries) and, potentially, very limited liabilities to a “bridge” holding company; utilize the resources of the failed financial holding company to recapitalize the operating subsidiaries; and satisfy the claims of unsecured creditors of the failed financial holding company and other claimants in the receivership by delivering securities of one or more new financial companies that would emerge from the bridge holding company. Under this strategy, management of the failed financial holding company would be replaced and its shareholders and creditors would bear the losses resulting from the failure. FDIC Powers upon Insolvency of Insured Depository Institutions If the FDIC is appointed the conservator or receiver of Centurion Bank or American Express Bank, the FDIC has the power: (1) to transfer any of the depository institution’s assets and liabilities to a new obligor without the approval of the depository institution’s creditors; (2) to enforce the terms of the depository institution’s contracts pursuant to their terms; or (3) to repudiate or disaffirm any contract or lease to which the depository institution is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmation or repudiation of which is determined by the FDIC to promote the orderly administration of the depository institution. In addition, the claims of holders of U.S. deposit liabilities and certain claims for administrative expenses of the FDIC against an insured depository institution would be afforded priority over other general unsecured claims against the institution, including claims of debt holders of the institution and depositors in non-U.S. offices, in the liquidation or other resolution of the institution by a receiver. As a result, whether or not the FDIC ever sought to repudiate any debt obligations of Centurion Bank or American Express Bank, the debt holders and depositors in non-U.S. offices would be treated differently from, and could receive substantially less, if anything, than the depositors in U.S. offices of the depository institution. 9 OOther Banking Regulations Source of Strength The Company is required to act as a source of financial and managerial strength to its subsidiary banks and may be required to commit capital and financial resources to support Centurion Bank and/or American Express Bank. Such support may be required at times when, absent this requirement, the Company otherwise might determine not to provide it. Capital loans by the Company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of the Company’s bankruptcy, any commitment by the Company to a federal banking regulator to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Cross-Guarantee Liability Under the “cross-guarantee” provision of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, each of Centurion Bank and American Express Bank may be liable to the FDIC with respect to any loss incurred or reasonably anticipated to be incurred by the FDIC in connection with the default of, or FDIC assistance to, the other. In that case, the liability to the FDIC generally has priority in right of payment to any obligation of the depository institution to its holding company or other affiliates. Transactions Between Centurion Bank or American Express Bank and Their Respective Affiliates Certain transactions (including loans and credit extensions from Centurion Bank and American Express Bank) between Centurion Bank and American Express Bank, on the one hand, and their affiliates (including the Company, TRS and their non- bank subsidiaries), on the other hand, are subject to quantitative and qualitative limitations, collateral requirements, and other restrictions imposed by statute and regulation. Transactions subject to these restrictions are generally required to be made on an arm’s-length basis. FDIC Deposit Insurance and Insurance Assessments Centurion Bank and American Express Bank accept deposits that are insured by the FDIC up to the applicable limits. Under the FDIA, the FDIC may terminate the insurance of an institution’s deposits upon a finding that the institution has engaged in unsafe or unsound practices; is in an unsafe or unsound condition to continue operations; or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that might lead to termination of deposit insurance at either of our insured depository institution subsidiaries. The FDIC’s deposit insurance fund is funded by assessments on insured depository institutions, which are subject to adjustment by the FDIC. Community Reinvestment Act Centurion Bank and American Express Bank are subject to the CRA, which imposes affirmative, ongoing obligations on depository institutions to meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. Other Enhanced Prudential Standards The Federal Reserve has not yet finalized prudential requirements, mandated by Dodd-Frank, regarding early remediation requirements for large bank holding companies experiencing financial distress and single counterparty credit limits (similar to bank-level lending limits but, as proposed, applicable to bank holding companies and controlled subsidiaries on a combined basis) for large bank holding companies. Consumer Financial Products Regulation In the United States, our marketing, sale and servicing of consumer financial products and our compliance with certain federal consumer financial laws are supervised and examined by the CFPB, which has broad rulemaking and enforcement authority over providers of credit, savings and payment services and products, and authority to prevent “unfair, deceptive or abusive” acts or practices. In addition, a number of U.S. states have significant consumer credit protection, disclosure and other laws (in certain cases more stringent than U.S. federal laws). U.S. federal law also regulates abusive debt collection practices, which, along with bankruptcy and debtor relief laws, can affect our ability to collect amounts owed to us or subject us to regulatory scrutiny. 10 Internal and regulatory reviews to assess compliance with such laws and regulations have resulted in, and are likely to continue to result in, changes to our practices, products and procedures, restitution to our Card Members and increased costs related to regulatory oversight, supervision and examination. Such reviews may also result in additional regulatory actions, including civil money penalties. These types of reviews are likely to be a continuing focus for the CFPB and regulators more broadly, as well as for the company itself. For example, in August 2017, we announced that certain of our subsidiaries signed a consent order with the CFPB to resolve issues related to a previously-disclosed internal review of our card product offerings in Puerto Rico, the U.S. Virgin Islands and other U.S. Territories. As an issuer of stored value/prepaid products, we are regulated in the United States under the “money transmitter” or “sale of check” laws in effect in most states. We are also required by the laws of many states to comply with unclaimed and abandoned property laws, under which we must pay to states the face amount of any Travelers Cheque or prepaid card that is uncashed or unredeemed after a period of time depending on the type of product. In countries outside the United States, we have seen an increase in regulatory focus in relation to a number of key areas impacting our card-issuing businesses, particularly consumer protection (such as the European Union (EU), the United Kingdom and Canada) and responsible lending (such as Australia, Mexico, New Zealand and Singapore). Regulators in a number of countries are shifting their focus from just ensuring compliance with local rules and regulations toward paying greater attention to the product design and operation with a focus on customers and outcomes. Regulators’ expectations of firms in relation to their compliance, risk and control frameworks continue to increase and regulators are placing significant emphasis on a firm’s systems and controls relating to the identification and resolution of issues. PPayments Regulation Legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust actions, legislation and regulations to change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, to establish broad and ongoing regulatory oversight regimes for payment systems. The EU, Australia and other jurisdictions have focused on the fees merchants pay to accept cards, including the way bankcard network members collectively set the “interchange” (that is, the fee paid by the bankcard merchant acquirer to the card issuer in “four party” networks like Visa and MasterCard), as well as the rules, contract terms and practices governing merchant card acceptance. In some cases, such regulation extends to certain aspects of our business. Even where we are not directly regulated, regulation of bankcard fees can significantly negatively impact the discount revenue derived from our business, including as a result of downward pressure on our discount rate from decreases in competitor pricing in connection with caps on interchange fees. Antitrust actions and government regulation relating to merchant pricing or terms of merchant rules and contracts can also adversely impact consumers and merchants. Among other things, lower interchange and/or merchant discount revenue can lead card issuers to look to reduce costs by scaling back or eliminating rewards, services or benefits to cardholders, merchants and other customers, or to look for other sources of revenue, including from consumers through higher annual card fees or interest charges. In various countries, such as certain Member States in the EU and Australia, merchants are permitted by law to surcharge card purchases. In addition, the laws of a number of states in the United States that prohibit surcharging have been overturned in litigation brought by merchant groups. Surcharging is an adverse customer experience and could have a material adverse effect on us if it becomes widespread, particularly where it only or disproportionately impacts American Express Card Members, which is known as differential surcharging, In addition, other steering practices that are permitted by regulation in some countries could also have a material adverse effect on us if they become widespread and disproportionately impact American Express Card Members. In Canada, regulators have prompted the major international card networks to make voluntary commitments on pricing, specifically interchange fee levels; as American Express does not operate with interchange fees, in the case of American Express, our commitment extends to maintaining current pricing practices whereby issuer rates received by GNS partners are agreed to bilaterally with each partner, rather than multilaterally, and merchant pricing is simple, transparent and value-based with the same rate for the acquiring of credit and charge card transactions for a particular merchant regardless of the type of card that is presented. Regulators may seek to change the commitments in Canada in the future. 11 In some countries governments have established regulatory regimes that require international card networks to be locally licensed and/or to localize aspects of their operations. For example, card network operators in India must obtain authorization from the Reserve Bank of India, which has broad power under the Payment and Settlement Systems Act 2007 to regulate the membership and operations of card networks. In Hong Kong, the local monetary authority has implemented a new regulatory framework under which card payment systems, including American Express, have been designated for supervision. In Russia, card network operators must be authorized by the central bank, and regulation requires networks to place security deposits with the central bank, process all local transactions using government-owned infrastructure and ensure that local transaction data remains within the country. Governments in some countries also provide resources or protection to select domestic payment card networks. For example, China adopted new regulation that will permit foreign card networks to operate domestically in the country for the first time, subject to licensing, capital and other requirements. The development and enforcement of these and other similar laws, regulations and policies in international markets may adversely affect our ability to compete effectively in such countries and maintain and extend our global network. European Union Payments Legislation In 2015, the EU adopted legislation in two parts, covering a wide range of topics across the payments industry. The first part was an EU-wide regulation on interchange fees (the Interchange Fee Regulation); the second consisted of the Revised Payment Services Directive (the PSD2). Among other things, the Interchange Fee Regulation caps interchange fees on consumer card transactions in the EU, generally at 20 basis points for debit and prepaid cards and 30 basis points for credit and charge cards, with the possibility of lower caps in some instances. The Interchange Fee Regulation excludes commercial card transactions from the scope of the caps. Although the discount rates we agree to with merchants are not capped, the interchange caps have exerted, and will likely continue to exert, downward pressure on merchant fees across the industry, including our discount rates. The Interchange Fee Regulation provides that “three party” networks (such as American Express) should be subject to the interchange fee caps when they license third-party providers to issue cards and/or acquire merchants. In a ruling issued on February 7, 2018, the EU Court of Justice confirmed the validity of the application of the fee cap provisions as well as other provisions in circumstances where three party networks issue cards with a cobrand partner or through an agent, although the ruling gives only limited guidance as to when or how the provisions might apply in such circumstances. The Interchange Fee Regulation also prohibits, with some exceptions, “anti-steering” and honor-all-cards rules across all card networks, including non-discrimination and honor-all-cards provisions in our card acceptance agreements. The absence of these provisions in our card acceptance agreements in the EU creates significant risk of customer confusion and Card Member dissatisfaction, which would result in harm to the American Express brand. The PSD2 makes revisions to the original Payment Services Directive (PSD) adopted in 2007 and prescribes common rules across the EU for licensing and supervision of payment service providers, including card issuers and merchant acquirers, and for their conduct of business with customers. Member States had until January 13, 2018 to transpose the PSD2 into national law. Under the PSD, Member States could choose to permit or prohibit surcharging and under the Consumer Rights Directive, merchants were prohibited from surcharging consumer purchases more than the merchants’ cost of acceptance of a given means of payment. The PSD2 includes an outright ban on surcharging for those transactions falling in scope of the Interchange Fee Regulation, with an option for individual Member States to prohibit surcharging altogether. Some Member States, such as France and Italy, have chosen to exercise the option, meaning that surcharging is banned altogether. In other Member States, such as Germany and Denmark, cards not subject to the Interchange Fee Regulation (e.g., cards issued by “three party” networks like American Express and commercial cards) can still be surcharged up to the cost of acceptance. The UK has chosen to ban surcharging altogether on consumer cards but allows surcharging on commercial cards, up to the cost of acceptance. The revised surcharging rules may increase instances of differential surcharging of our cards, customer and merchant confusion as to which transactions may be surcharged and lead to Card Member dissatisfaction. The PSD2 also requires all networks, including “three party” networks that operate with licensing arrangements, such as our GNS business, to establish objective, proportionate and non-discriminatory criteria under which a financial institution may access the network, for example, as a licensed issuer or acquirer. The combined impact of the Interchange Fee Regulation and the PSD2 imposes a regulatory burden on our GNS business that renders it no longer viable. As a result, we have shifted our focus to our proprietary card issuing business in the EU and will not issue new GNS licenses there. In addition, we have terminated the licenses with our existing GNS partners in the EU and are in the process of winding down those operations. 12 Australia Payments Regulation Under regulations adopted by the Reserve Bank of Australia in 2016, the interchange fee paid on Visa and MasterCard credit transactions as well as the payments we make to GNS partners must not exceed a weighted-average benchmark of 0.50 percent across all transactions, with a maximum interchange fee cap of 0.80 percent for each individual credit card transaction. The inclusion of our GNS business under interchange regulation has undermined our ability to attract and retain GNS partners in Australia. While the discount rates we agree to with merchants are not capped, the interchange caps have exerted, and will likely continue to exert, downward pressure on merchant fees across the industry, including our discount rates. The regulations also changed the rules on merchant surcharging to limit surcharging to the actual cost of card acceptance paid to the merchant acquirer, as recorded on the merchant statement issued by the merchant acquirer. PPrivacy, Data Protection, Information and Cyber Security Regulatory and legislative activity in the areas of privacy, data protection and information and cyber security continues to increase worldwide. We have established and continue to maintain policies that provide a framework for compliance with applicable privacy, data protection and information and cyber security laws, meet evolving customer privacy expectations and support and enable business innovation and growth. Our regulators are increasingly focused on ensuring that our privacy, data protection and information and cyber security- related policies and practices are adequate to inform customers of our data collection, use, sharing and/or security practices, to provide them with choices, if required, about how we use and share their information, and to appropriately safeguard their personal information and account access. In the United States, certain of our businesses are subject to the privacy, disclosure and safeguarding provisions of the Gramm-Leach-Bliley Act (GLBA) and its implementing regulations and guidance. Among other things, the GLBA imposes certain limitations on our ability to share consumers’ nonpublic personal information with nonaffiliated third parties and requires us to develop, implement and maintain a written comprehensive information security program containing safeguards that are appropriate to the size and complexity of our business, the nature and scope of our activities and the sensitivity of customer information that we process. Various states also have adopted laws, rules and regulations pertaining to privacy and/or information and cyber security that may be more stringent and/or expansive than federal requirements. Certain of these requirements may apply to the personal information of our employees and contractors as well as to our customers. Various U.S. federal banking regulators, U.S. states and territories have also enacted data security breach notification requirements that are applicable to us. We are also subject to certain privacy, data protection and information and cyber security laws in other countries in which we operate (including countries in the EU, Australia, Canada, Japan, Hong Kong, Mexico and Singapore), some of which are more stringent and/or expansive than those in the United States. We have also seen some countries institute laws requiring in- country data processing and/or in-country storage of the personal data of its citizens. Compliance with such laws could result in higher technology, administrative and other costs for us and could limit our ability to optimize the use of our closed-loop data. Data breach notification laws or regulatory activities to encourage breach notification are also becoming more prevalent in jurisdictions outside the U.S. in which we operate. In Europe, the European Directive 95/46/EC (the Data Protection Directive), providing for the protection of individuals with regard to the processing of personal data and on the free movement of such data, will be replaced by the EU General Data Protection Regulation (EU GDPR) as of May 2018. The EU GDPR includes, among other things, a requirement for prompt notice of data breaches, in certain circumstances, to data subjects and supervisory authorities, applying uniformly across sectors and the EU, with significant fines for non-compliance. The EU GDPR also requires companies processing personal data of individuals residing in the EU, regardless of the location of the company, to comply with EU privacy and data protection rules. We generally rely on our binding corporate rules as the primary method for lawfully transferring data from our European affiliates to our affiliates in the United States and elsewhere globally. In addition, the European Directive 2002/58/EC (the e-Privacy Directive) will continue to set out requirements for the processing of personal data and the protection of privacy in the electronic communications sector until the approval of forthcoming e-Privacy Regulation. The ePrivacy Directive places restrictions on, among other things, the sending of unsolicited marketing communications, as well as on the collection and use of data about internet users. In 2015, the European Central Bank and the European Banking Authority enacted secondary legislation focused on security breaches, strong customer authentication and information security-related policies. Likewise, the Commission adopted a network information security directive, to be implemented into national laws by the Member States. PSD2 also contains regulatory requirements on strong customer authentication, open access to customer data and measures to prevent security incidents. 13 AAnti-Money Laundering, Sanctions and Anti-Corruption Compliance We are subject to significant supervision and regulation, and an increasingly stringent enforcement environment, with respect to compliance with anti-money laundering (AML), sanctions and anti-corruption laws and regulations in the United States and in other jurisdictions in which we operate. Failure to maintain and implement adequate programs and policies and procedures for AML, sanctions and anti-corruption compliance could have serious financial, legal and reputational consequences. Anti-Money Laundering American Express is subject to a significant number of AML laws and regulations as a result of being a financial company headquartered in the United States, as well as having a global presence. In the United States, the majority of AML requirements are derived from the Currency and Foreign Transactions Reporting Act and the accompanying regulations issued by the U.S. Department of the Treasury (collectively referred to as the Bank Secrecy Act), as amended by the USA PATRIOT Act of 2001 (the Patriot Act). In Europe, AML requirements are largely the result of countries transposing the 4th EU Anti-Money Laundering Directive (and preceding EU Anti-Money Laundering Directives) into local laws and regulations. Numerous other countries, such as Argentina, Australia, Canada, India, Mexico, New Zealand and Russia, have also enacted or proposed new or enhanced AML legislation and regulations applicable to American Express. Among other things, these laws and regulations require us to establish AML programs that meet certain standards, including, in some instances, expanded reporting, particularly in the area of suspicious transactions, and enhanced information gathering and recordkeeping requirements. Any errors, failures or delays in complying with federal, state or foreign AML and counter-terrorist financing laws could result in significant criminal and civil lawsuits, penalties and forfeiture of significant assets or other enforcement actions. Office of Foreign Assets Control Regulation The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. The United States prohibits U.S. persons from engaging with individuals and entities identified as “Specially Designated Nationals,” such as terrorists and narcotics traffickers. These prohibitions are administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and are typically known as the OFAC rules. The OFAC rules prohibit U.S. persons from engaging in financial transactions with or relating to the prohibited individual, entity or country, require the blocking of assets in which the individual, entity or country has an interest, and prohibit transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons) to such individual, entity or country. Blocked assets (e.g., property or bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. We maintain a global sanctions program designed to ensure compliance with OFAC requirements. Failure to comply with such requirements could subject us to serious legal and reputational consequences, including criminal penalties. Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the Exchange Act), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted outside the United States by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law. American Express Global Business Travel (GBT) and certain entities that may be considered affiliates of GBT have informed us that during the year ended December 31, 2017 approximately 300 visas were obtained from Iranian embassies and consulates around the world in connection with certain travel arrangements on behalf of clients. GBT had negligible gross revenues and net profits attributable to these transactions and intends to continue to engage in these activities on a limited basis so long as such activities are permitted under U.S. law. Anti-Corruption We are subject to complex international and U.S. anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act (the FCPA), the UK Bribery Act and other laws that prohibit the making or offering of improper payments. The FCPA makes it illegal to corruptly offer or provide anything of value to foreign government officials, political parties or political party officials for the purpose of obtaining or retaining business or an improper advantage. The FCPA also requires us to strictly comply with certain accounting and internal controls standards. In recent years, enforcement of the FCPA has become more intense. The UK Bribery Act also prohibits commercial bribery, and the receipt of a bribe, and makes it a corporate offense to fail to prevent bribery by an associated person, in addition to prohibiting improper payments to foreign government officials. Failure of the Company, our subsidiaries, employees, contractors or agents to comply with the FCPA, the UK Bribery Act and other laws can expose us and/or individual employees to investigation, prosecution and to potentially severe criminal and civil penalties. 14 CCompensation Practices Our compensation practices are subject to oversight by the Federal Reserve. The federal banking regulators’ guidance on sound incentive compensation practices sets forth three key principles for incentive compensation arrangements that are designed to help ensure that incentive compensation plans do not encourage imprudent risk-taking and are consistent with the safety and soundness of banking organizations. The three principles provide that a banking organization’s incentive compensation arrangements should (1) provide incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risks, (2) be compatible with effective internal controls and risk management, and (3) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in our compensation practices that are identified by the Federal Reserve or other banking regulators in connection with its review of our compensation practices may be incorporated into our supervisory ratings, which can affect our ability to make acquisitions or perform other actions. Enforcement actions may be taken against us if our incentive compensation arrangements or related risk-management control or governance processes are determined to pose a risk to our safety and soundness and we have not taken prompt and effective measures to correct the deficiencies. In May 2016, the federal banking regulators, the SEC, the Federal Housing Finance Agency and the National Credit Union Administration re-proposed a rule, originally proposed in 2011, on incentive-based compensation practices. The re-proposed rule would apply deferral, downward adjustment and forfeiture, and clawback requirements to incentive-based compensation arrangements granted to senior executive officers and significant risk-takers of covered institutions, with specific requirements varying based on the asset size of the covered institution and the category of employee. If these or other regulations are adopted in a form similar to what has been proposed, they will impose limitations on the manner in which we may structure compensation for our employees, which could adversely affect our ability to hire, retain and motivate key employees. 15 EEXECUTIVE OFFICERS OF THE COMPANY Set forth below, in alphabetical order, is a list of all our executive officers as of February 16, 2018, including each executive officer’s principal occupation and employment during the past five years and reflecting recent organizational changes. None of our executive officers has any family relationship with any other executive officer, and none of our executive officers became an officer pursuant to any arrangement or understanding with any other person. Each executive officer has been elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer’s age is indicated by the number in parentheses next to his or her name. DOUGLAS E. BUCKMINSTER — Mr. Buckminster (57) has been Group President, Global Consumer Services since February 2018 and was President, Global Consumer Services since October 2015. Prior thereto, he had been President, Global Network and International Card Services since February 2012. Group President, Global Consumer Services JEFFREY C. CAMPBELL — Mr. Campbell (57) has been Executive Vice President, Finance since July 2013 and Chief Financial Officer since August 2013. Mr. Campbell joined American Express from McKesson Corporation, a health care services company, where he served as Executive Vice President and Chief Financial Officer from April 2004 until June 2013. Executive Vice President and Chief Financial Officer L. KEVIN COX — Mr. Cox (54) has been Chief Human Resources Officer since April 2005. Chief Human Resources Officer President, Global Services Group PAUL D. FABARA — Mr. Fabara (52) has been President, Global Services Group since February 2018. Prior thereto, he had been President, Global Risk & Compliance and Chief Risk Officer since February 2016 and President, Global Banking Group since February 2013. He also served as President, Global Network Business from September 2014 to October 2015. Prior thereto, he had been Executive Vice President, Global Credit Administration since January 2011. MARC D. GORDON — Mr. Gordon (57) has been Executive Vice President and Chief Information Officer since September 2012. Mr. Gordon joined American Express from Bank of America, where he served as Enterprise Chief Information Officer from December 2011 until April 2012. Executive Vice President and Chief Information Officer MICHAEL J. O’NEILL — Mr. O’Neill (64) has been Executive Vice President, Corporate Affairs and Communications since September 2014. Prior thereto, he had been Senior Vice President, Corporate Affairs and Communications since March 1991. Executive Vice President, Corporate Affairs and Communications DENISE PICKETT — Ms. Pickett (52) has been President, Global Risk, Banking & Compliance and Chief Risk Officer since February 2018. Prior thereto, she had been President, U.S. Consumer Services since October 2015. She also served as President, American Express OPEN from February 2014 to October 2015 and Executive Vice President and Chief Executive Officer, U.S. Loyalty from January 2013 to February 2014. President, Global Risk, Banking & Compliance and Chief Risk Officer ELIZABETH RUTLEDGE — Ms. Rutledge (56) has been Chief Marketing Officer since February 2018 and Executive Vice President, Global Advertising & Media since February 2016. She also served as Executive Vice President, Card Products & Benefits from May 2013 to February 2016. Prior thereto, she had been Executive Vice President, Global Network Marketing & Information from September 2011 to until May 2013. Chief Marketing Officer LAUREEN E. SEEGER — Ms. Seeger (56) has been Executive Vice President and General Counsel since July 2014. Ms. Seeger joined American Express from McKesson Corporation, where she served as Executive Vice President, General Counsel and Chief Compliance Officer from March 2006 until June 2014. Executive Vice President and General Counsel STEPHEN J. SQUERI — Mr. Squeri (58) has been Chairman and Chief Executive Officer since February 2018. Prior thereto, he had been Vice Chairman since July 2015. Prior thereto, he had been Group President, Global Corporate Services since November 2011. Chairman and Chief Executive Officer ANRÉ WILLIAMS — Mr. Williams (52) has been Group President, Global Merchant and Network Services since February 2018. Prior thereto, he had been President of Global Merchant Services and Loyalty since October 2015 and President, Global Merchant Services since November 2011. Group President, Global Merchant and Network Services 16 We had approximately 55,000 employees on December 31, 2017. EEMPLOYEES ADDITIONAL INFORMATION We maintain an Investor Relations website on the internet at http://ir.americanexpress.com. We make available free of charge, on or through this website, our annual, quarterly and current reports and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the Securities and Exchange Commission (SEC). To access these materials, click on the “SEC Filings” link under the caption “Financial Information” on our Investor Relations homepage. You can also access our Investor Relations website through our main website at www.americanexpress.com by clicking on the “Investor Relations” link, which is located at the bottom of our homepage. Information contained on our Investor Relations website, our main website and other websites referred to in this report is not incorporated by reference into this report or any other report filed with or furnished to the SEC. We have included such website addresses only as inactive textual references and do not intend them to be active links. You can find certain statistical disclosures required of bank holding companies starting on page A-1, which are incorporated herein by reference. ITEM 1A. RISK FACTORS This section highlights specific risks that could affect us and our businesses. You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe the following information identifies the most significant risk factors affecting us. However, the risks and uncertainties we face are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develop into actual events or if the circumstances described in the risks and uncertainties occur or continue to occur, these events or circumstances could have a material adverse effect on our business, financial condition or results of operations. These events could also have a negative effect on the trading price of our securities. Strategic, Business and Competitive Risks Difficult conditions in the business and economic environment, as well as political conditions in the United States and elsewhere, may materially adversely affect our business and results of operations. Our results of operations are materially affected by economic, market, political and social conditions in the United States and abroad. We offer a broad array of products and services to consumers, small businesses and commercial clients and thus are very dependent upon the level of consumer and business activity and the demand for payment and financing products. Slow economic growth or deterioration in economic conditions could change customer behaviors, including spending on our cards and the ability and willingness of Card Members to borrow and pay amounts owed to us. Political conditions in certain regions or countries could also negatively affect consumer and business spending, including in other parts of the world. Factors such as consumer spending and confidence, unemployment rates, business investment, government spending, interest rates, taxes (including the broad and complex changes made by the Tax Cuts and Jobs Act to the U.S. tax code), fuel and other energy costs, the volatility and strength of the capital markets, inflation and deflation all affect the economic environment and, ultimately, our profitability. Such factors may also cause our earnings, billings, loan balances, credit metrics and margins to fluctuate and diverge from expectations of analysts and investors, who may have differing assumptions regarding their impact on our business, adversely affecting, and/or increasing the volatility of, the trading price of our common shares. 17 Travel and entertainment expenditures, which comprised approximately 25 percent of our U.S. billed business during 2017, for example, are sensitive to business and personal discretionary spending levels and tend to decline during general economic downturns. Likewise, spending by small businesses and corporate clients, which comprised approximately 40 percent of our worldwide billed business during 2017, depends in part on the economic environment and a favorable climate for continued business investment and new business formation. Increases in delinquencies and write-off rates as a result of increases in bankruptcies, unemployment rates, changes in customer behaviors or otherwise could also have a negative impact on our results of operations. The consequences of negative circumstances impacting us or the environment generally can be sudden and severe. OOur operating results may suffer because of substantial and increasingly intense competition worldwide in the payments industry. The payments industry is highly competitive, and we compete with charge, credit and debit card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and ACH), as well as evolving and growing alternative, non-traditional payment and financing providers. We believe Visa and MasterCard are larger than we are in most countries. As a result, card issuers and acquirers on the Visa and MasterCard networks may be able to benefit from the dominant position, scale, resources, marketing and pricing of those networks. Our business may also be increasingly negatively affected if we are unable to increase merchant acceptance and our cards are not accepted at merchants that accept cards on the Visa and MasterCard networks. Some of our competitors have developed, or may develop, for example, as a result of the recent reduction in the U.S. corporate tax rate, substantially greater financial and other resources than we have and may offer richer value propositions or a wider range of programs and services than we offer or may use more effective advertising, marketing or cross-selling strategies to acquire and retain more customers, capture a greater share of spending and borrowings, establish and develop more attractive cobrand card and other partner programs and maintain greater merchant acceptance than we have. We may not be able to compete effectively against these threats or respond or adapt to changes in consumer spending habits as effectively as our competitors. We expect expenses such as Card Member rewards and Card Member services expenses to continue to increase as we improve our value propositions for Card Members, including in response to increased competition. Spending on our cards could continue to be impacted by increasing consumer usage of charge, credit and debit cards issued on other networks, as well as adoption of alternative payment systems. To the extent other payment mechanisms, systems and products continue to successfully expand, our discount revenues and our ability to access transaction data through our integrated network could be negatively impacted. The competitive value of our closed-loop data may also be diminished as traditional and non-traditional competitors use other, new data sources and technologies to derive similar insights. If we are not able to differentiate ourselves from our competitors, develop compelling value propositions for our customers and/or effectively grow in areas such as mobile and online payments and emerging technologies, we may not be able to compete effectively. To the extent we expand into new business areas and new geographic regions, we may face competitors with more experience and more established relationships with relevant customers, regulators and industry participants, which could adversely affect our ability to compete. We may face additional compliance and regulatory risk to the extent that we expand into new business areas, and we may need to dedicate more expense, time and resources to comply with regulatory requirements than our competitors, particularly those that are not regulated financial institutions. In addition, companies that control access to consumer and merchant payment method choices through digital wallets, commerce-related experiences, mobile applications or other technologies, or at the point of sale could choose not to accept, suppress use of, or degrade the experience of using our products or could restrict our access to our customers and transaction data. Such companies could also require payments from us to participate in such digital wallets, experiences or applications, impacting our profitability on transactions. Laws and business practices that favor local competitors, require card transactions to be routed over domestic networks or prohibit or limit foreign ownership of certain businesses could slow our growth in international regions. Further, expanding our service offerings, adding customer acquisition channels and forming new partnerships could have higher costs than our current arrangements, and could adversely impact our average discount rate or dilute our brand. Many of our competitors are subject to different, and in some cases, less stringent, legislative and regulatory regimes. More restrictive laws and regulations that do not apply to all of our competitors can put us at a competitive disadvantage, including prohibiting us from engaging in certain transactions, regulating our contract terms and practices governing merchant card acceptance or adversely affecting our cost structure. See “Ongoing legal proceedings regarding provisions in our merchant contracts could have a material adverse effect on our business, result in additional litigation and/or arbitrations, subject us to substantial monetary damages and damage our reputation and brand” for a discussion of the potential impact on our ability to compete effectively if ongoing legal proceedings limit our ability to prevent merchants from engaging in various actions to discriminate against our card products. 18 WWe face substantial and increasingly intense competition for partner relationships, which could result in a loss or renegotiation of these arrangements that could have a material adverse impact on our business and results of operations. In the ordinary course of our business we enter into different types of contractual arrangements with business partners in a variety of industries. For example, we have partnered with Delta Air Lines, as well as many others globally, to offer cobranded cards for consumers and small businesses, and through our Membership Rewards program we have partnered with businesses in many industries, including the airline industry, to offer benefits to Card Member participants. Competition for relationships with key business partners is very intense and there can be no assurance we will be able to grow or maintain these partner relationships or that they will remain as profitable. Establishing and retaining attractive cobrand card partnerships is particularly competitive among card issuers and networks as these partnerships typically appeal to high- spending loyal customers. Our entire cobrand portfolio accounted for approximately 16 percent of our worldwide billed business for the year ended December 31, 2017. Card Member loans related to our cobrand portfolio accounted for approximately 36 percent of our worldwide Card Member loans as of December 31, 2017. Delta cobrand accounts, our largest cobrand portfolio, accounted for approximately 8 percent of our worldwide billed business for the year ended December 31, 2017 and approximately 21 percent of worldwide Card Member loans as of December 31, 2017. Our relationships with, and revenues related to, Delta extend beyond cobrand accounts and include merchant acceptance of American Express cards, participation in our Membership Rewards program and travel-related benefits and services. Cobrand arrangements are entered into for a fixed period, generally ranging from five to eight years, and will terminate in accordance with their terms, including at the end of the fixed period unless extended or renewed at the option of the parties, or upon early termination as a result of an event of default or otherwise. We face the risk that we could lose partner relationships, even after we have invested significant resources in the relationships. The volume of billed business could decline and Card Member attrition could increase, in each case, significantly as a result of the termination of one or more cobrand partnership relationships. In addition, some of our cobrand arrangements provide that, upon expiration or termination, the cobrand partner may purchase or designate a third party to purchase the loans generated with respect to its program, which could result in a significant decline in our Card Member loans outstanding. For example, our U.S. cobrand relationship with Costco ended in 2016, and we sold the outstanding Card Member loans associated with the Costco portfolio. We also face the risk that existing relationships will be renegotiated with less favorable terms for us as competition for such relationships continues to increase. We make payments to our cobrand partners, which can be significant, based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. The amount we pay to our cobrand partners has increased, particularly in the United States, and may continue to increase as arrangements are renegotiated due to increasingly intense competition for cobrand partners among card issuers and networks. We may also choose to not continue certain cobrand relationships. The loss of exclusivity arrangements with business partners or the loss of business partners altogether (whether by non- renewal at the end of the contract period, such as the end of our relationship with Costco in the United States in 2016, or as the result of a merger or otherwise, such as the withdrawal of American Airlines in 2014 from our Airport Club Access program for Centurion® and Platinum Card® Members) or the renegotiation of existing partnerships with terms that are significantly worse for us could have a material adverse impact on our business and results of operations. In addition, any publicity associated with the loss of any of our key business partners could harm our reputation, making it more difficult to attract and retain Card Members and merchants, and could weaken our negotiating position with our remaining and prospective business partners. We face continued intense competitive pressure that may impact the prices we charge merchants that accept our cards for payment for goods and services. Unlike our competitors in the payments industry that rely on revolving credit balances to drive profits, our business model is focused on Card Member spending. Discount revenue, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services on our network, is primarily driven by billed business volumes and is our largest single revenue source. In recent years, we experienced some reduction in our global weighted average merchant discount rate and have been under increasing pressure, including as a result of regulatory-mandated reductions to competitors’ pricing, to reduce merchant discount rates and undertake other repricing initiatives. We also face pressure from competitors that have other sources of income or lower costs that can make their pricing more attractive to key business partners and merchants. Merchants are also able to negotiate incentives and pricing concessions from us as a condition to accepting our cards or being cobrand partners. As merchants consolidate and become even larger, we may have to increase the amount of incentives and/or concessions we provide to certain merchants, which could materially and adversely affect our results of operations. Competitive and regulatory pressures on pricing could make it difficult to offset the costs of these incentives. We also expect further erosion of our average merchant discount rate as we seek to increase merchant acceptance. We may not be successful in significantly expanding merchant acceptance or offsetting rate erosion with volumes at new merchants. 19 In addition, the regulatory environment and differentiated payment models and technologies from non-traditional players in the alternative payments space could pose challenges to our traditional payment model and adversely impact our average merchant discount rate. Some merchants continue to invest in their own payment solutions, such as proprietary-branded mobile wallets, using both traditional and new technology platforms. If merchants are able to drive broad consumer adoption and usage, it could adversely impact our average merchant discount rate and billed business volumes. A continuing priority of ours is to drive greater and differentiated value to our merchants which, if not successful, could negatively impact our discount revenue and financial results. If the average merchant discount rate declines more than expected, we will need to find ways to offset the financial impact by increasing billed business volumes, increasing other sources of revenue, such as fee-based revenue or interest income, or both. We may not succeed in maintaining merchant discount rates or offsetting the impact of declining merchant discount rates, particularly in the current regulatory environment, which could materially and adversely affect our revenues and profitability, and therefore our ability to invest in innovation and in value-added services for merchants and Card Members. SSurcharging or steering by merchants could materially adversely affect our business and results of operations. In certain countries, such as Australia and certain Member States in the EU, merchants are expressly permitted by law to surcharge certain card purchases. In addition, the laws of a number of states in the United States that prohibit surcharging have been overturned in litigation brought by merchant groups. In jurisdictions allowing surcharging, we have seen merchant surcharging on American Express cards in certain merchant categories, and in some cases, either the surcharge is greater than that applied to Visa and MasterCard cards or Visa and MasterCard cards are not surcharged at all, practices that are known as differential surcharging, even though there are many cards issued on competing networks that have an equal or greater cost of acceptance for the merchant. We also encounter merchants that accept our cards, but tell their customers that they prefer to accept another type of payment or otherwise seek to suppress use of our cards. Our Card Members value the ability to use their cards where and when they want to, and we, therefore, take steps to meet our Card Members’ expectations and to protect the American Express brand by prohibiting this form of discrimination, subject to local legal requirements. If surcharging, steering or other forms of discrimination become widespread, American Express cards and credit and charge cards generally could become less desirable to consumers, which could result in a decrease in cards-in-force and transaction volumes. The impact could vary depending on such factors as the manner in which a surcharge is levied, how Card Members are steered to other card products or payment forms at the point of sale and whether and to what extent these actions are applied to other payment cards, including whether it varies depending on the type of card, network, acquirer or issuer. Discrimination against American Express cards could have a material adverse effect on our business, financial condition and results of operations, particularly to the extent it disproportionately impacts our Card Members. If we are not able to invest successfully in, and compete at the leading edge of, technological developments across all our businesses, our revenue and profitability could be negatively affected. Our industry is subject to rapid and significant technological changes. In order to compete in our industry, we need to continue to invest across all areas of our business, including in transaction processing, data management and analytics, customer interactions and communications, alternative payment mechanisms, authentication technologies and risk management and compliance systems. Incorporating new technologies into our products and services may require substantial expenditures and take considerable time, and ultimately may not be successful. We expect that new technologies in the payments industry will continue to emerge, and these new technologies may be superior to, or render obsolete, the technologies we currently use in our products and services. The process of developing new products and services, enhancing existing products and services and adapting to technological changes and evolving industry standards is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological trends accurately could significantly impede our ability to compete effectively. Consumer and merchant adoption is a key competitive factor and our competitors may develop products, platforms or technologies that become more widely adopted than ours. In addition, we may underestimate the time and expense we must invest in new products and services before they generate material revenues, if at all. Our ability to develop, acquire or access competitive technologies or business processes on acceptable terms may also be limited by intellectual property rights that third parties, including competitors and potential competitors, may assert. In addition, our ability to adopt new technologies may be inhibited by a need for industry-wide standards, a changing legislative and regulatory environment, the need for internal product and engineering expertise, resistance to change from Card Members or merchants, or the complexity of our systems. 20 WWe may not be successful in our efforts to promote card usage through marketing and promotion, merchant acceptance and Card Member rewards and services, or to effectively control the costs of such investments, both of which may impact our profitability. Revenue growth is dependent on increasing consumer and business spending on our cards and growing loan balances. We have been investing in a number of growth initiatives over the past several years, including to attract new Card Members, reduce Card Member attrition and capture a greater share of customers’ total spending and borrowings. There can be no assurance that our investments to acquire Card Members, provide differentiated features and services and increase usage of our cards will be effective. For example, we may not be successful in developing and issuing new and enhanced cards or customers may not accept or be willing to pay for our new products and services, which would negatively impact our results of operations. In addition, if we develop new products or offers that attract customers looking for short-term incentives rather than incentivize long-term loyalty, Card Member attrition and costs could increase. Increasing spending on our cards also depends on our continued expansion of merchant acceptance of our cards. If the rate of merchant acceptance growth slows or reverses itself, our business could suffer. Another way we invest in customer value is through our Membership Rewards program, as well as other Card Member benefits. Any significant change in, or failure by management to reasonably estimate, actual redemptions of Membership Rewards points and associated redemption costs could adversely affect our profitability. In addition, many credit card issuers have instituted rewards and cobrand programs and may introduce programs and services that are similar to or more attractive than ours. Our inability to continue to differentiate our products and services generally could materially adversely affect us. We may not be able to cost-effectively manage and expand Card Member benefits, including containing the growth of marketing, promotion, rewards and Card Member services expenses in the future. If such expenses continue to increase beyond our expectations, we will need to find ways to offset the financial impact by increasing payments volume, increasing other areas of revenues such as fee-based revenues, or both. We may not succeed in doing so, particularly in the current competitive and regulatory environment. Our brand and reputation are key assets of our Company, and our business may be affected by how we are perceived in the marketplace. Our brand and its attributes are key assets, and we believe our continued success depends on our ability to preserve, grow and leverage the value of our brand. Our ability to attract and retain consumer and small business Card Members and corporate clients is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, management, workplace culture, merchant acceptance, financial condition, our response to unexpected events and other subjective qualities. Negative perceptions or publicity regarding these matters—even if related to seemingly isolated incidents and whether or not factually correct—could erode trust and confidence and damage our reputation among existing and potential Card Members and corporate clients, which could make it difficult for us to attract new Card Members and customers and maintain existing ones. Negative public opinion could result from actual or alleged conduct in any number of activities or circumstances, including card practices, regulatory compliance and the use and protection of customer information, and from actions taken by regulators or others in response to such conduct. Social media channels can also cause rapid, widespread reputational harm to our brand. Our brand and reputation may also be harmed by actions taken by third parties that are outside our control. For example, any shortcoming of or controversy related to a third-party vendor, merchant acquirer or GNS partner may be attributed by Card Members and merchants to us, thus damaging our reputation and brand value. The lack of acceptance or suppression of card usage by merchants can also negatively impact perceptions of our brand and our products, lower overall transaction volume and increase the attractiveness of other payment products or systems. Adverse developments with respect to our industry may also, by association, negatively impact our reputation, or result in greater regulatory or legislative scrutiny or litigation against us. Furthermore, as a corporation with headquarters and operations located in the United States, a negative perception of the United States arising from its political or other positions could harm the perception of our company and our brand. Although we monitor developments for areas of potential risk to our reputation and brand, negative perceptions or publicity could materially and adversely affect our revenues and profitability. A significant operating disruption, a major information or cyber security incident or an increase in fraudulent activity could lead to reputational damage to our brand and significant legal, regulatory and financial exposure, and could reduce the use and acceptance of our charge and credit cards. We and other third parties process, transmit, store and provide access to account information in connection with our charge and credit cards, and prepaid and other products, and in the normal course of our business, we collect, analyze and retain significant volumes of certain types of personally identifiable and other information pertaining to our customers and employees. 21 Global financial institutions like us have experienced a significant increase in information and cyber security risk in recent years and will likely continue to be the target of increasingly sophisticated cyberattacks, including computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing and impersonation), hacking, denial-of- service attacks and other attacks and similar disruptions from the unauthorized use of or access to computer systems. For example, we and other U.S. financial services providers have been the targets of distributed denial-of-service attacks from sophisticated third parties. Our networks and systems are subject to constant attempts to identify and exploit potential vulnerabilities in our operating environment with intent to disrupt our business operations and capture, destroy or manipulate various types of information relating to corporate trade secrets, customer information, including Card Member, travel and loyalty program account information, employee information and other sensitive business information, including acquisition activity, financial results and intellectual property. There are a number of motivations for cyber threat actors, including criminal activities such as fraud, identity theft and ransom, corporate or nation-state espionage, political agendas, public embarrassment with the intent to cause financial or reputational harm, intent to disrupt information technology systems, and to expose and exploit potential security and privacy vulnerabilities in corporate systems and websites. As outsourcing, specialization of functions, third-party digital services and technology innovation within the payments industry increase (including with respect to mobile technologies, tokenization, big data and cloud storage solutions), more third parties are involved in processing card transactions and there is a risk the confidentiality, integrity, privacy and/or security of data held by, or accessible to, third parties, including merchants that accept our cards, payment processors and our business partners, may be compromised, which could lead to unauthorized transactions on our cards and costs associated with responding to such an incident. In addition, high profile data breaches such as the one announced in 2017 by Equifax, one of the three major credit reporting agencies in the United States, could change consumer behaviors, impact our ability to access data to make product offers and credit decisions and result in legislation and additional regulatory requirements. We develop and maintain systems and processes aimed at detecting and preventing information and cyber security incidents and fraudulent activity, which require significant investment, maintenance and ongoing monitoring and updating as technologies and regulatory requirements change and as efforts to overcome security measures become more sophisticated. Despite our efforts, the possibility of information and cyber security incidents, malicious social engineering, fraudulent or other malicious activities and human error or malfeasance cannot be eliminated entirely. Risks associated with each of these remain, including the unauthorized disclosure, release, gathering, monitoring, misuse, modification, loss or destruction of confidential, proprietary or other information (including account data information) or negative impact to online accounts and systems. These risks will likely evolve as new technology is deployed. For example, with the increased use of EMV technology, we may see a decrease in traditional fraud risk, but sophisticated fraudsters may develop new ways to commit fraud and we may see an increase in online fraud and impersonation and identity takeover attempts. Our information technology systems, including our transaction authorization, clearing and settlement systems, and data centers may experience service disruptions or degradation because of technology malfunction, sudden increases in customer transaction volume, natural disasters, accidents, power outages, internet outages, telecommunications failures, fraud, denial- of-service and other cyberattacks, terrorism, computer viruses, physical or electronic break-ins, or similar events. Service disruptions could prevent access to our online services and account information, compromise Company or customer data, and impede transaction processing and financial reporting. Inadequate infrastructure in lesser-developed countries could also result in service disruptions, which could impact our ability to do business in those countries. If our information technology systems experience a significant disruption or breach, or if actual or perceived fraud levels or other illegal activities involving our cards, customer online accounts or systems were to rise due to an information or cyber security incident at a business partner, merchant or other market participant, employee error, malfeasance or otherwise, it could lead to the loss of data or data integrity, regulatory investigations and intervention (such as mandatory card reissuance), increased litigation (including class action litigation), remediation and response costs, greater concerns of customers and/or business partners relating to the privacy and security of their data, and reputational and financial damage to our brand, which could reduce the use and acceptance of our cards, and have a material adverse impact on our business. If such disruptions or breaches are not detected quickly, their effect could be compounded. Information or cyber security incidents and other actual or perceived failures to maintain confidentiality, integrity, privacy and/or security, including leaked business data, may also disrupt our operations, undermine our competitive advantage through the disclosure of sensitive company information, divert management attention and resources, and negatively impact the assessment of us and our subsidiaries by banking regulators and rating agencies. 22 Successful cyberattacks or data breaches at other large financial institutions, large retailers or other market participants, whether or not we are impacted, could lead to a general loss of customer confidence that could negatively affect us, including harming the market perception of the effectiveness of our security measures or harming the reputation of the financial system in general, which could result in reduced use of our products and services. Although we have insurance for losses related to cyber risks and attacks and information and cyber security and privacy liability, it may not be sufficient to offset the impact of a material loss event. WWe have agreements with business partners in a variety of industries, including the airline industry, that represent a significant portion of our business. We are exposed to risks associated with these industries, including bankruptcies, liquidations, restructurings, consolidations and alliances of our partners, and the possible obligation to make payments to our partners. We may be obligated to make or accelerate payments to certain business partners such as cobrand partners upon the occurrence of certain triggering events such as a shortfall in certain performance and revenue levels. If we are not able to effectively manage these triggering events, we could unexpectedly have to make payments to these partners, which could have a negative effect on our financial condition and results of operations. We are also exposed to risk from bankruptcies, liquidations, insolvencies, financial distress, restructurings, consolidations and other similar events that may occur in any industry representing a significant portion of our billed business, which could negatively impact particular card products and services (and billed business generally) and our financial condition and results of operations. For example, we could be materially impacted if we were obligated to or elected to reimburse Card Members for products and services purchased from merchants that have ceased operations or stopped accepting our cards. We are exposed to credit risk in the airline industry, which accounted for approximately 8 percent of our worldwide billed business for the year ended December 31, 2017, to the extent we protect Card Members against non-delivery of goods and services, such as where we have remitted payment to an airline for a Card Member purchase of tickets that have not yet been used or “flown.” If we are unable to collect the amount from the airline, we may bear the loss for the amount credited to the Card Member. For additional information relating to the general risks related to the airline industry, see “Risk Management—Institutional Credit Risk—Exposure to the Airline Industry” under “MD&A.” We may not be successful in realizing the benefits associated with our acquisitions, strategic alliances, joint ventures and investment activity, and our business and reputation could be negatively impacted. We have acquired a number of businesses and have made a number of strategic investments, and continue to evaluate potential transactions. These transactions could be material to our financial condition and results of operations. There is no assurance that we will be able to successfully identify and secure future acquisition candidates on terms and conditions that are acceptable to us or complete proposed acquisitions and investments, which could impair our growth. The process of integrating an acquired company, business or technology could create unforeseen operating difficulties and expenditures, result in unanticipated liabilities and harm our business generally. It may take us longer than expected to fully realize the anticipated benefits of these transactions, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect our business and operating results, including as a result of write-downs of goodwill and other intangible assets. We may also face risks with other types of strategic transactions, such as the sale to InComm of the operations relating to our prepaid reloadable and gift card business in the United States, which is still subject to final agreement on the program management and issuer processing arrangements. If that transaction is consummated, we could experience disruption in our ability to service our prepaid customers if InComm’s services are interrupted, suspended or terminated for any reason, which could result in additional costs, regulatory risks and harm to our business and reputation. Joint ventures, including our GBT JV, and minority investments inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks associated with the joint venture or minority investment. In addition, we may be dependent on joint venture partners, controlling shareholders or management who may have business interests, strategies or goals that are inconsistent with ours. Business decisions or other actions or omissions of the joint venture partner, controlling shareholders or management may adversely affect the value of our investment, result in litigation or regulatory action against us and otherwise damage our reputation and brand. 23 WWe rely on third-party providers for acquiring customers, technology, platforms and other services integral to the operations of our businesses. These third parties may act in ways that could harm our business. We rely on third-party service providers, merchants, customer acquisition channels, processors, aggregators, GNS partners and other third parties for services that are integral to our operations and are subject to the risk that activities of such third parties may adversely affect our business. For example, we rely on third parties for the timely transmission of accurate information across our global network, card acquisition and provision of services to our customers. If a service provider or other third party ceases to provide the data quality or communications capacity we expect or services upon which we rely, as a result of natural disaster, operational disruptions or errors, terrorism, information or cyber security incidents, or any other reason, the failure could interrupt or compromise the quality of our services to customers or impact our ability to grow our business. There is also a risk the confidentiality, integrity, privacy and/or security of data held by, or accessible to, third parties or communicated over third-party networks or platforms could become compromised, which could significantly harm our business even if the attack or breach does not impact our systems. We are also exposed to the risk that a disruption or other event at a service provider to one of our service providers or partners could impede their ability to provide to us services or data on which we rely to operate our business. Service providers or other third parties could also cease providing data to us if we are unable to negotiate for data use rights or use our data for purposes that do not benefit us, which could diminish the competitive value of our closed loop. The management of multiple third-party vendors increases our operational complexity and decreases our control. A failure to exercise adequate oversight over third-party service providers, including compliance with service level agreements or regulatory or legal requirements, could result in regulatory actions, fines, sanctions or economic and reputational harm to us. In addition, we may not be able to effectively monitor or mitigate operational risks relating to our vendors’ service providers. Our business is subject to the effects of geopolitical events, weather, natural disasters and other conditions. Geopolitical events, terrorist attacks, natural disasters, severe weather conditions, floods, health pandemics, information or cyber security incidents (including intrusion into or degradation of systems or technology by cyberattackers) and other catastrophic events can have a negative effect on our business. Because of our proximity to the World Trade Center, our headquarters were damaged as a result of the terrorist attacks of September 11, 2001. In 2017, hurricanes impacted spending and credit performance in the areas affected. Similar events or other disasters or catastrophic events in the future, and events impacting other sectors of the economy, including the telecommunications and energy sectors, could have a negative effect on our businesses and infrastructure, including our technology and systems. Card Members in California, New York, Florida, Texas and Georgia account for a significant portion of U.S. Consumer billed business and Card Members loans, and our results of operations could be impacted by events or conditions that disproportionately or specifically affect one or more of those states. Because we derive a portion of our revenues from travel-related spending, our business is sensitive to safety concerns related to travel and tourism, limitations on travel and mobility, and health-related risks. In addition, disruptions in air travel and other forms of travel can result in the payment of claims under travel interruption insurance policies we offer and, if such disruptions to travel are prolonged, they can materially adversely affect overall travel-related spending. If the conditions described above (or similar ones) result in widespread or lengthy disruptions to travel, they could have a material adverse effect on our results of operations. Card Member spending may also be negatively impacted in areas affected by natural disasters or other catastrophic events. The impact of such events on the overall economy may also adversely affect our financial condition or results of operations. The exit of the United Kingdom from the European Union could adversely impact our business, results of operations and financial condition. Our business in the United Kingdom and elsewhere may be negatively impacted by the uncertainty regarding the exit of the United Kingdom from the European Union (commonly referred to as Brexit), including from a deterioration of consumer and business activity in the United Kingdom and other countries and general uncertainty in the overall business environment in which we operate. We may experience increased volatility in the value of the pound sterling and the euro, further strengthening the U.S. dollar, which could continue to adversely impact our results of operations from our international activities. The exit itself could also have a negative impact on the United Kingdom and other European economies, which could adversely affect spending on our cards and the ability and willingness of Card Members to pay amounts owed to us. As of December 31, 2017, the EMEA region constituted approximately 11 percent of our worldwide billed business. It is unclear at this stage the financial, trade and legal implications of Brexit, although we expect to make changes to the structure of our business operations in Europe as a result. 24 OOur success is dependent, in part, upon our executive officers and other key personnel, and the loss of key personnel could materially adversely affect our business. Our success depends, in part, on our executive officers and other key personnel. Our senior management team has significant industry experience and would be difficult to replace. We rely upon our key personnel not only for business success, but also to lead with integrity. To the extent our leaders behave in a manner that does not comport with our company’s values, the consequences to our brand and reputation could be severe and could negatively affect our financial condition and results of operations. The market for qualified individuals is highly competitive, and we may not be able to attract and retain qualified personnel or candidates to replace or succeed members of our senior management team or other key personnel. Changes in immigration and work permit laws and regulations or the administration or enforcement of such laws or regulations can also impair our ability to attract and retain qualified personnel, or to employ such personnel in the location(s) of our choice. As further described in “Supervision and Regulation—Compensation Practices,” our compensation practices are subject to review and oversight by the Federal Reserve and the compensation practices of our U.S. bank subsidiaries are subject to review and oversight by the FDIC and the OCC. This regulatory review and oversight could further affect our ability to attract and retain our executive officers and other key personnel. The loss of key personnel could materially adversely affect our business. Legal, Regulatory and Compliance Risks Ongoing legal proceedings regarding provisions in our merchant contracts could have a material adverse effect on our business, result in additional litigation and/or arbitrations, subject us to substantial monetary damages and damage our reputation and brand. The U.S. Department of Justice (DOJ) and certain states’ attorneys general brought an action against us alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from discriminating against our card products violate the U.S. antitrust laws. Following a non-jury trial in the case, the trial court found that the challenged provisions were anticompetitive and issued a final judgment entering a permanent injunction. Following our appeal of this judgment, the Court of Appeals for the Second Circuit reversed the trial court decision and directed the trial court to enter a judgment for American Express. Eleven of the 17 states that are party to the case filed a petition with the Supreme Court seeking a review of the Second Circuit’s decision. On October 16, 2017, the Supreme Court granted certiorari and oral argument is scheduled for February 26, 2018. We are also a defendant in a number of actions and arbitration proceedings, including proposed class actions, filed by merchants that challenge the non-discrimination and honor-all-cards provisions in our card acceptance agreements and seek damages. A description of these legal proceedings is contained in “Legal Proceedings.” An adverse outcome in these proceedings against us could have a material adverse effect on our business and results of operations, require us to change our merchant agreements in a way that could expose our cards to increased merchant steering and other forms of discrimination that could impair the Card Member experience, result in additional litigation and/or arbitrations, impose substantial monetary damages and damage our reputation and brand. Even if we were not required to change our merchant agreements, changes in Visa’s and MasterCard’s policies or practices as a result of legal proceedings, lawsuit settlements or regulatory actions pending against them could result in changes to our business practices and materially and adversely impact our profitability. Our business is subject to comprehensive government regulation and supervision, which could adversely affect our results of operations and financial condition. We are subject to comprehensive government regulation and supervision in jurisdictions around the world, which significantly affects our business, and has the potential to restrict the scope of our existing businesses, increase our costs of doing business, limit our ability to pursue certain business opportunities, require changes to business practices, affect our relationships with partners, merchants and Card Members, or make our products and services more expensive for customers. Regulatory oversight and supervision of our businesses are generally designed to protect consumers and enhance financial stability and are not designed to protect our security holders. New laws or regulations, enhanced supervision efforts or changes in the enforcement of existing laws or regulations applicable to our businesses could impact the profitability of our business activities, limit our ability to pursue business opportunities or adopt new technologies, require us to change certain of our business practices or alter our relationships with partners, merchants and Card Members, or affect retention of our key personnel. Such changes also may require us to invest significant management attention and resources to make any necessary changes and could adversely affect our results of operations and financial condition. Legislators and regulators around the world are aware of each other’s approaches to the regulation of the payments industry. Consequently, a development in one country, state or region may influence regulatory approaches in another. To the extent that different regulatory systems impose overlapping or inconsistent requirements on the conduct of our business, we face complexity and additional costs in our compliance efforts. 25 If we fail to satisfy regulatory requirements or maintain our financial holding company status, our financial condition and results of operations could be adversely affected, and we may be restricted in our ability to take certain capital actions (such as declaring dividends or repurchasing outstanding shares) or engage in certain activities or acquisitions. Additionally, our banking regulators have wide discretion in the examination and the enforcement of applicable banking statutes and regulations and may restrict our ability to engage in certain activities or acquisitions or require us to maintain more capital. In recent years, legislators and regulators have focused on the operation of card networks, including interchange fees paid to card issuers in payment networks such as Visa and MasterCard and the fees merchants are charged to accept cards. Even where we are not directly regulated, regulation of bankcard fees can significantly negatively impact the discount revenue derived from our business, including as a result of downward pressure on our discount rate from decreases in competitor pricing in connection with caps on interchange fees. In some cases, regulations extend to certain aspects of our business, such as GNS and cobrand arrangements or terms of card acceptance for merchants, including terms relating to non- discrimination and honor-all-cards. For example, regulations in the EU and Australia have undermined our GNS business in those jurisdictions and have resulted in the moderation of GNS billed business growth. In addition, there is uncertainty as to when or how interchange fee cap provisions and other provisions might apply when we work with cobrand partners and agents in the EU following a ruling from the EU Court of Justice, and there can be no assurance we will be able to maintain such relationships in their current form. We are subject to certain provisions of the Bank Secrecy Act, as amended by the Patriot Act, with regard to maintaining effective AML programs. Similar AML requirements apply under the laws of most jurisdictions where we operate. Increased regulatory focus in this area could result in additional obligations or restrictions with respect to the types of products and services we may offer to consumers, the countries in which our cards may be used, and the types of customers and merchants who can obtain or accept our cards. Activity such as money laundering or terrorist financing involving our cards could result in enforcement action, and our reputation may suffer due to our customers’ association with certain countries, persons or entities or the existence of any such transactions. U.S. federal law regulates abusive debt collection practices, which, along with bankruptcy and debtor relief laws, can affect our ability to collect amounts owed to us or subject us to regulatory scrutiny. Our ability to recover debt we had previously written- off may be limited, which could have a negative impact on our results of operations. Various regulatory agencies and legislatures are also considering regulations and legislation covering identity theft, account management guidelines, credit bureau reporting, disclosure rules, security and marketing that would impact us directly, in part due to increased scrutiny of our underwriting and account management standards. These new requirements may restrict our ability to issue charge and credit cards or partner with other financial institutions, which could adversely affect our revenue growth. See “Supervision and Regulation” for more information about certain laws and regulations to which we are subject and their impact on us. LLitigation and regulatory actions could subject us to significant fines, penalties, judgments and/or requirements resulting in significantly increased expenses, damage to our reputation and/or a material adverse effect on our business. Businesses in the financial services and payments industries have historically been subject to significant legal actions, including class action lawsuits. Many of these actions have included claims for substantial compensatory or punitive damages. While we have historically relied on our arbitration clause in agreements with customers to limit our exposure to class action litigation, there can be no assurance that we will continue to be successful in enforcing our arbitration clause in the future. The continued focus of merchants on issues relating to the acceptance of various forms of payment may lead to additional litigation and other legal actions. Given the inherent uncertainties involved in litigation, and the very large or indeterminate damages sought in some matters asserted against us, there is significant uncertainty as to the ultimate liability we may incur from litigation matters. We have been subject to regulatory actions by the CFPB and other regulators and may continue to be subject to such actions, including governmental inquiries, investigations and enforcement proceedings, in the event of noncompliance or alleged noncompliance with laws or regulations. Regulatory action could subject us to significant fines, penalties or other requirements resulting in Card Member reimbursements, increased expenses, limitations or conditions on our business activities, and damage to our reputation and our brand, which could adversely affect our results of operations and financial condition. We expect that regulators will continue taking formal enforcement actions against financial institutions in addition to addressing supervisory concerns through non-public supervisory actions or findings, which could involve restrictions on our activities, among other limitations that could adversely affect our business. 26 WWe are subject to capital adequacy and liquidity rules, and if we fail to meet these rules, our business would be adversely affected. Failure to meet current or future capital or liquidity requirements, including those imposed by the Capital Rules, the LCR, the NSFR or by regulators in implementing other portions of the Basel III framework and the enhanced supervision requirements of Dodd-Frank, could compromise our competitive position and could result in restrictions imposed by the Federal Reserve, including limiting our ability to pay dividends, repurchase our capital stock, invest in our business, expand our business or engage in acquisitions. Some elements of the capital and liquidity regimes are not yet final and certain developments could significantly impact the requirements applicable to financial institutions. For example, the Basel Committee finalized revisions to the standardized approach for credit risk and operational risk capital requirements. If these revisions are adopted in the United States, we could be required to hold significantly more capital. As a result, the ultimate impact on our long-term capital and liquidity planning and our results of operations is not certain, although an increase in our capital and liquid asset levels could lower our return on equity. As part of our required stress testing, both internally and by the Federal Reserve, we must continue to comply with applicable capital standards as calculated under the standardized approach in the adverse and severely adverse economic scenarios published by the Federal Reserve each year. To satisfy these requirements, it may be necessary for us to hold additional capital in excess of that required by the Capital Rules. Compliance with capital adequacy and liquidity rules, including the Capital Rules and the LCR, requires a material investment of resources. An inability to meet regulatory expectations regarding our compliance with applicable capital adequacy and liquidity rules may also negatively impact the assessment of the Company and our U.S. bank subsidiaries by federal banking regulators. We continue to progress through the parallel run phase of Basel III advanced approaches implementation. Depending on how the advanced approaches are ultimately implemented for our asset types, our capital ratios calculated under the advanced approaches may be lower than under the standardized approach. In such a case, we may need to hold significantly more regulatory capital in order to maintain a given capital ratio. For more information on capital adequacy requirements, see “Capital, Leverage and Liquidity Regulation” under “Supervision and Regulation.” We are subject to restrictions that limit our ability to pay dividends and repurchase our capital stock. Our subsidiaries are also subject to restrictions that limit their ability to pay dividends to us, which may adversely affect our liquidity. We are limited in our ability to pay dividends and repurchase capital stock by our regulators, who have broad authority to prohibit any action that would be considered an unsafe or unsound banking practice. For example, we are subject to a requirement to submit capital plans that include, among other things, projected dividend payments and repurchases of capital stock to the Federal Reserve for review. As part of the capital planning and stress testing process, our proposed capital actions are assessed against our ability to satisfy applicable capital requirements in the event of a stressed market environment. If the Federal Reserve objects to our capital plan or if we fail to satisfy applicable capital requirements, our ability to undertake capital actions may be restricted. In addition, the Capital Rules include a capital conservation buffer and a countercyclical capital buffer, which is currently set at zero but which could be increased by the Federal Reserve in the future. These buffers can be satisfied only with CET1 capital. If our risk-based capital ratios were to fall below the applicable buffer levels, we would be subject to certain restrictions on dividends, stock repurchases and other capital distributions, as well as discretionary bonus payments to executive officers. A failure to increase dividends along with our competitors, or any reduction of, or elimination of, our common stock dividend or share repurchase program would likely adversely affect the market price of our common stock and market perceptions of American Express. Our ability to declare or pay dividends on, or to purchase, redeem or otherwise acquire, shares of our common stock will be prohibited, subject to certain exceptions, in the event that we do not declare and pay in full dividends for the last preceding dividend period of our Series B and Series C preferred stock. American Express Company relies on dividends from its subsidiaries for liquidity, and federal and state laws limit the amount of dividends that our subsidiaries may pay to the parent company. In particular, our U.S. bank subsidiaries are subject to various statutory and regulatory limitations on their declaration and payment of dividends. These limitations may hinder our ability to access funds we may need to make payments on our obligations, make dividend payments on outstanding American Express Company capital stock or otherwise achieve strategic objectives. For more information on bank holding company and depository institution dividend restrictions, see “Dividends and Other Capital Distributions” under “Supervision and Regulation,” as well as “Consolidated Capital Resources and Liquidity—Share Repurchases and Dividends” under “MD&A” and Note 23 to our “Consolidated Financial Statements.” 27 RRegulation in the areas of privacy, data protection, account access and information and cyber security could increase our costs and affect or limit our business opportunities and how we collect and/or use personal information. As privacy, data protection and information and cyber security laws, including data localization, authentication and account access laws, are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection, data transfer and account access mechanisms are in place. In recent years, there has been increasing regulatory enforcement and litigation activity in the areas of privacy, data protection and information security in the United States and in various countries in which we operate. In addition, state and federal legislators and/or regulators in the United States and other countries in which we operate are increasingly adopting or revising privacy, data protection, account access and information and cyber security laws that potentially could have significant impact on our current and planned privacy, data protection, account access and information and cyber security-related practices, our collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of our current or planned business activities. New legislation or regulation could increase our costs of compliance and business operations and could reduce revenues from certain business initiatives. Moreover, the application of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost. Compliance with current or future privacy, data protection, account access and information and cyber security laws relating to consumer and/or employee data could result in higher compliance and technology costs and could restrict our ability to fully maximize our closed-loop capability or provide certain products and services, which could materially and adversely affect our profitability. Our failure to comply with privacy, data protection, account access and information and cyber security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, decreases in the use or acceptance of our cards and damage to our reputation and our brand. We may not be able to effectively manage the operational and compliance risks to which we are exposed. We consider operational risk to be the risk of not achieving business objectives due to inadequate or failed processes or information systems, poor data quality, human error or the external environment (e.g., natural disasters). Operational risk includes, among others, the risk that employee error or intentional misconduct could result in a material financial misstatement, a failure to monitor a third party’s compliance with a service level agreement or regulatory or legal requirements, or a failure to adequately monitor and control access to, or use of, data in our systems we grant to third-party service providers. As processes or organizations are changed, or new products and services are introduced, we may not fully appreciate or identify new operational risks that may arise from such changes. Compliance risk arises from the failure to adhere to applicable laws, rules, regulations and internal policies and procedures. Operational and compliance risks can expose us to reputational and legal risks as well as fines, civil money penalties or payment of damages and can lead to diminished business opportunities and diminished ability to expand key operations. If we are not able to protect our intellectual property, or successfully defend against any infringement or misappropriation assertions brought against us, our revenue and profitability could be negatively affected. We rely on a variety of measures to protect our intellectual property and control access to, and distribution of, our proprietary information. These measures may not prevent infringement of our intellectual property rights or misappropriation of our proprietary information and a resulting loss of competitive advantage. In addition, competitors or other third parties may allege that our systems, processes or technologies infringe on their intellectual property rights. Given the complex, rapidly changing and competitive technological and business environments in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, a future assertion of an infringement or misappropriation claim against us could cause us to lose significant revenues, incur significant defense, license, royalty or technology development expenses, and/or pay significant monetary damages. Tax legislative initiatives or assessments by governmental authorities could adversely affect our results of operations and financial condition. We are subject to income and other taxes in the United States and in various foreign jurisdictions. The laws and regulations related to tax matters are extremely complex and subject to varying interpretations. Although management believes our positions are reasonable, we are subject to audit by the Internal Revenue Service in the United States and by tax authorities in all the jurisdictions in which we conduct business operations. We are being challenged in a number of countries regarding our application of value-added taxes (VAT) to certain transactions. While we believe we comply with all applicable VAT and other tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional taxes or apply existing laws and regulations more broadly, which could result in a significant increase in liabilities for taxes and interest in excess of accrued liabilities. 28 New tax legislative initiatives may be proposed from time to time, which may impact our effective tax rate and could adversely affect our tax positions or tax liabilities. For example, the impacts of the Tax Cuts and Jobs Act in the United States resulted in a $2.6 billion charge in the fourth quarter of 2017, representing our current estimate of taxes primarily on the deemed repatriation of certain overseas earnings and the remeasurement of U.S. deferred tax assets and liabilities. In addition, unilateral or multi-jurisdictional actions by various tax authorities, including an increase in tax audit activity, could have an adverse impact on our tax liabilities. CChanges in accounting principles or standards could adversely affect our reported financial results in a particular period, even if there are no underlying changes in the economics of the business. We are subject to changes in and interpretations of financial accounting matters that govern the measurement of our performance, which could change the way we account for certain of our transactions even if we do not change the way in which we transact. A change in accounting guidance can have a significant effect on our reported results, may retroactively affect previously reported results and could cause fluctuations in our reported results. For more information on recently issued accounting standards, see Note 1 to our “Consolidated Financial Statements.” Credit, Liquidity and Market Risks Our risk management policies and procedures may not be effective. Our risk management framework seeks to identify and mitigate risk and appropriately balance risk and return. We have established policies and procedures intended to identify, monitor and manage the types of risk to which we are subject, including credit risk, market risk, asset liability risk, liquidity risk, operational risk, compliance risk, model risk, strategic and business risk and reputational risk. See “Risk Management” under “MD&A” for a discussion of the policies and procedures we use to identify, monitor and manage the risks we assume in conducting our businesses. Although we have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future, these policies and procedures, as well as our risk management techniques, such as our hedging strategies, may not be fully effective. There may also be risks that exist, or develop in the future, that we have not appropriately anticipated, identified or mitigated. As regulations and markets in which we operate continue to evolve, our risk management framework may not always keep sufficient pace with those changes. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected. Management of our risks in some cases depends upon the use of analytical and/or forecasting models. Although we have a governance framework for model development and independent model validation, the modeling methodology could be erroneous or the models could be misused. If our decisions are based on incorrect or misused model outputs and reports, we may face adverse consequences, such as financial loss, poor business and strategic decision-making, or damage to our reputation. In addition, some decisions our regulators make, including those related to our capital distribution plans, may be adversely impacted if they perceive the quality of our models to be insufficient. We may not be able to effectively manage individual or institutional credit risk, or credit trends that can affect spending on card products and the ability of customers and partners to pay us, which could have a material adverse effect on our results of operations and financial condition. We are exposed to both individual credit risk, principally from consumer and small business Card Member receivables and loans, and institutional credit risk from merchants, GNS partners, GCS clients, loyalty coalition partners and treasury and investment counterparties. Third parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. Country, regional and political risks can contribute to credit risk. Our ability to assess creditworthiness may be impaired if the criteria or models we use to manage our credit risk become less predictive of future losses, which could cause our losses to rise and have a negative impact on our results of operations. Rising delinquencies and rising rates of bankruptcy are often precursors of future write-offs and may require us to increase our reserve for loan losses. We are continuing to experience relatively low delinquency and write-off rates, but expect that these rates will increase over time. Higher write-off rates and the resulting increase in our reserve for loan losses adversely affect our profitability and the performance of our securitizations, and may increase our cost of funds. 29 Although we make estimates to provide for credit losses in our outstanding portfolio of loans and receivables, these estimates may not be accurate. In addition, the information we use in managing our credit risk may be inaccurate or incomplete. Although we regularly review our credit exposure to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. In addition, our ability to manage credit risk may be adversely affected by legal or regulatory changes (such as bankruptcy laws and minimum payment regulations). Increased credit risk, whether resulting from underestimating the credit losses inherent in our portfolio of loans and receivables, deteriorating economic conditions (particularly in the United States where approximately 74 percent of our revenues are generated), increases in the level of loan balances, changes in our mix of business or otherwise, could require us to increase our provisions for losses and could have a material adverse effect on our results of operations and financial condition. IInterest rate increases could materially adversely affect our earnings. If the rate of interest we pay on our borrowings increases more than the rate of interest we earn on our loans, our net interest yield, and consequently our net income, could fall. Our interest expense was approximately $2.1 billion for the year ended December 31, 2017. A hypothetical 100 basis point increase in market interest rates would have resulted in a decrease to our annual net interest income of approximately $167 million as of December 31, 2017. We expect the rates we pay on our deposits will increase as benchmark interest rates increase. In addition, interest rate changes may affect customer behavior, such as impacting the loan balances Card Members carry on their credit cards or their ability to make payments as higher interest rates lead to higher payment requirements, further impacting our results of operations. For a further discussion of our interest rate risk, see “Risk Management — Market Risk Management Process” under “MD&A.” Adverse financial market conditions may significantly affect our ability to meet liquidity needs, access to capital and cost of capital. We need liquidity to pay merchants, operating and other expenses, interest on debt and dividends on capital stock and to repay maturing liabilities. The principal sources of our liquidity are payments from Card Members, cash flows from our investment portfolio, cash and cash equivalents, proceeds from the issuance of unsecured medium- and long-term notes and asset securitizations and direct and third-party sourced deposits, securitized borrowings through our secured financing facilities, a committed bank borrowing facility and the Federal Reserve discount window. Our ability to obtain financing in the debt capital markets for unsecured term debt and asset securitizations is dependent on market conditions. Disruptions, uncertainty or volatility across the financial markets, as well as adverse developments affecting our competitors and the financial industry generally, could negatively impact market liquidity and limit our access to funding required to operate our business. Such market conditions may also limit our ability to replace, in a timely manner, maturing liabilities, satisfy regulatory capital requirements and access the funding necessary to grow our business. In some circumstances, we may incur an unattractive cost to raise capital, which could decrease profitability and significantly reduce financial flexibility. For a further discussion of our liquidity and funding needs, see “Consolidated Capital Resources and Liquidity — Funding Programs and Activities” under “MD&A.” Any reduction in our and our subsidiaries’ credit ratings could increase the cost of our funding from, and restrict our access to, the capital markets and have a material adverse effect on our results of operations and financial condition. Rating agencies regularly evaluate us and our subsidiaries, and their ratings of our and our subsidiaries’ long-term and short- term debt and deposits are based on a number of factors, including financial strength as well as factors not within our control, including conditions affecting the financial services industry generally, and the wider state of the economy. Our and our subsidiaries’ ratings could be downgraded at any time and without any notice by any of the rating agencies, which could, among other things, adversely limit our access to the capital markets and adversely affect the cost and other terms upon which we and our subsidiaries are able to obtain funding. Adverse currency fluctuations and foreign exchange controls could decrease earnings we receive from our international operations and impact our capital. During 2017, approximately 26 percent of our total revenues net of interest expense were generated from activities outside the United States. We are exposed to foreign exchange risk from our international operations, and accordingly the revenue we generate outside the United States is subject to unpredictable fluctuations if the values of other currencies change relative to the U.S. dollar, which could have a material adverse effect on our results of operations. 30 Foreign exchange regulations or capital controls might restrict or prohibit the conversion of other currencies into U.S. dollars or our ability to transfer them. Political and economic conditions in other countries could also impact the availability of foreign exchange for the payment by the local card issuer of obligations arising out of local Card Members’ spending outside such country and for the payment of card bills by Card Members who are billed in a currency other than their local currency. Substantial and sudden devaluation of local Card Members’ currency can also affect their ability to make payments to the local issuer of the card in connection with spending outside the local country. The occurrence of any of these circumstances could further impact our results of operations. Continuing concerns regarding the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries may cause the value of the euro to fluctuate more widely than in the past and could lead to the reintroduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely. If there is a significant devaluation of the euro and we are unable to hedge our foreign exchange exposure to the euro, the value of our euro-denominated assets and liabilities would be correspondingly reduced when translated into U.S. dollars for inclusion in our financial statements. Similarly, the reintroduction of certain individual country currencies or the complete dissolution of the euro could adversely affect the value of our euro-denominated assets and liabilities. The reintroduction of individual country currencies would require us to reconfigure our billing and other systems to reflect individual country currencies in place of the euro. Implementing such changes could be costly and failures in the currency reconfiguration could cause disruptions in our normal business operations. In addition, foreign currency derivative instruments to hedge our market exposure to re-introduced currencies may not be immediately available or may not be available on terms that are acceptable to us. The potential developments regarding Europe and the euro, or market perceptions concerning these and related issues, could continue to have an adverse impact on consumer and business behavior in Europe and globally, which could have a material adverse effect on our business, financial condition and results of operations. AAn inability to accept or maintain deposits due to market demand or regulatory constraints could materially adversely affect our liquidity position and our ability to fund our business. Our U.S. bank subsidiaries accept deposits from individuals through third-party brokerage networks as well as directly from consumers through American Express Personal Savings, and use the proceeds as a source of funding. As of December 31, 2017, we had approximately $63.7 billion in total U.S. retail deposits, of which a significant amount had been raised through third-party brokerage networks. We face strong competition with regard to deposits, and pricing and product changes may adversely affect our ability to attract and retain cost-effective deposit balances. If we are required to offer higher interest rates to attract or maintain deposits, our funding costs will be adversely impacted. Our ability to obtain deposit funding and offer competitive interest rates on deposits is also dependent on capital levels of our U.S. bank subsidiaries. The FDIA’s brokered deposit provisions and related FDIC rules in certain circumstances prohibit banks from accepting or renewing brokered deposits and apply other restrictions, such as a cap on interest rates that can be paid. See “Prompt Corrective Action” under “Supervision and Regulation” for additional information. While Centurion Bank and American Express Bank were considered “well capitalized” as of December 31, 2017 and had no restrictions regarding acceptance of brokered deposits or setting of interest rates, there can be no assurance they will continue to meet this definition. The Capital Rules require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. Additionally, our regulators can adjust the requirements to be “well capitalized” at any time and have authority to place limitations on our deposit businesses, including the interest rates we pay on deposits. An inability to attract or maintain deposits in the future could materially adversely affect our liquidity position and our ability to fund our business. The value of our assets or liabilities may be adversely impacted by economic, political or market conditions. Market risk includes the loss in value of portfolios and financial instruments due to adverse changes in market variables, which could negatively impact our financial condition. We held approximately $3.2 billion of investment securities as of December 31, 2017. In the event that actual default rates of these investment securities were to significantly change from historical patterns due to challenges in the economy or otherwise, it could have a material adverse impact on the value of our investment portfolio, potentially resulting in impairment charges. Defaults or economic disruptions, even in countries or territories in which we do not have material investment exposure, conduct business or have operations, could adversely affect us. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. 31 IITEM 2. PROPERTIES Our principal executive offices are in a 2.2 million square foot building located in lower Manhattan on land leased from the Battery Park City Authority for a term expiring in 2069. We have an approximately 49 percent ownership interest in the building and an affiliate of Brookfield Financial Properties owns the remaining approximately 51 percent interest in the building. We also lease space in the building from Brookfield’s affiliate. Other owned or leased principal locations include American Express offices in Sunrise, Florida, Phoenix, Arizona, Salt Lake City, Utah, Mexico City, Mexico, Sydney, Australia, Singapore, Gurgaon, India, Manila, Philippines, and Brighton, England; the American Express data centers in Phoenix, Arizona and Greensboro, North Carolina; the headquarters for American Express Services Europe Limited in London, England; and the Amex Bank of Canada and Amex Canada Inc. headquarters in Toronto, Ontario, Canada. Generally, we lease the premises we occupy in other locations. We believe the facilities we own or occupy suit our needs and are well maintained. 32 IITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, we are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings). We do not believe we are a party to, nor are any of our properties the subject of, any legal proceeding that would have a material adverse effect on our consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, including the fact that some pending legal proceedings are at preliminary stages and seek an indeterminate amount of damages, it is possible that the outcome of legal proceedings could have a material impact on our results of operations. In addition, it is possible that significantly increased merchant steering or other actions impairing the Card Member experience as a result of the DOJ or merchant cases described later in this section could have a material adverse effect on our business. Certain legal proceedings involving us or our subsidiaries are described below. For additional information, see Note 13 to our “Consolidated Financial Statements.” Antitrust Matters In 2010, the DOJ, along with Attorneys General from Arizona, Connecticut, Hawaii (Hawaii has since withdrawn its claim), Idaho, Illinois, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah and Vermont filed a complaint in the U.S. District Court for the Eastern District of New York against us alleging a violation of Section 1 of the Sherman Antitrust Act. The complaint included allegations that provisions in our merchant agreements prohibiting merchants from steering a customer to use another network’s card or another type of general- purpose card (“anti-steering” and “non-discrimination” contractual provisions) violate the antitrust laws. The complaint sought a judgment permanently enjoining us from enforcing our non-discrimination contractual provisions. The complaint did not seek monetary damages. Following a non-jury trial, the trial court found that the challenged provisions were anticompetitive and on April 30, 2015, the court issued a final judgment entering a permanent injunction. Following our appeal of this judgment, on September 26, 2016, the Court of Appeals for the Second Circuit reversed the trial court decision and judgment in favor of American Express was entered on January 25, 2017. Eleven of the 17 states that are party to the case filed a petition with the Supreme Court seeking a review of the Second Circuit’s decision. On October 16, 2017, the Supreme Court granted certiorari and oral argument is scheduled for February 26, 2018 in the case, now captioned Ohio v. American Express Co. In addition, individual merchant cases and a putative class action, which were consolidated in 2011 and collectively captioned In re: American Express Anti-Steering Rules Antitrust Litigation (II), are pending in the Eastern District of New York against us alleging that our anti-steering provisions in merchant card acceptance agreements violate U.S. antitrust laws. The individual merchant cases seek damages in unspecified amounts and injunctive relief. In July 2004, we were named as a defendant in another putative class action filed in the Southern District of New York and subsequently transferred to the Eastern District of New York, captioned The Marcus Corporation v. American Express Co., et al., in which the plaintiffs allege an unlawful antitrust tying arrangement between certain of our charge cards and credit cards in violation of various state and federal laws. The plaintiffs in this action seek injunctive relief and an unspecified amount of damages. In re: American Express Anti-Steering Rules Antitrust Litigation (II) and The Marcus Corporation v. American Express Co., et al., including a trial previously scheduled in the individual merchant cases, are stayed pending resolution of the appeal in Ohio v. American Express Co. Further proceedings are anticipated. Individual merchants have also initiated arbitration proceedings raising similar claims concerning the anti-steering provisions in our card acceptance agreements and seeking damages. We are vigorously defending against those claims, which are similarly stayed. On March 8, 2016, plaintiffs B&R Supermarket, Inc. d/b/a Milam’s Market and Grove Liquors LLC, on behalf of themselves and others, filed a suit, captioned B&R Supermarket, Inc. d/b/a Milam’s Market, et al. v. Visa Inc., et al., for violations of the Sherman Antitrust Act, the Clayton Antitrust Act, California’s Cartwright Act and unjust enrichment in the United States District Court for the Northern District of California, against American Express Company, other credit and charge card networks, other issuing banks and EMVCo, LLC. Plaintiffs allege that the defendants, through EMVCo, conspired to shift liability for fraudulent, faulty and otherwise rejected consumer credit card transactions from themselves to merchants after the implementation of EMV chip payment terminals. Plaintiffs seek damages and injunctive relief. An amended complaint was filed on July 15, 2016. On September 30, 2016, the court denied our motion to dismiss as to claims brought by merchants who do not accept American Express cards, and on May 4, 2017, the California court transferred the case to the United States District Court for the Eastern District of New York. 33 CCorporate Matters On July 30, 2015, plaintiff Plumbers and Steamfitters Local 137 Pension Fund, on behalf of themselves and other purchasers of American Express stock, filed a suit, captioned Plumbers and Steamfitters Local 137 Pension Fund v. American Express Co., Kenneth I. Chenault and Jeffrey C. Campbell, in the United States District Court for the Southern District of New York for violation of federal securities law, alleging that the Company deliberately issued false and misleading statements to, and omitted important information from, the public relating to the financial importance of the Costco cobrand relationship to the Company, including, but not limited to, the decision to accelerate negotiations to renew the cobrand agreement. The plaintiff sought damages and injunctive relief. On October 2, 2017, the Court granted defendants’ motion to dismiss the plaintiff’s amended complaint. The plaintiff has appealed the court’s decision. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 34 PPART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Our common stock trades principally on The New York Stock Exchange under the trading symbol AXP. As of December 31, 2017, we had 22,262 common shareholders of record. You can find price and dividend information concerning our common stock in Note 27 to our “Consolidated Financial Statements.” For information on dividend restrictions, see “Dividends and Other Capital Distributions” under “Supervision and Regulation” and Note 23 to our “Consolidated Financial Statements.” You can find information on securities authorized for issuance under our equity compensation plans under the caption “Executive Compensation — Equity Compensation Plans” to be contained in our definitive 2018 proxy statement for our Annual Meeting of Shareholders, which is scheduled to be held on May 7, 2018. The information to be found under such caption is incorporated herein by reference. Our definitive 2018 proxy statement for our Annual Meeting of Shareholders is expected to be filed with the Securities and Exchange Commission (SEC) in March 2018 (and, in any event, not later than 120 days after the close of our most recently completed fiscal year). Stock Performance Graph The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. The following graph 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, 2012, including the reinvestment of all dividends. Cumulative Value of $100 Invested on December 31, 2012 American Express S&P 500 Index S&P Financial Index 250.00 200.00 150.00 100.00 50.00 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Year-end Data American Express S&P 500 Index S&P Financial Index $ $ $ 2012 100.00 100.00 100.00 $ $ $ 2013 159.84 132.37 135.59 $ $ $ 2014 165.70 150.48 156.17 $ $ $ 2015 125.57 152.55 153.72 $ $ $ 2016 136.34 170.78 188.69 $ $ $ 2017 185.70 208.05 230.47 35 (b) Not applicable. (c) Issuer Purchases of Securities The table below sets forth the information with respect to purchases of our common stock made by us or on our behalf during the quarter ended December 31, 2017. October 1-31, 2017 Repurchase program(a) Employee transactions(b) November 1-30, 2017 Repurchase program(a) Employee transactions(b) December 1-31, 2017 Repurchase program(a) Employee transactions(b) Total Repurchase program(a) Employee transactions(b) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(c) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 4,040,661 — 3,932,622 4,907 5,720,526 — 13,693,809 4,907 $91.78 — $94.78 $95.22 $98.79 — $95.57 $95.22 4,040,661 N/A 3,932,622 N/A 5,720,526 N/A 13,693,809 N/A 94,655,567 N/A 90,722,945 N/A 85,002,419 N/A 85,002,419 N/A (a) On September 26, 2016, the Board of Directors authorized the repurchase of up to 150 million shares of common stock from time to time, subject to market conditions and the Federal Reserve’s non-objection to our capital plans. This authorization replaced the prior repurchase authorization and does not have an expiration date. (b) Includes: (i) shares surrendered by holders of employee stock options who exercised options (granted under our incentive compensation plans) in satisfaction of the exercise price and/or tax withholding obligation of such holders and (ii) restricted shares withheld (under the terms of grants under our incentive compensation plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. Our incentive compensation plans provide that the value of the shares delivered or attested to, or withheld, be based on the price of our common stock on the date the relevant transaction occurs. (c) Share purchases under publicly announced programs are made pursuant to open market purchases or privately negotiated transactions (including employee benefit plans) as market conditions warrant and at prices we deem appropriate. 36 IITEM 6. SELECTED FINANCIAL DATA $$ $$ $$ $$ $$ $$ Operating Results (($ in Millions) Total revenues net of interest expense Provisions for losses(a) Expenses(b) Pretax income Income tax provision Net income Return on average equity(c) Return on average assets(c) Balance Sheet (($ in Millions) Cash and cash equivalents Card Member loans and receivables HFS Accounts receivable, net Loans, net Investment securities Total assets Customer deposits Travelers Cheques outstanding and other prepaid products Short-term borrowings Long-term debt Shareholders’ equity Average shareholders' equity to average total assets ratio Common Share Statistics Earnings per share: Net income attributable to common shareholders:(d) Basic Diluted Cash dividends declared per common share Dividend payout ratio(e) Book value per common share Market price per share: High Low Close Average common shares outstanding (millions): Basic Diluted Shares outstanding at period end (millions) Other Statistics Number of employees at period end (thousands): United States Outside the United States Total Number of shareholders of record 22017 2016 2015 2014 2013 33,471 $ 2,759 23,298 7,414 4,678 2,736 $ 13.1 % 1.6 % 32,927 $ — 56,689 74,300 3,159 181,159 64,452 2,593 3,278 55,804 18,227 $ 12.4 % 2.98 $ 2.97 1.34 45.0 % 19.338 100.53 74.74 99.31 $ 883 886 859 20 35 55 22,262 32,119 $ 2,026 21,997 8,096 2,688 5,408 $ 26.0 % 3.4 % 25,208 $ — 50,073 65,461 3,157 158,893 53,042 2,812 5,581 46,990 20,501 $ 13.1 % 5.67 $ 5.65 1.22 21.5 % 20.93 75.74 50.27 74.08 $ 933 935 904 21 35 56 23,572 32,818 $ 1,988 22,892 7,938 2,775 5,163 $ 24.0 % 3.3 % 22,762 $ 14,992 46,695 58,799 3,759 161,184 54,997 3,247 4,812 48,061 20,673 $ 13.5 % 5.07 $ 5.05 1.13 22.3 % 19.71 93.94 67.57 69.55 $ 999 1,003 969 21 34 55 24,704 34,188 $ 2,044 23,153 8,991 3,106 5,885 $ 29.1 % 3.8 % 22,288 $ — 47,000 70,104 4,431 159,103 44,171 3,673 3,480 57,955 20,673 $ 13.1 % 5.58 $ 5.56 1.01 18.1 % 20.21 96.24 78.41 93.04 $ 1,045 1,051 1,023 22 32 54 25,767 32,870 1,832 23,150 7,888 2,529 5,359 27.8 % 3.5 % 19,486 — 47,185 66,585 5,016 153,375 41,763 4,240 5,021 55,330 19,496 12.6 % 4.91 4.88 0.89 18.1 % 18.32 90.79 58.31 90.73 1,082 1,089 1,064 26 37 63 22,238 (a) Beginning December 1, 2015 through to the sale completion dates, did not reflect provisions for Card Member loans and receivables related to our cobrand partnerships with JetBlue Airways Corporation (JetBlue) and Costco Wholesale Corporation (Costco) in the United States (the HFS portfolios). (b) Beginning December 1, 2015 through to the sale completion dates, included the valuation allowance adjustment associated with the HFS portfolios. (c) Return on average equity and return on average assets are calculated by dividing one-year period of net income by one-year average of total shareholders’ equity or total assets, respectively. (d) Represents net income, less earnings allocated to participating share awards and dividends on preferred shares. (e) Calculated on year’s dividends declared per common share as a percentage of the year’s net income available per common share. 37 IITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) EXECUTIVE OVERVIEW BUSINESS INTRODUCTION We are a global services company with four reportable operating segments: U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global Merchant Services (GMS). Corporate functions and certain other businesses and operations are included in Corporate & Other. The following types of revenue are generated from our various products and services: • Discount revenue, our largest revenue source, represents fees generally charged to merchants for accepting our cards as payment for goods or services sold. The fees charged, or merchant discount, which is generally expressed as a percentage of the charge amount, varies with, among other factors, the industry in which the merchant does business, the charge amount and the merchant’s overall charge volume, the method of submission of charges, the timing and method of payment to the merchant and, in certain instances, the geographic scope for the related card acceptance agreement (e.g., domestic or global). In some instances, an additional flat transaction fee is assessed as part of the merchant discount, and additional fees may be charged such as a variable fee for “non-swiped” card transactions or for transactions using cards issued outside the United States at merchants located in the United States; • Interest on loans, principally represents interest income earned on outstanding balances; • Net card fees, represent revenue earned from annual card membership fees, which varies based on the type of card and the number of cards for each account; • Other fees and commissions, represent Card Member delinquency fees, foreign currency conversion fees charged to Card Members, loyalty coalition-related fees, travel commissions and fees, service fees and fees related to our Membership Rewards program; and • Other revenue, represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees), cross-border Card Member spending, insurance premiums, ancillary merchant- related fees, prepaid card and Travelers Cheque-related revenue, revenues related to the American Express Global Business Travel Joint Venture (the GBT JV) transition services agreement and earnings from equity method investments (including the GBT JV). TAX CUTS AND JOBS ACT On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to the U.S. federal corporate income tax rules that, beginning in 2018, will significantly decrease our income tax expense and reduce our effective tax rate to the low 20s, before discrete items. Most notably, effective January 1, 2018, the Tax Act reduces the U.S. federal statutory corporate income tax rate from 35 percent to 21 percent, introduces a territorial tax system in which future dividends paid from earnings outside the United States to a U.S. corporation are not subject to U.S. federal taxation and imposes new U.S. federal corporate income taxes on certain foreign operations. While the Tax Act will positively impact our earnings in future periods, two provisions of the Tax Act drove a 2017 charge of $2.6 billion, which impacted our earnings in the fourth quarter. In particular, the Tax Act imposes a one-time deemed repatriation tax on previously undistributed earnings of certain non-U.S. subsidiaries. In addition, the reduction of the federal statutory tax rate from 35 percent to 21 percent required us to remeasure our U.S. federal deferred tax assets and liabilities. The 2017 charge for these provisions reflects our best estimate based on information currently available and our current interpretation of the Tax Act. Refer to Note 21 to the “Consolidated Financial Statements” for additional information. 38 FFINANCIAL HIGHLIGHTS For 2017, we reported net income of $2.7 billion and diluted earnings per share of $2.97. This compared to $5.4 billion of net income and $5.65 diluted earnings per share for 2016, and $5.2 billion of net income and $5.05 diluted earnings per share for 2015. 2017 results included: • A $2.6 billion tax charge related to the Tax Act. 2016 results included: • A $1.1 billion ($677 million after tax) gain on the sale of Card Member loans and receivables related to our cobrand partnership with Costco in the second quarter; • $410 million ($266 million after tax) of net restructuring charges; and • A $127 million ($79 million after tax) gain on the sale of Card Member loans and receivables related to our cobrand partnership with JetBlue in the first quarter. 2015 results included: • A $419 million ($335 million after tax) charge related to the Prepaid Services business, which was driven primarily by the impairment of goodwill and technology, and certain restructuring costs. NON-GAAP MEASURES We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this report constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies. BUSINESS ENVIRONMENT Our results for 2017 reflect a strong finish to our two-year game plan as we successfully executed against our key priorities of accelerating revenue growth, optimizing our investments and resetting our cost base. Billings and revenue performance were strong across our business segments and accelerated during the fourth quarter. We continued to invest in new products and benefits, new card acquisitions and expanding our merchant network, and we returned a significant amount of capital to shareholders through share repurchases and dividends. In addition, our results reflect a tax charge related to the Tax Act. Our worldwide billed business increased 5 percent over the prior year, reflecting growth across our diverse customer segments and geographies. U.S. proprietary consumer billings growth increased sequentially during the year and international proprietary consumer billings growth rates remained strong. We also saw strong performance from middle market and small business customers, while large and global commercial customers grew at a more modest pace. Global Network Services billed business grew at a slower rate over the year than our proprietary business as a result of the impact of the evolving regulatory environment in Europe and Australia. Revenues net of interest expense grew year-over-year primarily due to growth in billed business, net interest income and net card fees, partially offset by an expected decline in the average discount rate. Our net interest yield increased year-over-year primarily related to a shift in mix over time towards non-cobrand lending products that generally attract more revolving loan balances, a lower percentage of total loans at introductory interest rates, specific pricing actions and a benefit from increases in benchmark interest rates. During the fourth quarter, we saw net interest yield begin to stabilize sequentially. Card Member loan and receivables growth was strong year-over-year, as we continue to expand our relationships with existing customers and acquired new Card Members. We continue to see opportunities to increase our share of our customers’ borrowings. As expected, provisions for losses increased as a result of higher Card Member loans and receivables and increases in lending delinquencies and net write-off rates. The increases in the delinquencies and net write-off rates were primarily due to the seasoning of recent loan vintages and a shift in mix over time towards non-cobrand lending products, which have higher write-off rates but also drive higher net interest yields. We expect these trends to continue, resulting in continued increases in lending write-off rates, delinquencies and provisions for losses. Spending on Card Member engagement (the aggregate of rewards, Card Member services and marketing and promotion expenses) increased year-over-year and primarily reflected the recent enhancements to rewards on our U.S. Platinum products, continued strong growth in our Delta cobrand portfolio and higher levels of engagement in many of our premium services. Marketing and promotion expense decreased due to elevated spending on growth initiatives during the prior year and as we realized efficiencies in our marketing spend. Operating expense increased year-over-year, driven by the prior year gains on the sales of certain cobrand portfolios, which were recognized as a reduction in other expenses. Excluding these gains, operating expense decreased year-over-year reflecting the benefits from our cost reduction initiatives during the past two years. 39 In the fourth quarter of 2017, we recognized a tax charge of $2.6 billion related to the Tax Act, which drove a decline in net income versus 2016. This charge represents our current estimate of taxes on deemed repatriations of certain overseas earnings and the remeasurement of U.S. net deferred tax assets. Our effective tax rate for 2017 was up substantially from 33 percent in 2016. Excluding the impacts of the Tax Act, our effective tax rate for the year would have decreased compared to 2016, primarily due to the realization of certain foreign tax credits in the current year and a continuing shift in the geographic mix of earnings. We continue to analyze and interpret the Tax Act, and its impact on our earnings; however, for 2018, we currently estimate our tax rate will be approximately 22 percent, before discrete tax items. The upfront charge triggered by the Tax Act reduced our capital ratios and, as a result, while we will be continuing our quarterly dividends at the current level, we suspended our share buyback program for the first half of 2018 in order to rebuild our capital. Our strong performance in 2017 reflects benefits from the investments we have made in a variety of growth opportunities over the last several years. Although we continue to see some headwinds from regulation in markets around the world and intense competition, we remain focused on delivering differentiated value to our merchants, customers and business partners, while delivering appropriate returns to our shareholders. With Stephen J. Squeri as our new Chairman and Chief Executive Officer, effective February 1, 2018 as previously announced, we will be focused on strengthening our leadership position with premium consumers, extending our strong position in the commercial payments space, making American Express an essential part of our customers’ digital lives and strengthening our global, integrated network to provide unique value. See “Supervision and Regulation” in “Business” for information on legislative and regulatory changes that could have a material adverse effect on our results of operations and financial condition and “Legal, Regulatory and Compliance Risk” in “Risk Factors” for information on the potential impacts of an adverse decision in the Department of Justice case and related merchant litigations on our business. 40 CCONSOLIDATED RESULTS OF OPERATIONS Effective December 1, 2015, we transferred the Card Member loans and receivables related to our HFS portfolios to Card Member loans and receivables HFS on the Consolidated Balance Sheets. On March 18, 2016 and June 17, 2016, we completed the sales of the JetBlue and Costco cobrand card portfolios, respectively. For the periods from December 1, 2015, through the sale completion dates, the primary impacts beyond the HFS classification on the Consolidated Balance Sheets were to provisions for losses and credit metrics, which did not reflect amounts related to these HFS loans and receivables, as credit costs were reported in Other expenses through a valuation allowance adjustment. Other, non-credit related metrics (i.e., billed business, cards-in-force, net interest yield) reflected amounts related to the HFS portfolios through the sale completion dates. Additionally, for periods after the sale completion dates, activities associated with these cobrand partnerships and the HFS portfolios were no longer included in our Consolidated Results of Operations. Specifically, these impacts included: Discount revenue from Costco in the United States for spend on all American Express cards and from other merchants for spend on the Costco cobrand card; Other fees and commissions and Interest income from Costco cobrand Card Members; and Card Member rewards expense related to the Costco cobrand card, resulting in a lack of comparability between the periods presented. The relationship of the U.S. dollar to various foreign currencies over the periods of comparison has had an impact on our results of operations. Where meaningful in describing our performance, foreign currency-adjusted amounts, which exclude the impact of changes in the foreign exchange (FX) rates, have been provided. TABLE 1: SUMMARY OF FINANCIAL PERFORMANCE Years Ended December 31, (Millions, except percentages and per share amounts) Total revenues net of interest expense Provisions for losses Expenses Pretax income Income tax provision Net income Earnings per common share — diluted(a) Return on average equity(b) Effective tax rate (ETR) Impact of Tax Act charge on ETR ETR, excluding the Tax Act charge(c) $$ $$ $ $ 2017 33,471 2,759 23,298 7,414 4,678 2,736 2.97 113.1 % 663.1 % 334.7 % 228.4 % 2016 32,119 2,026 21,997 8,096 2,688 5,408 5.65 26.0% 33.2% $ $ 2015 32,818 1,988 22,892 7,938 2,775 5,163 5.05 24.0 % 35.0 % $ $ Change 2017 vs. 2016 1,352 733 1,301 (682) 1,990 (2,672) (2.68) 4 % $ 36 6 (8) 74 (49) (47) % $ Change 2016 vs. 2015 (699) 38 (895) 158 (87) 245 0.60 (2) % 2 (4) 2 (3) 5 12 % (a) Earnings per common share — diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $21 million, $43 million and $38 million for the years ended December 31, 2017, 2016 and 2015, respectively, and (ii) dividends on preferred shares of $81 million, $80 million and $62 million for the years ended December 31, 2017, 2016 and 2015. (b) Return on average equity (ROE) is computed by dividing (i) one-year period net income ($2.7 billion, $5.4 billion and $5.2 billion for 2017, 2016 and 2015, respectively) by (ii) one-year average total shareholders’ equity ($20.8 billion, $20.8 billion and $21.5 billion for 2017, 2016 and 2015, respectively). (c) The effective tax rate for 2017 excluding the $2.6 billion charge related to the Tax Act is a non-GAAP measure. Management believes the effective tax rate excluding the impacts of the Tax Act is useful in evaluating the company’s tax rate in comparison with the prior-year periods. Refer to Note 21 of the “Consolidated Financial Statements” for additional information. TABLE 2: TOTAL REVENUES NET OF INTEREST EXPENSE SUMMARY Years Ended December 31, (Millions, except percentages) Discount revenue Net card fees Other fees and commissions Other Total non-interest revenues Total interest income Total interest expense Net interest income Total revenues net of interest expense $$ 2017 2016 2015 19,186 $ 3,090 3,022 1,732 27,030 8,553 2,112 6,441 18,680 $ 2,886 2,753 2,029 26,348 7,475 1,704 5,771 19,297 $ 2,700 2,866 2,033 26,896 7,545 1,623 5,922 $$ 33,471 $ 32,119 $ 32,818 $ Change 2017 vs. 2016 506 204 269 (297) 682 1,078 408 670 1,352 3 % $ 7 10 (15) 3 14 24 12 4 % $ Change 2016 vs. 2015 (617) 186 (113) (4) (548) (70) 81 (151) (699) (3) % 7 (4) — (2) (1) 5 (3) (2) % TOTAL REVENUES NET OF INTEREST EXPENSE Discount revenue increased in 2017 compared to 2016, primarily due to growth in billed business, and decreased in 2016 compared to 2015 primarily due to lower Costco-related revenues. Both periods of comparison also reflected decreases in the average discount rate and increases in contra-discount revenues. The increase in contra-discount revenue in 2017 compared to 2016 was primarily due to higher corporate client incentives and cobrand partner payments, both driven by higher volumes; the increase in 2016 compared to 2015 was primarily due to an increase in cash rebate rewards. 41 Overall, billed business increased in 2017 compared to 2016. U.S. billed business increased 1 percent and non-U.S. billed business increased 12 percent. See Tables 5 and 6 for more details on billed business performance. The average discount rate was 2.43 percent, 2.45 percent and 2.46 percent for 2017, 2016 and 2015, respectively. The decrease in the average discount rate in 2017 compared to 2016 primarily reflected rate pressure from merchant negotiations, including those resulting from the recent regulatory changes affecting competitor pricing in certain international markets, the continued growth of the OptBlue program, and changes in industry and geographic mix. We expect the average discount rate will continue to decline over time due to a greater shift of existing merchants into OptBlue, merchant negotiations and competition, volume related pricing discounts, certain pricing initiatives mainly driven by pricing regulation (including regulation of competitors’ interchange rates) and other factors. Net card fees increased in both periods. The increase in 2017 was primarily driven by growth in the Platinum and Delta portfolios and growth in key international markets. The increase in 2016 was primarily driven by growth in the Platinum, Gold and Delta portfolios. Other fees and commissions increased in 2017 compared to 2016, and decreased in 2016 compared to 2015. The increase in 2017 was primarily driven by an increase in delinquency fees due to a change in the late fee assessment date for certain U.S. charge cards and an increase in foreign exchange conversion revenue. The decrease in 2016 was primarily due to lower Costco-related fees, partially offset by an increase in delinquency and loyalty coalition-related fees. Other revenues decreased in 2017 compared to 2016, and were relatively flat in 2016 compared to 2015. The decrease in 2017 was primarily driven by prior-year revenues related to the Loyalty Edge business, which was sold in the fourth quarter of 2016, and a contractual payment from a GNS partner also in the prior year. 2016 included the previously-mentioned contractual payment from a GNS partner and higher revenues from our Prepaid Services business compared to 2015, offset by lower revenues related to Costco, Loyalty Edge and the GBT JV transition services agreement. Interest income increased in 2017 compared to 2016 and decreased in 2016 compared to 2015. The increase in 2017 primarily reflected higher average Card Member loans and higher yields. The growth in average Card Member loans was primarily driven by a mix shift over time towards non-cobrand lending products, where Card Members tend to revolve more of their loan balances. The increase in yields was primarily driven by a greater percentage of loans at higher rate buckets, specific pricing actions, and increases in benchmark interest rates. The decrease in 2016 was primarily driven by lower Costco cobrand loans and the associated interest income, partially offset by modestly higher yields and an increase in average Card Member loans across other lending products. Interest expense increased in both periods. The increase in 2017 was primarily driven by higher interest rates and higher average long-term debt. The increase in 2016 was primarily driven by higher average customer deposit balances, partially offset by lower average long-term debt. TTABLE 3: PROVISIONS FOR LOSSES SUMMARY Years Ended December 31, (Millions, except percentages) Charge card Card Member loans Other Total provisions for losses(a) 2017 795 $ 1,868 96 2,759 $ 2016 696 $ 1,235 95 2,026 $ 2015 737 $ 1,190 61 1,988 $ $$ $$ Change 2017 vs. 2016 Change 2016 vs. 2015 99 633 1 733 14 % $ 51 1 36 % $ (41) 45 34 38 (6)% 4 56 2 % (a) Beginning December 1, 2015 through to the sale completion dates, did not reflect the HFS portfolios. 42 PPROVISIONS FOR LOSSES Charge card provision for losses increased in 2017 compared to 2016 and decreased in 2016 compared to 2015. The increase in 2017 was primarily driven by growth in receivables due to charge volume and higher net write-offs. The decrease in 2016 was driven by lower net write-offs and improved delinquencies. Card Member loans provision for losses increased in both periods. The increases were primarily driven by strong loan growth, as well as increases in net write-off rates and delinquencies, primarily due to the seasoning of recent loan vintages and a shift in mix over time towards non-cobrand lending products, which tend to have higher write-off rates. The increase in 2016 was partially offset by the impact of the HFS portfolios, as 2016 did not reflect the associated credit costs, as previously mentioned. Other provision for losses was relatively flat in 2017 compared to 2016 and increased in 2016 compared to 2015. 2017 compared to 2016 reflected growth in the non-card lending portfolio, which was offset by improving credit performance in the commercial financing portfolio. The increase in 2016 was primarily driven by growth in the commercial financing portfolio, which resulted in higher net write-offs. TABLE 4: EXPENSES SUMMARY Years Ended December 31, (Millions, except percentages) Marketing and promotion Card Member rewards Card Member services and other Total marketing, promotion, rewards and Card Member services and other Salaries and employee benefits Other, net(a) Total expenses $$ 2017 3,2177 $ 7,608 1,439 2016 3,650 $ 6,793 1,133 2015 3,109 $ 6,996 1,018 Change 2017 vs. 2016 (433) 815 306 (12) % $ 12 27 12,264 11,576 5,258 5,776 5,259 5,162 11,123 4,976 6,793 $$ 23,298 $ 21,997 $ 22,892 $ 688 (1) 614 1,301 6 — 12 6 % $ 283 (1,631) (895) Change 2016 vs. 2015 541 (203) 115 453 17 % (3) 11 4 6 (24) (4) % (a) Beginning December 1, 2015 through to the sale completion dates, included the valuation allowance adjustment associated with the HFS portfolios. EXPENSES Marketing and promotion expense decreased in 2017 compared to 2016 and increased in 2016 compared to 2015. The variances for both periods were primarily driven by higher levels of spending on growth initiatives in 2016 compared to the preceding and subsequent years. Card Member rewards expense increased in 2017 compared to 2016 and decreased in 2016 compared to 2015. The increase in 2017 was primarily driven by increases in Membership Rewards expense of $750 million and cobrand rewards expense of $65 million. The increase in Membership Rewards expense was primarily driven by enhancements to U.S. Consumer and Small Business Platinum rewards and higher spending volumes. The increase in cobrand rewards expense reflected growth in spending volumes across certain cobrand card products, which more than offset the absence of Costco-related expense in 2017. The decrease in 2016 was primarily driven by lower cobrand rewards expense of $518 million, primarily reflecting lower Costco-related expense and a shift in volumes to cash rebate cards for which the rewards costs are classified as contra- discount revenue, partially offset by increased spending volumes across other cobrand card products. The lower cobrand rewards expense in 2016 was partially offset by higher Membership Rewards expense of $315 million, primarily driven by an increase in new points earned as a result of higher spending volumes, enhancements to U.S. Consumer and Small Business Platinum rewards and less of a decline in the weighted average cost (WAC) per point. The Membership Rewards Ultimate Redemption Rate (URR) for current program participants was 95 percent (rounded down) at December 31, 2017, 2016 and 2015. Card Member services and other expense increased for both periods of comparison, primarily driven by higher usage of travel- related benefits in both periods, and additionally in 2017 by the enhanced Platinum card benefits. Salaries and employee benefits expense was flat for 2017 compared to 2016 and increased in 2016 compared to 2015. Salaries and employee benefits expenses for 2017 reflected higher performance-related employee compensation offset by lower restructuring charges compared to the prior year. The increase in 2016 was primarily driven by higher restructuring charges compared to 2015. 43 Other expense increased in 2017 compared to 2016 and decreased in 2016 compared to 2015. The increase in 2017 was primarily driven by the prior-year gains on the sales of the HFS portfolios, which were recognized as an expense reduction, partially offset by lower technology-related costs in 2017 and Loyalty Edge-related costs in the prior year. The decrease in 2016 was primarily driven by the previously-mentioned gains on the sales of the HFS portfolios, as well as goodwill and technology impairment charges in 2015. IINCOME TAXES The effective tax rate for 2017 was 63.1 percent and reflects a substantial charge of $2.6 billion related to the income tax effects of the Tax Act, which are required to be recorded in the period of enactment. The $2.6 billion charge represents our current estimate of taxes primarily on the deemed repatriation of certain overseas earnings and the remeasurement of U.S. federal net deferred tax assets to the lower federal tax rate. Our accounting for the impacts of the Tax Act is provisional and amounts may be revised in future periods as described in the SEC Staff Accounting Bulletin No. 118, which was issued on December 22, 2017 to provide guidance on the accounting for the effects of the Tax Act. Refer to Note 21 to the “Consolidated Financial Statements” for additional information. Excluding the impacts of the Tax Act, the effective tax rate for 2017 would have been 28.4 percent compared to 33.2 percent in 2016 and 35.0 percent in 2015. See Table 1 for a reconciliation of the effective tax rate for 2017 on a GAAP basis. The tax rate for 2017 includes discrete tax benefits of $156 million related to the realization of certain foreign tax credits. The tax rates for 2017, 2016, and 2015 include benefits of $76 million, $60 million and $33 million respectively, related to the resolution of certain prior years’ items. The tax rate for 2015 also includes an expense of $75 million related to the impact of the nondeductible portion of a goodwill impairment charge. In addition, the decrease in tax rates in each period reflects the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business. TABLE 5: SELECTED CARD-RELATED STATISTICAL INFORMATION Years Ended December 31, Card billed business: (billions) United States Outside the United States Worldwide Proprietary Global Network Services Worldwide Total cards-in-force: (millions) United States Outside the United States Worldwide Proprietary Global Network Services Worldwide Basic cards-in-force: (millions) United States Outside the United States Worldwide Average basic Card Member spending: (dollars)(a) United States Outside the United States Worldwide Average Card Member loans: (billions) United States Outside the United States Worldwide Average discount rate Average fee per card (dollars)(a) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 Change Change $$ $$ $$ 708.3 $ 376.9 1,085.2 $ 900.66 $ 184.6 $$ 1,085.2 $ 700.4 $ 337.1 1,037.5 $ 863.8 $ 173.7 1,037.5 $ 721.8 317.9 1,039.7 875.3 164.4 1,039.7 50.0 62.8 112.8 64.6 48.2 112.8 39.4 52.2 91.6 47.5 62.4 109.9 61.3 48.6 109.9 37.4 51.7 89.1 57.6 60.2 117.8 70.4 47.4 117.8 44.8 49.5 94.3 $$ $$ $$ 20,317 $ 14,277 $ 18,519 $ 18,808 $ 13,073 $ 17,216 $ 18,066 12,971 16,743 $$ 64.5 $ 58.3 $ $$ $$ 8.9 73.4 $ 2.43 % 49 $ 7.0 65.3 $ 2.45 % 44 $ 51.5 7.1 58.6 2.46 % 39 1 % 12 5 4 % 6 5 5 1 3 5 (1) 3 5 1 3 8 9 8 11 27 12 (3) % 6 — (1) % 6 — (18) 4 (7) (13) 3 (7) (17) 4 (6) 4 1 3 13 (1) 11 11 % 13 % (a) Average basic Card Member spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees divided by average worldwide proprietary cards-in-force. 44 TTABLE 6: BILLED BUSINESS GROWTH 22017 2016 Percentage Increase (Decrease) Percentage Increase (Decrease) Assuming No Changes in FX Rates (a) Percentage Increase (Decrease) Percentage Increase (Decrease) Assuming No Changes in FX Rates (a) Worldwide((b) Total billed business Proprietary billed business GNS billed business(c) Airline-related volume (8% of worldwide billed business for both 2017 and 2016) United States((b) Billed business Proprietary consumer card billed business(d) Proprietary small business and corporate services billed business(e) T&E-related volume (25% of U.S. billed business for both 2017 and 2016) Non-T&E-related volume (75% of U.S. billed business for both 2017 and 2016) Airline-related volume (7% of U.S. billed business for both 2017 and 2016) 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 card billed business(c) Proprietary small business and corporate services billed business(e) 55 % 44 66 33 11 ((2) 66 —— 11 —— 112 113 110 112 113 114 % 4 % 4 5 3 11 12 9 10 13 12 % — % (1) 6 (4) (3) (7) 2 (3) (3) (7) 6 14 (6) 2 4 3 % 1 % (1) 10 (3) 10 14 6 8 8 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 prior year period against which such results are being compared). (b) Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data. (c) Included in the ICNS segment. (d) Included in the USCS segment. (e) Included in the GCS segment. 45 TTABLE 7: SELECTED CREDIT-RELATED STATISTICAL INFORMATION As of or for the Years Ended December 31, (Millions, except percentages and where indicated) Worldwide Card Member loans (a) Total loans (billions) Loss reserves: Beginning balance Provisions (b) Net write-offs — principal only (c) Net write-offs — interest and fees (c) Transfer of reserves on HFS loan portfolios Other (d) Ending balance Ending reserves — principal Ending reserves — interest and fees % of loans % of past due Average loans (billions)(a) Net write-off rate — principal only (e) Net write-off rate — principal, interest and fees (e) 30+ days past due as a % of total (e) Worldwide Card Member receivables(a) Total receivables (billions) Loss reserves: Beginning balance Provisions (b) Net write-offs (c) Other (f) Ending balance % of receivables Net write-off rate — principal only (e) Net write-off rate — principal and fees (e) 30+ days past due as a % of total (e) Net loss ratio as a % of charge volume — GCP 90+ days past billing as a % of total — GCP # Denotes a variance greater than 100 percent 2017 2016 2015 Change 2017 vs. 2016 Change 2016 vs. 2015 $$ 73.4 $ 65.3 $ 58.6 12 % 11 % 1,223 1,868 (1,181) (227) — 23 1,706 1,622 84 2.3 % 177 % $ $ $ 1,028 1,235 (930) (175) — 65 1,223 1,160 63 1.9 % 161 % $ $ $ $$ $$ $$ $$ 66.7 $ 59.9 $ 1.8 % 2.1 % 1.3 % 1.6 % 1.8 % 1.2 % 1,201 1,190 (967) (162) (224) (10) 1,028 975 53 1.8 % 164 % 67.9 1.4 % 1.7 % 1.1 % 19 51 27 30 — (65) 39 40 33 (14) 4 (4) 8 # # 19 19 19 11 % (12) % $$ 54.0 $ 47.3 $ 44.1 14 % 7 % 467 795 (736) (5) 521 $$ 462 696 (674) (17) $ 467 $ 1.0 % 1.6 % 1.7 % 1.4 % 0.10 % 0.9 % 1.0 % 1.5 % 1.8 % 1.4 % 0.09 % 0.9 % 465 737 (713) (27) 462 1.0 % 1.8 % 2.0 % 1.5 % 0.09 % 0.9 % 1 14 9 (71) (1) (6) (5) (37) 12 % 1 % (a) Beginning December 1, 2015 through to the sale completion dates, did not reflect the HFS portfolios. (b) Reflects provisions for principal, interest and/or fees on Card Member loans and receivables. Refer to Table 3 footnote (a). (c) Write-offs, less recoveries. (d) 2016 included reserves associated with Card Member loans reclassified from HFS to held for investment. Refer to Changes in Card Member loans reserve for losses under Note 4 to the “Consolidated Financial Statements” for additional information. (e) We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The net write-off rates and 30+ days past due as a percentage of total for Card Member receivables relate to USCS, ICNS and Global Small Business Services (GSBS) Card Member receivables. The twelve months ended December 31, 2015 reflect the impact of a change in the timing of charge-offs for Card Member loans and receivables in certain modification programs from 180 days past due to 120 days past due. (f) 2015 included the impact of the transfer of the HFS receivables portfolio, which was not significant. 46 TTABLE 8: NET INTEREST YIELD ON AVERAGE CARD MEMBER LOANS Years Ended December 31, (Millions, except percentages and where indicated) Net interest income Exclude: Interest expense not attributable to our Card Member loan portfolio (a) Interest income not attributable to our Card Member loan portfolio (b) Adjusted net interest income (c) Average Card Member loans including HFS loan portfolios (billions)(d) $$ $$ $$ 2017 6,441 1,170 (636) 6,975 66.7 $ $ $ 2016 5,771 984 (403) 6,352 65.8 $ $ $ 2015 5,922 952 (357) 6,517 69.0 Net interest income divided by average Card Member loans Net interest yield on average Card Member loans (c) 9.7 % 10.5 % 8.8 % 9.6 % 8.6 % 9.4 % (a) Primarily represents interest expense attributable to maintaining our corporate liquidity pool and funding Card Member receivables. (b) Primarily represents interest income attributable to Other loans, interest-bearing deposits and our Travelers Cheque and other stored-value investment portfolio. (c) Adjusted net interest income and net interest yield on average Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for the definitions of these terms. We believe adjusted net interest income is useful to investors because it represents the interest expense and interest income attributable to our Card Member loan portfolio and is a component of net interest yield on average Card Member loans, which provides a measure of profitability of our Card Member loan portfolio. Net interest yield on average Card Member loans reflects adjusted net interest income divided by average Card Member loans, computed on an annualized basis. Net interest income divided by average Card Member loans, computed on an annualized basis, a GAAP measure, includes elements of total interest income and total interest expense that are not attributable to the Card Member loan portfolio, and thus is not representative of net interest yield on average Card Member loans. (d) Beginning December 1, 2015 through to the sale completion dates, for the purposes of the calculation of net interest yield on average Card Member loans, average Card Member loans included the HFS loan portfolios. 47 BBUSINESS SEGMENT RESULTS We consider a combination of factors when evaluating the composition of our reportable operating segments, including the results reviewed by the chief operating decision maker, economic characteristics, products and services offered, classes of customers, product distribution channels, geographic considerations (primarily United States versus outside the United States) and regulatory considerations. Effective for the first quarter of 2016, we realigned our segment presentation to reflect the organizational changes announced during the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments. Refer to Note 25 to the “Consolidated Financial Statements” for additional discussion of products and services that comprise each segment. Results of the business segments generally treat each segment as a stand-alone business. The management reporting process that derives these results allocates revenue and expense using various methodologies as described below. TOTAL REVENUES NET OF INTEREST EXPENSE We allocate discount revenue and certain other revenues among segments using a transfer pricing methodology. Within the USCS, ICNS and GCS segments, discount revenue generally reflects the issuer component of the overall discount revenue generated by each segment’s Card Members; within the GMS segment, discount revenue generally reflects the network and acquirer component of the overall discount revenue. Net card fees and other fees and commissions are directly attributable to the segment in which they are reported. Interest and fees on loans and certain investment income is directly attributable to the segment in which it is reported. Interest expense represents an allocated funding cost based on a combination of segment funding requirements and internal funding rates. PROVISIONS FOR LOSSES The provisions for losses are directly attributable to the segment in which they are reported. EXPENSES Marketing and promotion expense is included in each segment based on the actual expenses incurred. Global brand advertising is primarily reflected in Corporate & Other and may be allocated to the segments based on the actual expense incurred. Rewards and Card Member services expense is included in each segment based on the actual expenses incurred within the segment. Salaries and employee benefits and other operating expense reflects expenses such as professional services, occupancy and equipment and communications incurred directly within each segment. In addition, expenses related to 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. INCOME TAXES An income tax provision (benefit) is allocated to each business segment based on the effective tax rates applicable to the various businesses that comprise the segment. The previously-mentioned $2.6 billion charge related to the Tax Act has been allocated in full to Corporate & Other. 48 UU.S. CONSUMER SERVICES TABLE 9: USCS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Non-interest revenues 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, Card Member services and other Salaries and employee benefits and other operating expenses Total expenses Pretax segment income Income tax provision Segment income Effective tax rate $ 2017 2016 2015 Change 2017 vs. 2016 Change 2016 vs. 2015 7,923 5,755 742 5,013 12,936 1,630 $ 7,874 $ 5,082 536 4,546 12,420 1,065 8,479 $ 5,198 488 4,710 13,189 1,064 11,306 11,355 12,125 49 673 206 467 516 565 (49) 1 % $ 13 38 10 4 53 — (605) (116) 48 (164) (769) 1 (7) % (2) 10 (3) (6) — (770) (6) 5,695 5,416 5,382 279 5 34 1 2,808 8,503 2,803 912 1,891 32.5 % $ 2,058 7,474 3,881 1,368 2,513 $ 35.2 % 3,066 8,448 3,677 1,322 2,355 $ 36.0 % 750 1,029 (1,078) (456) (622) 36 14 (28) (33) (25) % $ (1,008) (974) 204 46 158 (33) (12) 6 3 7 % USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including travel services. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues was relatively flat in 2017 compared to 2016, primarily driven by a decrease in discount revenue, offset by increases in net card fees and other fees and commissions. Discount revenue decreased $133 million, reflecting a decrease in billed business of 2 percent due to Costco-related volumes included in the prior year. Net card fees and other fees and commissions increased driven by growth in the Platinum and Delta portfolios and higher delinquency fees, respectively. Net interest income increased in 2017 compared to 2016, primarily driven by growth in average Card Member loans and higher yields, partially offset by higher interest expense, primarily driven by marginally higher cost of funds. The growth in average Card Member loans was primarily driven by a mix shift over time towards non-cobrand lending products, where Card Members tend to revolve more of their loan balances. The increase in yields was primarily driven by a greater percentage of loans at higher rate buckets, specific pricing actions, and increases in benchmark interest rates. Total revenues net of interest expense decreased in 2016 compared to 2015, primarily driven by lower discount revenue, reflecting a decrease in billed business of 7 percent primarily driven by lower Costco-related volumes and increases in contra- discount revenues, such as cash rebate rewards. The decrease also reflected lower net interest income, primarily driven by lower Costco cobrand loans and higher interest expense, partially offset by modestly higher average rates and an increase in average Card Member loans across other lending products. PROVISIONS FOR LOSSES Provisions for losses increased in 2017 compared to 2016, primarily driven by Card Member loans provision, which increased $514 million due to strong loan growth, as well as increases in delinquencies and higher net write-off rates primarily due to the seasoning of recent loan vintages and a shift in mix over time towards non-cobrand lending products, which tend to have higher write-off rates. Provisions for losses was relatively flat in 2016 compared to 2015. Card Member loans provision increased $16 million primarily driven by higher loan balances, increased net write-offs and a slight increase in delinquencies, partially offset by the impact of the HFS portfolios as 2016 did not reflect the associated credit costs. Refer to Table 10 for the charge card and lending write-off rates for 2017, 2016 and 2015. 49 EEXPENSES Marketing, promotion, rewards, Card Member services and other expenses increased in 2017 compared to 2016, reflecting higher Card Member rewards and Card Member services and other expenses, partially offset by lower marketing and promotion expenses. Card Member rewards expense increased $218 million, primarily driven by enhancements to Platinum rewards and increased spending volumes, partially offset by Costco-related expenses in the prior year. Card Member services and other expense increased $173 million driven by higher usage of travel-related benefits and enhanced Platinum card benefits. Marketing and promotion expenses decreased $112 million due to lower spending on growth initiatives. Salaries and employee benefits and other operating expense increased in 2017 compared to 2016, primarily reflecting the gains on the sales of the HFS portfolios in the prior year, which were recognized as an expense reduction in other expenses, partially offset by lower technology and other servicing-related costs in the current year and restructuring charges in the prior year. Total expenses decreased in 2016 compared to 2015, primarily driven by lower salaries and employee benefits and other operating expenses, largely reflecting the gains on the sales of the HFS portfolios as previously mentioned. Income tax provision decreased in 2017 compared to 2016, primarily reflecting the impact of recurring permanent tax benefits on the lower level 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) Charge card billed business as a % of total Total cards-in-force Basic cards-in-force Average basic Card Member spending (dollars) Total segment assets (billions) Card Member loans:(a) Total loans (billions) Average loans (billions) Net write-off rate — principal only (b) Net write-off rate — principal, interest and fees (b) 30+ days past due loans as a % of total Calculation of Net Interest Yield on Average Card Member loans: Net interest income Exclude: Change 2017 vs. 2016 (2) % Change 2016 vs. 2015 (7)% 7 7 4 8 10 10 % (20) (19) — (6) 12 (13)% $$ $$ $$ $$ $$ 2017 337.0 $ 36.4 % 34.9 25.0 13,950 94.2 $ $ 2016 345.3 $ 34.7 % 32.7 23.3 13,447 87.4 $ $ 53.7 48.9 $ $ 48.8 44.4 $ $ 1.8 % 2.1 % 1.3 % 1.5 % 1.8 % 1.1 % 2015 370.1 32.4 % 40.7 28.6 13,441 92.7 43.5 51.1 1.4 % 1.6 % 1.0 % $$ 5,013 $ 4,546 $ 4,710 Interest expense not attributable to our Card Member loan portfolio (c) Interest income not attributable to our Card Member loan portfolio (d) Adjusted net interest income (e) Average Card Member loans including HFS loan portfolios (billions)(f) Net interest income divided by average Card Member loans Net interest yield on average Card Member loans (e) Card Member receivables:(a) Total receivables (billions) Net write-off rate — principal only (b) Net write-off rate — principal and fees (b) 30+ days past due as a % of total $$ $$ $$ 120 (101) 5,032 48.9 10.3 % 10.3 % $ $ 80 (24) 4,602 49.4 $ $ 9.2 % 9.3 % $ 13.1 1.3 % 1.4 % 1.1 % 12.3 $ 1.4 % 1.6 % 1.2 % 72 (15) 4,767 52.1 9.0 % 9.2 % 11.8 1.6 % 1.8 % 1.4 % 7 % 4 % (a) Refer to Table 7 footnote (a). (b) Refer to Table 7 footnote (e). (c) Refer to Table 8 footnote (a). (d) Refer to Table 8 footnote (b). (e) Refer to Table 8 footnote (c). (f) Refer to Table 8 footnote (d). 50 IINTERNATIONAL CONSUMER AND NETWORK SERVICES TABLE 11: ICNS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Non-interest revenues Interest income Interest expense Net interest income Total revenues net of interest expense Provisions for losses Total revenues net of interest expense after provisions for losses Expenses Marketing, promotion, rewards, Card Member services and other Salaries and employee benefits and other operating expenses Total expenses Pretax segment income Income tax provision Segment income Effective tax rate 2017 2016 2015 Change 2017 vs. 2016 Change 2016 vs. 2015 $$ 5,052 $ 1,029 251 778 5,830 367 4,785 $ 922 219 703 5,488 325 4,627 $ 945 235 710 5,337 300 5,463 5,163 5,037 267 107 32 75 342 42 300 2,341 2,177 1,980 164 2,029 2,168 2,153 (139) 6 % $ 12 15 11 6 13 6 8 (6) 4,370 1,093 181 912 $ 16.6 % 4,345 818 163 655 $ 19.9 % 4,133 904 220 684 $ 24.3 % $$ 25 275 18 257 1 34 11 39 % $ 158 (23) (16) (7) 151 25 126 197 15 212 (86) (57) (29) 3 % (2) (7) (1) 3 8 3 10 1 5 (10) (26) (4) % ICNS issues a wide range of proprietary consumer cards outside the United States and enters into partnership agreements with third-party card issuers and acquirers, licensing the American Express brand and extending the reach of the global network. It also provides travel services outside the United States. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues increased in 2017 compared to 2016, primarily driven by higher discount revenue due to an increase in both proprietary and non-proprietary (i.e., GNS) billed business, as well as higher net card fees, partially offset by a prior-year contractual payment from a GNS partner. Total billed business increased in 2017 compared to 2016, reflecting higher average proprietary spend per card. Refer to Tables 6 and 12 for additional information on billed business. Net interest income increased in 2017 compared to 2016, primarily driven by an increase in interest income, reflecting higher average loan balances and higher yields, partially offset by an increase in interest expense driven by higher average debt. Total revenues net of interest expense increased in 2016 compared to 2015, primarily driven by higher discount revenue due to an increase in both proprietary and non-proprietary billed business, a contractual payment from a GNS partner, as previously mentioned, and higher net card fees. PROVISIONS FOR LOSSES Provisions for losses increased in 2017 compared to 2016, due to strong growth in both Card Member receivables and loans, as well as a slight increase in net write-off rates. Provisions for losses increased in 2016 compared to 2015, driven primarily by higher net write-off rates. Refer to Table 12 for Card Member loans and receivables write-off rates for 2017, 2016 and 2015. EXPENSES Marketing, promotion, rewards, Card Member services and other expenses increased in 2017 compared to 2016, primarily driven by higher Card Member rewards expense due to higher spending volumes, partially offset by lower marketing and promotion expenses in part due to lower spending on growth initiatives. Salaries and employee benefits and other operating expense decreased in 2017 compared to 2016, primarily driven by lower salaries and employee benefits costs, and restructuring charges in the prior year. Total expenses increased in 2016 compared to 2015, primarily driven by higher levels of spending on growth initiatives. 51 Income tax provision increased in 2017 compared to 2016 and decreased in 2016 compared to 2015. The effective tax rate in all periods reflects the impact of recurring permanent tax benefits both in relation to the segment's ongoing funding activities outside the United States, which is allocated to ICNS under our internal tax allocation process, and on varying levels of pretax income. In addition, the effective tax rates for all periods reflect the allocated share of tax benefits related to the resolution of certain prior-years’ items. TTABLE 12: ICNS SELECTED STATISTICAL INFORMATION 2017 2016 2015 Change 2017 vs. 2016 Change 2016 vs. 2015 13 % 6 9 5 (1) — 5 8 9 24 9 % 4 % 6 5 3 3 3 4 1 2 (1) (3) % 30 % 7 % As of or for the Years Ended December 31, (Millions, except percentages and where indicated) Card billed business (billions) Proprietary GNS Total Total cards-in-force Proprietary GNS Total Proprietary basic cards-in-force Average proprietary basic Card Member spending (dollars) Total segment assets (billions) Card Member loans:(a) Total loans (billions) Average loans (billions) Net write-off rate — principal only (b) Net write-off rate — principal, interest and fees (b) 30+ days past due loans as a % of total Calculation of Net Interest Yield on Average Card Member Loans: Net interest income Exclude: $$ $$ 119.7 $ 184.6 304.3 $ 105.9 $ 173.7 279.6 $ 15.7 48.2 63.9 10.8 11,225 $ 38.9 $ 15.0 48.6 63.6 10.3 10,386 $ 35.7 $ 102.1 164.4 266.5 14.6 47.4 62.0 9.9 10,308 35.1 $$ $$ $$ $$ 8.7 $ 7.4 $ 2.1 % 2.5 % 1.4 % 7.0 $ 6.8 $ 2.0 % 2.5 % 1.6 % 7.1 7.0 1.9 % 2.4 % 1.6 % $$ 778 $ 703 $ 710 Interest expense not attributable to our Card Member loan portfolio(c) Interest income not attributable to our Card Member loan portfolio(d) Adjusted net interest income (e) Average Card Member loans (billions) Net interest income divided by average Card Member loans Net interest yield on average Card Member loans (e) Card Member receivables:(a) Total receivables (billions) Net write-off rate — principal only (b) Net write-off rate — principal and fees (b) 30+ days past due as a % of total $$ $$ $$ 61 (13) 826 $ 7.4 $ 10.5 % 11.1 % 7.8 $ 2.0 % 2.1 % 1.3 % 44 (7) 740 $ 6.8 $ 10.3 % 10.9 % 6.0 $ 2.0 % 2.2 % 1.3 % 56 (18) 748 7.0 10.1 % 10.6 % 5.6 2.1 % 2.3 % 1.5 % (a) Refer to Table 7 footnote (a). (b) Refer to Table 7 footnote (e). (c) Refer to Table 8 footnote (a). (d) Refer to Table 8 footnote (b). (e) Refer to Table 8 footnote (c). 52 GGLOBAL COMMERCIAL SERVICES TABLE 13: GCS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Non-interest revenues Interest income Interest expense Net interest income Total revenues net of interest expense Provisions for losses Total revenues net of interest expense after provisions for losses Expenses Marketing, promotion, rewards, Card Member services and other Salaries and employee benefits and other operating expenses Total expenses Pretax segment income Income tax provision Segment income Effective tax rate 2017 2016 2015 Change 2017 vs. 2016 Change 2016 vs. 2015 $$ 9,463 $ 1,361 540 821 10,284 744 9,007 $ 1,209 401 808 9,815 604 8,930 $ 1,175 365 810 9,740 588 9,540 9,211 9,152 3,724 3,398 3,142 2,817 6,541 2,999 972 $$ 2,027 $ 32.4 % 2,868 2,846 6,266 2,945 1,036 1,909 $ 35.2 % 5,988 3,164 1,142 2,022 $ 36.1 % 456 152 139 13 469 140 329 326 (51) 275 54 (64) 118 5 % $ 13 35 2 5 23 4 10 (2) 4 2 (6) 6 % $ 77 34 36 (2) 75 16 59 256 22 278 (219) (106) (113) 1 % 3 10 — 1 3 1 8 1 5 (7) (9) (6) % GCS issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues increased in 2017 compared to 2016, primarily driven by higher discount revenue due to increases in billed business, partially offset by increased contra-discount revenue driven by higher client incentives due to higher volumes. The increase in non-interest revenues was also driven by higher net card fees and higher other fees and commissions, primarily due to growth in the U.S. small business Platinum portfolio and higher delinquency fees, respectively. Net interest income increased in 2017 compared to 2016, primarily driven by an increase in average Card Member loans and higher yields, partially offset by higher interest expense, reflecting an increase in the cost of funds. Total revenues net of interest expense were relatively flat in 2016 compared to 2015, reflecting lower Costco-related revenues. PROVISIONS FOR LOSSES Provisions for losses increased in both periods. The increase in 2017 compared to 2016 was primarily due to growth in both Card Member receivables and loans, as well as increases in net write-off and delinquency rates, all of which were partially offset by improving credit performance in the commercial financing portfolio. The increase in 2016 compared to 2015 was primarily driven by growth in the commercial financing portfolio, resulting in higher net write-offs. EXPENSES Marketing, promotion, rewards, Card Member services and other expenses increased in 2017 compared to 2016, primarily driven by higher Card Member rewards expenses, which increased $420 million, partially offset by lower marketing and promotion expenses as a result of reduced levels of spending on growth initiatives. The higher Card Member rewards expenses were primarily driven by enhancements to Platinum rewards and higher spending volumes, partially offset by Costco-related expenses in the prior year. Salaries and employee benefits and other operating expense decreased in 2017 compared to 2016, primarily driven by lower technology and other servicing-related costs in the current year and the prior-year HFS valuation allowance adjustment and restructuring charges, all of which were partially offset by the prior-year gains on the sales of the HFS portfolios. Total expenses increased in 2016 compared to 2015, primarily driven by increased marketing and promotion expense as a result of higher levels of spending on growth initiatives, higher Card Member rewards expenses resulting from higher spending volumes and the gains on the sales of the HFS portfolios, partially offset by lower Costco-related rewards expenses and restructuring charges. 53 Income tax provision decreased in 2017 compared to 2016, primarily reflecting the geographic mix of business and the allocated share of tax benefits related to the realization of certain foreign tax credits. TTABLE 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) Total segment assets (billions) Card Member loans (billions) Card Member receivables (billions) Card Member loans:(a) Total loans - GSBS (billions) Average loans - GSBS (billions) Net write-off rate (principal only) - GSBS(b) Net write-off rate (principal, interest and fees) - GSBS(b) 30+ days past due as a % of total - GSBS Calculation of Net Interest Yield on Average Card Member Loans: Net interest income Exclude: Change 2017 vs. 2016 Change 2016 vs. 2015 7 % 3 3 11 13 17 14 16 20 % 2 % (10) (10) 6 3 19 9 19 (11)% $$ 2017 2016 438.1 $ 408.0 $ 14.0 14.0 2015 398.6 15.1 15.1 $$ 31,729 $ 28,515 $ 26,860 45.1 $$ 8.0 $$ 26.7 $$ 52.6 $ 11.1 $ 33.1 $ 46.5 $ 9.5 $ 29.0 $ 13.6 13.6 $$ $$ 11.0 $ 10.3 $ 1.6 % 1.9 % 1.2 % 9.5 $ 8.6 $ 1.4 % 1.7 % 1.1 % 8.0 9.7 1.3 % 1.5 % 1.1 % $$ 821 $ 809 $ 810 Interest expense not attributable to our Card Member loan portfolio(c) Interest income not attributable to our Card Member loan portfolio (d) Adjusted net interest income(e) Average Card Member loans including HFS loan portfolios (billions)(f) Net interest income divided by average Card Member loans Net interest yield on average Card Member loans(e) Card Member receivables:(a) Total receivables - GCP (billions) 90 days past billing as a % of total - GCP(g) Net loss ratio (as a % of charge volume) - GCP Total receivables - GSBS (billions) Net write-off rate (principal only) - GSBS(b) Net write-off rate (principal, interest and fees) - GSBS(b) 30+ days past due as a % of total - GSBS $$ $$ $$ $$ 409 (113) 1,117 $ 10.3 $ 8.0 % 10.8 % 17.0 $ 0.9 % 0.10 % 16.1 $ 1.6 % 1.8 % 1.6 % 312 (111) 1,010 $ 9.7 $ 8.3 % 10.4 % 14.8 $ 0.9 % 0.09 % 14.3 $ 1.5 % 1.7 % 1.6 % 286 (94) 1,002 9.9 8.2 % 10.1 % 13.8 0.9 % 0.09 % 12.9 1.8 % 2.1 % 1.7 % 15 % 7 % 13 % 11 % (a) Refer to Table 7 footnote (a). (b) Refer to Table 7 footnote (e). (c) Refer to Table 8 footnote (a). (d) Refer to Table 8 footnote (b). (e) Refer to Table 8 footnote (c). (f) Refer to Table 8 footnote (d). (g) For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if we initiate collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. 54 GGLOBAL MERCHANT SERVICES TABLE 15: GMS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Non-interest revenues Interest income Interest expense Net interest income Total revenues net of interest expense Provisions for losses Total revenues net of interest expense after provisions for losses Expenses Marketing, promotion, rewards, Card Member services and other Salaries and employee benefits and other operating expenses Total expenses Pretax segment income Income tax provision Segment income Effective tax rate 2017 2016 2015 Change 2017 vs. 2016 Change 2016 vs. 2015 $$ 4,333 $ 1 (262) 263 4,596 15 4,235 $ 1 (237) 238 4,473 25 4,471 $ 1 (211) 212 4,683 31 4,581 4,448 4,652 98 — (25) 25 123 (10) 133 2 % $ — 11 11 3 (40) (236) — (26) 26 (210) (6) (5) % — 12 12 (4) (19) 3 (204) (4) 182 232 294 (50) (22) (62) (21) 2,010 2,192 2,389 815 1,574 $ 34.1 % 1,921 2,153 2,295 837 1,458 $ 36.5 % 1,977 2,271 2,381 882 1,499 $ 37.0% $$ 89 39 94 (22) 116 5 2 4 (3) 8 % $ (56) (118) (86) (45) (41) (3) (5) (4) (5) (3) % GMS operates a global payments network that processes and settles proprietary and non-proprietary card transactions. GMS acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging our global integrated network. GMS also operates loyalty coalition businesses in certain countries around the world. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues increased in 2017 compared to 2016, primarily driven by an increase in discount revenue, which reflected growth in billed business, and an increase in loyalty coalition revenues, partially offset by Costco-related revenues in the prior year. Net interest income increased in 2017 compared to 2016, reflecting a higher interest expense credit relating to internal transfer pricing and funding rates, which resulted in a net benefit for GMS due to its merchant payables. Total revenues net of interest expense decreased in 2016 compared to 2015, primarily due to a decrease in non-interest revenues as a result of lower Costco-related revenues. PROVISIONS FOR LOSSES Provisions for losses decreased in both periods of comparison, primarily driven by lower net write-offs. EXPENSES Marketing, promotion, rewards, Card Member services and other expenses decreased in 2017 compared to 2016, reflecting lower levels of spending on growth initiatives. Salaries and employee benefits and other operating expense increased in 2017 compared to 2016, primarily driven by charges related to the U.S. loyalty coalition business, partially offset by a benefit from a change in the liability related to non-delivery of goods and services by merchants and continued growth of the OptBlue program, which does not entail merchant acquirer payments. Total expenses decreased in 2016 compared to 2015, primarily driven by lower marketing and promotion expenses and lower operating expenses driven by the growth of the OptBlue program as described above. Income tax provision decreased in 2017 compared to 2016, primarily reflecting the allocated share of tax benefits related to the realization of certain foreign tax credits. 55 TTABLE 16: GMS SELECTED STATISTICAL INFORMATION As of or for the Years Ended December 31, (Millions, except percentages and where indicated) Loyalty Coalition revenue Average discount rate Total segment assets (billions) CORPORATE & OTHER 22017 4533 22.43 % 29.0 $ $ 2016 410 2.45% 24.3 $ 2015 378 2.46% $ 23.5 $$ $$ Change 2017 vs. 2016 10 % Change 2016 vs. 2015 8 % 19 % 3 % Corporate functions and certain other businesses, including our Prepaid Services business, are included in Corporate & Other. Corporate & Other net expense was $3.7 billion, $1.1 billion and $1.4 billion in 2017, 2016 and 2015, respectively. The increase in 2017 compared to 2016 was primarily driven by the previously-mentioned Tax Act charge, partially offset by higher restructuring charges in the prior year. The decrease in 2016 compared to 2015 was primarily driven by impairment charges in 2015 and higher income from our Prepaid Services business in 2016, all partially offset by restructuring charges in 2016 and a benefit in 2015 from the reassessment of the functional currency of certain UK legal entities and other FX-related activity. Results for all periods included net interest expense related to maintaining the liquidity requirements discussed in “Consolidated Capital Resources and Liquidity – Liquidity Management,” as well as interest expense related to other corporate indebtedness. 56 CCONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY Our balance sheet management objectives are to maintain: • A solid and flexible equity capital profile; • A broad, deep and diverse set of funding sources to finance our assets and meet operating requirements; and • Liquidity programs that enable us to continuously meet expected future financing obligations and business requirements for at least a twelve-month period, even in the event we are unable to continue to raise new funds under our traditional funding programs during a substantial weakening in economic conditions. CAPITAL STRATEGY Our 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. We believe capital allocated to growing businesses with a return on risk-adjusted equity in excess of our costs will generate shareholder value. The level and composition of our consolidated capital position are determined through our Internal Capital Adequacy Assessment Process, which takes into account our business activities, as well as marketplace conditions and requirements or expectations of credit rating agencies, regulators and shareholders, among others. Our consolidated capital position is also influenced by subsidiary capital requirements. As a bank holding company, we are 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. We report our capital ratios using the Basel III capital definitions, inclusive of transition provisions, and the Basel III standardized approach for calculating risk-weighted assets (see section on Transitional Basel III). The Basel III standards will be fully phased in by January 1, 2019 (see section on Fully Phased-in Basel III). We also report capital adequacy standards on a parallel basis to regulators under Basel requirements for advanced approaches institutions. The parallel period will continue until we receive regulatory approval to exit parallel reporting, at which point we will begin publicly disclosing regulatory risk-based capital ratios using both the standardized and advanced approaches, and will be required to use the lower of the regulatory risk-based capital ratios based on the standardized or advanced approaches to determine whether we are in compliance with minimum capital requirements. 57 The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank), as of December 31, 2017. TABLE 17: REGULATORY RISK-BASED CAPITAL AND LEVERAGE RATIOS Risk--Based Capital Common Equity Tier 1 American Express Company American Express Centurion Bank American Express Bank, FSB 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 Supplementary Leverage Ratio (b) American Express Company American Express Centurion Bank American Express Bank, FSB Basel III Standards 2017(a) Ratios as of December 31, 2017 5.8 % 7.3 9.3 4.0 3.0 % 9.0 % 12.7 12.9 10.1 12.7 12.9 11.8 14.0 14.2 8.6 10.2 11.7 7.4 8.1 9.7 % (a) Transitional Basel III minimum capital requirement and additional capital conservation buffer as defined by the Federal Reserve for calendar year 2017 for advanced approaches institutions. (b) The minimum supplementary leverage ratio (SLR) requirement of 3 percent is effective January 1, 2018. TABLE 18: REGULATORY RISK-BASED CAPITAL COMPONENTS AND RISK-WEIGHTED ASSETS American Express Company ($ in Billions) Risk--Based Capital Common Equity Tier 1 Tier 1 Capital Tier 2 Capital(a) Total Capital Risk--Weighted Assets Average Total Assets to calculate the Tier 1 Leverage Ratio Total Leverage Exposure to calculate SLR December 31, 2017 $ $ 13.2 14.7 2.4 17.1 145.9 171.2 198.8 (a) Tier 2 capital is the sum of the allowance for loan and receivable losses (limited to 1.25 percent of risk-weighted assets) and $600 million of subordinated notes adjusted for capital held by insurance subsidiaries. We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements and finance such capital in a cost efficient manner; failure to maintain minimum capital levels could affect our status as a financial holding company and cause the regulatory agencies with oversight of American Express, Centurion Bank and American Express Bank to take actions that could limit our business operations. Due to the Tax Act impact of $2.6 billion, we reported a net loss in the fourth quarter. The net loss, combined with growth in the balance sheet and continued capital return in the quarter, resulted in a decline in our Common Equity Tier 1 Risk-Based Capital ratio to 9.0 percent, which is below the level we had projected in the 2017 CCAR process. As a result, we have suspended our share repurchase program for the first half of 2018 in order to rebuild our capital levels. Our primary source of equity capital has been the generation of net income. Capital generated through net income and other sources, such as the exercise of stock options by employees, is used to maintain a strong balance sheet, support asset growth and engage in acquisitions, with excess available for distribution to shareholders through dividends and share repurchases. We currently expect that the portion of generated capital we allocate to support asset growth will be greater going forward than it has been historically due to projected asset growth. 58 We maintain certain flexibility to shift capital across our businesses as appropriate. For example, we may infuse additional capital into subsidiaries to maintain capital at targeted levels in consideration of debt ratings and regulatory requirements. These infused amounts can affect the capital profile and liquidity levels at the American Express parent company level. The following are definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance: Risk-Weighted Assets — Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. Off-balance sheet exposures comprise a minimal part of the total risk-weighted assets. Common Equity Tier 1 Risk-Based Capital Ratio — Calculated as Common Equity Tier 1 capital (CET1), divided by risk-weighted assets. CET1 is the sum of common shareholders’ equity, adjusted for ineligible goodwill and intangible assets, certain deferred tax assets, as well as certain other comprehensive income items as follows: net unrealized gains/losses on securities and derivatives, and net unrealized pension and other postretirement benefit/losses, all net of tax and subject to transition provisions. Tier 1 Risk-Based Capital Ratio — Calculated as Tier 1 capital divided by risk-weighted assets. Tier 1 capital is the sum of CET1, our perpetual preferred stock and third-party non-controlling interests in consolidated subsidiaries adjusted for capital held by insurance subsidiaries and deferred tax assets from net operating losses not deducted from CET1. The minimum requirement for the Tier 1 risk-based capital ratio is 1.5 percent higher than the minimum for the CET1 risk-based capital ratio. We have $1.6 billion of preferred shares outstanding to help address a portion of the Tier 1 capital requirements in excess of common equity requirements. Total Risk-Based Capital Ratio — Calculated as the sum of Tier 1 capital and Tier 2 capital, divided by risk-weighted assets. Tier 2 capital is the sum of the allowance for loan and receivable losses (limited to 1.25 percent of risk-weighted assets), a portion of the unrealized gains on equity securities and $600 million of subordinated notes, adjusted for capital held by insurance subsidiaries. Tier 1 Leverage Ratio — Calculated by dividing Tier 1 capital by our average total consolidated assets for the most recent quarter. Supplementary Leverage Ratio — Calculated by dividing Tier 1 capital by total leverage exposure under Basel III. Leverage exposure, which reflects average total consolidated assets with adjustments for Tier 1 capital deductions, average off-balance sheet derivatives exposures, securities purchased under agreements to resell and credit equivalents of undrawn commitments that are both conditionally and unconditionally cancellable. FFULLY PHASED-IN BASEL III Basel III, when fully phased in, will require bank holding companies and their bank subsidiaries to maintain more capital than prior requirements, with a greater emphasis on common equity. The following table presents our estimates for our regulatory risk-based capital ratios and leverage ratios had Basel III been fully phased in as of December 31, 2017. These ratios are calculated using the standardized approach for determining risk-weighted assets. As noted previously, we are currently taking steps toward Basel III advanced approaches implementation in the United States. We believe the presentation of these ratios is helpful to investors by showing the impact of future regulatory capital standards on our capital and leverage ratios. 59 TTABLE 19: ESTIMATED FULLY PHASED-IN BASEL III CAPITAL AND LEVERAGE RATIOS ($ in Billions) Estimated Common Equity Tier 1 Ratio under Fully Phased-In Basel III(a) Estimated Tier 1 Capital Ratio under Fully Phased-In Basel III (a) Estimated Tier 1 Leverage Ratio under Fully Phased-In Basel III(b) Estimated Supplementary Leverage Ratio under Fully Phased-In Basel III (b) Estimated Risk-Weighted Assets under Fully Phased-In Basel III(c) Estimated Average Total Assets to calculate the Tier 1 Leverage Ratio(b) Estimated Total Leverage Exposure to calculate SLR under Fully Phased-In Basel III (d) December 31, 2017 8.8 % 9.9 8.5 7.3 % 146.7 171.0 198.7 $ $$ (a) The Fully Phased-in Basel III Common Equity Tier 1 and Tier 1 risk-based capital ratios, non-GAAP measures, are calculated as Common Equity Tier 1 or Tier 1 capital under Fully Phased-in Basel III rules, as applicable, divided by risk-weighted assets under Fully Phased-in Basel III rules. Refer to Table 20 for a reconciliation of Common Equity Tier 1 and Tier 1 capital under Fully Phased-in Basel III rules to Common Equity Tier 1 and Tier 1 capital under Transitional Basel III rules. (b) The Fully Phased-in Basel III Tier 1 and SLRs, non-GAAP measures, are calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total assets and Fully Phased-in total leverage exposure for SLR purposes under Fully Phased-in Basel III, respectively. (c) Estimated Fully Phased-in Basel III risk-weighted assets, a non-GAAP measure, reflect our Basel III risk-weighted assets, with all transition provisions fully phased in. This includes incremental risk weighting applied to deferred tax assets and significant investments in unconsolidated financial institutions, as well as exposures to past due accounts, equities and sovereigns. (d) Estimated Fully Phased-in Basel III Leverage Exposure, a non-GAAP measure, reflects average total consolidated assets with adjustments for Tier 1 capital deductions on a fully phased-in basis, off-balance sheet derivatives, undrawn conditionally and unconditionally cancellable commitments and other off- balance sheet liabilities. The following table presents a comparison of our CET1 and Tier 1 risk-based capital under Transitional Basel III rules to our estimated CET1 and Tier 1 risk-based capital under Fully Phased-in Basel III rules as of December 31, 2017. TABLE 20: TRANSITIONAL BASEL III VERSUS FULLY PHASED-IN BASEL III (Billions) Risk-Based Capital under Transitional Basel III Adjustments related to: AOCI Transition provisions for intangible assets Estimated CET1 and Tier 1 Risk-Based Capital under Fully Phased-in Basel III CET1 TTier 1 $ 13.2 $ 14.7 ((0.1) ((0.2) ((0.1) ((0.2) $ 12.9 $ 14.4 Fully Phased-in Basel III Risk-Weighted Assets — Reflects our Basel III risk-weighted assets, with all transition provisions fully phased in. This includes incremental risk weighting applied to deferred tax assets and significant investments in unconsolidated financial institutions, as well as exposures to past due accounts, equities and sovereigns. Fully Phased-in Basel III Tier 1 Leverage Ratio — Calculated by dividing Fully Phased-in Basel III Tier 1 capital by our average total consolidated assets. Fully Phased-in Basel III SLR — Calculated by dividing Fully Phased-in Basel III Tier 1 capital by our Fully Phased-in total leverage exposure for SLR purposes under Fully Phased-in Basel III. SHARE REPURCHASES AND DIVIDENDS We return capital to common shareholders through dividends and share repurchases. The share repurchases reduce common shares outstanding and more than offset the issuance of new shares as part of employee compensation plans. During the year ended December 31, 2017, we returned $5.5 billion to our shareholders in the form of common stock dividends of $1.2 billion and share repurchases of $4.3 billion. We repurchased 50 million common shares at an average price of $85.56 in 2017. These dividend and share repurchase amounts collectively represent approximately 190 percent of total capital generated during the year. As previously mentioned, we decided to suspend our share buyback program for the first half of 2018 in order to rebuild our capital levels and ratios. We intend to continue our quarterly dividends during the first half of 2018 at the current level. Authorization for share repurchases beginning in the second half of 2018 must be submitted as part of our capital plan within the CCAR 2018 process. 60 In addition, during the year ended December 31, 2017, we had $750 million of non-cumulative perpetual preferred shares (the Series B Preferred Shares) and $850 million of non-cumulative perpetual preferred shares (the Series C Preferred Shares) outstanding. Dividends declared and paid on Series B and Series C Preferred Shares during 2017 were $39 million and $42 million, respectively. For additional information on our preferred shares, refer to Note 17 “Common and Preferred Shares” and Note 22 “Earnings per Common Share (EPS); Preferred Shares” to the “Consolidated Financial Statements.” FFUNDING STRATEGY Our principal funding objective is to maintain broad and well-diversified funding sources to allow us to meet our maturing obligations, cost-effectively finance current and future asset growth in our global businesses as well as to maintain a strong liquidity profile. The diversity of funding sources by type of instrument, by maturity and by investor base, among other factors, provides additional insulation from the impact of disruptions in any one type of instrument, maturity or investor. The mix of our funding in any period will seek to achieve cost efficiency consistent with both maintaining diversified sources and achieving our liquidity objectives. Our funding strategy and activities are integrated into our asset-liability management activities. We have in place a funding policy covering American Express Company and all of our subsidiaries. Our proprietary card businesses are the primary asset-generating businesses, with significant assets in both domestic and international Card Member lending and receivable activities. Our financing needs are in large part a consequence of our proprietary card-issuing businesses, and the maintenance of a liquidity position to support all of our business activities, such as merchant payments. We generally pay merchants for card transactions prior to reimbursement by Card Members and therefore fund the merchant payments during the period Card Member loans and receivables are outstanding. We also have additional financing needs associated with general corporate purposes. FUNDING PROGRAMS AND ACTIVITIES We meet our funding needs through a variety of sources, including direct and third-party distributed deposits and debt instruments, such as senior unsecured debentures, asset securitizations, borrowings through secured borrowing facilities and a long-term committed bank borrowing facility. We had the following consolidated debt and customer deposits outstanding as of December 31: TABLE 21: SUMMARY OF CONSOLIDATED DEBT AND CUSTOMER DEPOSITS (Billions) Short-term borrowings Long-term debt Total debt Customer deposits Total debt and customer deposits 2017 3.3 55.8 59.1 64.5 123.6 2016 5.6 47.0 52.6 53.0 105.6 $ $ $$ $$ Our funding plan for the full year 2018 includes, among other sources, approximately $6 billion to $13 billion of unsecured term debt issuance and approximately $5 billion to $12 billion of secured term debt issuance. Our 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 us, regulatory 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 our control. Our equity capital and funding strategies are designed, among other things, to maintain appropriate and stable unsecured debt ratings from the major credit rating agencies: Moody’s Investor Services (Moody’s), Standard & Poor’s (S&P), Fitch Ratings (Fitch) and Dominion Bond Rating Services (DBRS). Such ratings help support our access to cost-effective unsecured funding as part of our overall funding strategy. Our asset securitization activities are rated separately. TABLE 22: UNSECURED DEBT RATINGS Credit Agency DBRS Fitch Moody’s Moody's S&P S&P S&P American Express Entity All rated entities All rated entities TRS and rated operating subsidiaries(a) American Express Company TRS(a) Other rated operating subsidiaries American Express Company Short--Term Ratings R-1 (middle) F1 Prime 1 Prime 2 N/A A-2 A-2 Long--Term Ratings A (high) A A2 A3 A- A- BBB+ Outlook Stable Stable Stable Stable Stable Stable Stable (a) American Express Travel Related Services Company, Inc. 61 Downgrades in the ratings of our unsecured debt or asset securitization program securities could result in higher funding costs, as well as higher fees related to borrowings under our unused lines of credit. Declines in credit ratings could also reduce our borrowing capacity in the unsecured debt and asset securitization capital markets. We believe our funding mix, including the proportion of U.S. retail deposits insured by the Federal Deposit Insurance Corporation (FDIC), should reduce the impact that credit rating downgrades would have on our funding capacity and costs. SSHORT-TERM FUNDING PROGRAMS Short-term borrowings, such as commercial paper, are defined as any debt with an original maturity of twelve months or less, as well as interest-bearing overdrafts with banks. Our 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 our funding strategy, our needs and market conditions. As of December 31, 2017, we had $1.2 billion in commercial paper outstanding and we had an average of $1.1 billion in commercial paper outstanding during 2017. Refer to Note 9 to the “Consolidated Financial Statements” for a further description of these borrowings. DEPOSIT PROGRAMS We offer deposits within our Centurion Bank and American Express Bank subsidiaries. These funds are currently insured up to $250,000 per account holder through the FDIC. Our ability to obtain deposit funding and offer competitive interest rates is dependent on the capital levels of Centurion Bank and American Express Bank. We, through American Express Bank, have a direct retail deposit program, Personal Savings from American Express, which is our primary deposit product channel. The direct retail program makes FDIC-insured certificates of deposit (CDs) and high-yield savings account products available directly to consumers. We also source deposits through third-party distribution channels as needed to meet our overall funding objectives. As of December 31, 2017 we had $64.5 billion in customer deposits. Refer to Note 8 to the “Consolidated Financial Statements” for a further description of these deposits. LONG-TERM DEBT PROGRAMS As of December 31, 2017 we had $55.8 billion in long-term debt outstanding. During 2017, we and our subsidiaries issued $24.5 billion of unsecured debt and asset-backed securities with maturities ranging from 2 to 10 years. Refer to Note 9 to the “Consolidated Financial Statements” for a further description of these borrowings. ASSET SECURITIZATION PROGRAMS We periodically securitize Card Member loans and receivables arising from our card business, as the securitization market provides us with cost-effective funding. Securitization of Card Member loans and receivables is accomplished through the transfer of those assets to a trust, which in turn issues securities collateralized by the transferred assets to third-party investors. The proceeds from issuance are distributed to us, through our wholly-owned subsidiaries, as consideration for the transferred assets. Refer to Note 6 to the “Consolidated Financial Statements” for a further description of these borrowings. Our 2017 long-term debt and asset securitization issuances were as follows: TABLE 23: DEBT ISSUANCES (Billions) American Express Company: Fixed Rate Senior Notes (weighted-average coupon of 2.58%) Floating Rate Senior Notes (3-month LIBOR plus 45 basis points) American Express Credit Corporation: Fixed Rate Senior Notes (weighted-average coupon of 2.56%) Floating Rate Senior Notes (3-month LIBOR plus 45 basis points) American Express Credit Account Master Trust: Fixed Rate Class A Certificates (weighted-average coupon of 1.90%) Fixed Rate Class B Certificates (weighted-average coupon of 2.21%) Floating Rate Class A Certificates (1-month LIBOR plus 33 basis points) Floating Rate Class B Certificates (1-month LIBOR plus 41 basis points) Total 62 2017 5.0 0.9 7.3 1.2 8.1 0.2 1.8 - 24.5 $ $$ LLIQUIDITY MANAGEMENT We incur liquidity risk that arises in the course of offering our products and services. Our liquidity objective is to maintain access to a diverse set of on- and off-balance sheet liquidity sources. We seek to maintain liquidity sources, even in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions, in amounts sufficient to meet our expected future financial obligations and business requirements for liquidity for a period of at least twelve months. Our liquidity risk policy sets out our objectives and approach to managing liquidity risk. The liquidity risks that we are exposed to could arise from a wide variety of scenarios. Our liquidity management strategy thus includes a number of elements, including, but not limited to: (cid:120) Maintaining diversified funding sources (refer to the “Funding Strategy” section for more details); (cid:120) Maintaining unencumbered liquid assets and off-balance sheet liquidity sources; (cid:120) Projecting cash inflows and outflows under a variety of economic and market scenarios; (cid:120) Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements; and (cid:120) Incorporating liquidity risk management as appropriate into our capital adequacy framework. We seek to maintain access to a diverse set of on-balance sheet and off-balance sheet liquidity sources, including cash and other liquid assets, committed bank credit facilities and asset securitization conduit facilities. Through our U.S. bank subsidiaries, Centurion Bank and American Express Bank, we also hold collateral eligible for use at the Federal Reserve’s discount window. The amount and type of liquidity resources we maintain can vary over time, based upon the results of stress scenarios required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and other various regulatory liquidity requirements, such as the Liquidity Coverage Ratio (LCR), as well as additional stress scenarios required under our liquidity risk policy. These stress scenarios possess distinct characteristics, varying by cash flow assumptions, time horizon and qualifying liquidity sources, among other factors. Scenarios under our liquidity risk policy include market-wide, firm-specific and combined liquidity stresses. The LCR rule prescribes cash flow assumptions over a 30-day period and establishes qualifying criteria for high-quality liquid assets. We consider other factors in determining the amount and type of liquidity we maintain, such as economic and financial market conditions, seasonality in business operations, growth in our businesses, potential acquisitions or dispositions, the cost and availability of alternative liquidity sources and credit rating agency guidelines and requirements. The investment income we receive on liquidity resources, such as cash, is less than the interest expense on the sources of funding for these balances. The net interest costs to maintain these resources have been substantial. The level of future net interest costs depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment yields. Securitized Borrowing Capacity As of December 31, 2017, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2020, which gives us the right to sell up to $3.0 billion face amount of eligible AAA notes from the American Express Issuance Trust II (the Charge Trust). We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 15, 2020, which gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the American Express Credit Account Master Trust (the Lending Trust). Both facilities are used in the ordinary course of business to fund seasonal working capital needs, as well as to further enhance our contingent funding resources. As of December 31, 2017, $3.0 billion was drawn on the Charge Trust facility, which was subsequently repaid on January 16, 2018. No amounts were drawn on the Lending Trust facility. Federal Reserve Discount Window As insured depository institutions, Centurion Bank and American Express Bank may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying collateral that they may pledge. The Federal Reserve has indicated that both credit and charge card receivables are a form of qualifying collateral for secured borrowings made through the discount window. Whether specific assets will be considered qualifying collateral and the amount that may be borrowed against the collateral, remain at the discretion of the Federal Reserve. We had approximately $68.0 billion as of December 31, 2017 in U.S. credit card loans and charge card receivables that could be sold over time through our securitization trusts or pledged in return for secured borrowings to provide further liquidity, subject in each case to applicable market conditions and eligibility criteria. 63 CCommitted Bank Credit Facility In addition to the secured borrowing facilities described earlier in this section, we maintained a committed syndicated bank credit facility as of December 31, 2017 of $3.5 billion, which expires on October 16, 2020. The availability of this credit line is subject to our compliance with certain financial covenants, principally the maintenance by American Express Credit Corporation (Credco) of a certain ratio of combined earnings and fixed charges to fixed charges. As of December 31, 2017, we were in compliance with each of our covenants. As of December 31, 2017, no amounts were drawn on the committed credit facility. The capacity of the facility mainly served to further enhance our contingent funding resources. Our committed bank credit facility does not contain a material adverse change clause, which might otherwise preclude borrowing under the credit facility, nor is it dependent on our credit rating. CASH FLOWS The following table summarizes our cash flow activity, followed by a discussion of the major drivers impacting operating, investing and financing cash flows. TABLE 24: CASH FLOWS (Billions) Total cash provided by (used in): Operating activities Investing activities Financing activities Effect of foreign currency exchange rates on cash and cash equivalents Net increase in cash and cash equivalents Cash Flows from Operating Activities 2017 2016 2015 $$ $$ 13.5 (18.2) 12.2 0.2 7.7 $ $ 8.3 1.9 (7.6) (0.2) 2.4 $ $ 10.7 (8.2) (1.8) (0.2) 0.5 Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income and (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments. The increase in net cash provided by operating activities in the current period was driven by net income adjusted for non-cash items, including changes in provisions for losses, depreciation and amortization, deferred taxes and stock-based compensation, and changes in operating assets and liabilities, primarily accounts payable and other liabilities as a result of normal business operations. Cash Flows from Investing Activities Our cash flows from investing activities primarily include changes in Card Member loans and receivables as well as changes in our available-for-sale investment securities portfolio. The increase in net cash used in investing activities in the current period primarily reflects growth in Card Member loans and receivables as well as the sales of the HFS portfolios in the prior period. Cash Flows from Financing Activities Our cash flows from financing activities primarily include changes in long-term debt, short-term borrowings and customer deposits as well as our regular common share dividend and share repurchase program. The increase in net cash provided by financing activities in the current period was primarily driven by an increase in customer deposits during the current period, versus a decrease in the prior period, and a net increase in long-term debt during the current period, versus a net decrease in the prior period. 64 OOFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS We have identified both on- and off-balance sheet transactions, arrangements, obligations and other relationships that may have a material current or future effect on our financial condition, changes in financial condition, results of operations, or liquidity and capital resources. CONTRACTUAL OBLIGATIONS The table below identifies transactions that represent our contractually committed future obligations. Purchase obligations include our agreements to purchase goods and services that are enforceable and legally binding 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 25: COMMITTED FUTURE OBLIGATIONS BY YEAR (Millions) Long-term debt Interest payments on long-term debt(b) Certificates of deposit Other long-term liabilities(c) (d) Operating lease obligations Purchase obligations(e) Deemed repatriation tax(f) Total Payments due by year(a) $ $ 2018 2019-2020 2021-2022 11,934 $ 1,195 5,256 340 131 454 8 19,318 $ 28,926 $ 1,532 8,278 112 222 294 286 39,650 $ 10,527 $ 691 3,460 13 129 141 268 15,229 $ 2023 and thereafter 5,535 $ 1,545 — 21 831 7 1,141 9,080 $ Total 56,922 4,963 16,994 486 1,313 896 1,703 83,277 (a) The table above excludes approximately $0.8 billion of tax liabilities related to the 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. Refer to Note 21 to the “Consolidated Financial Statements” for additional information. (b) Estimated interest payments were calculated using the effective interest rates as of December 31, 2017, and includes the effect of existing interest rate swaps. Actual cash flows may differ from estimated payments. (c) As of December 31, 2017, 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 2017 are anticipated to be approximately $48 million, and this amount has been included within other long-term liabilities. Remaining obligations under defined benefit pension and postretirement benefit plans aggregating $578 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 $7.8 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) As of December 31, 2017, we had committed to provide funding related to certain tax credit investments resulting in a $373 million unfunded commitment included in other long-term liabilities. In addition to this amount, there was a further $66 million of contractual off-balance sheet obligations that have not been included in the table above as the timing of such obligations is not determinable. Refer to Note 7 to the “Consolidated Financial Statements” for additional information. (e) The purchase obligation amounts represent either the early termination fees or non-cancelable minimum contractual obligations, as applicable, by period under contracts that were in effect as of December 31, 2017. (f) Represents our estimated obligation under the Tax Act to pay the deemed repatriation tax on certain non-US earnings over eight years, which has been calculated on a provisional basis. Refer to Note 21 to the “Consolidated Financial Statements” for additional information. In addition to the contractual obligations noted in Table 25, as of December 31, 2017, we had $5.6 billion in commitments related to agreements with certain cobrand partners under which we make payments based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained, all of which we expect will fully satisfy these commitments. Such cobrand agreements generally range from five to eight years. We also have off-balance sheet arrangements that include guarantees, indemnifications and certain other off-balance sheet arrangements. GUARANTEES As of December 31, 2017, we had guarantees and indemnifications totaling approximately $1 billion related primarily to real estate and business dispositions in the ordinary course of business. Refer to Note 16 to the “Consolidated Financial Statements” for further discussion regarding our guarantees. 65 CCERTAIN OTHER OFF-BALANCE SHEET ARRANGEMENTS As of December 31, 2017, we had approximately $273 billion of unused credit outstanding as part of established lending product agreements. Total unused credit does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set limit, and therefore are not reflected in unused credit available to Card Members. We provide Card Member protection plans that cover losses associated with purchased products. The maximum potential liability related to these plans is the portion of annual billed business for which timely and valid disputes may be raised under applicable law and relevant customer agreements. However, based on historical experience, we believe that this total amount is not representative of our actual potential loss exposure. The actual amount of the potential exposure cannot be quantified as the billed business volumes which may include or result in claims under these plans are not sufficiently estimable. Losses related to these protection plans were immaterial for the years ended December 31, 2017, 2016 and 2015. To mitigate counterparty credit risk related to derivatives, we accepted non-cash collateral in the form of security interests in U.S. Treasury securities from our derivatives counterparties with a fair value of $18 million as of December 31, 2016, none of which was sold or repledged. There was no non-cash collateral held as of December 31, 2017. Refer to Notes 7 and 13 to the “Consolidated Financial Statements” for discussion regarding our other off-balance sheet arrangements. 66 RRISK MANAGEMENT GOVERNANCE We use our comprehensive Enterprise-wide Risk Management (ERM) program to identify, aggregate, monitor, and manage risks. The program also defines our risk appetite, governance, culture and capabilities. The implementation and execution of the ERM program is headed by our Chief Risk Officer. Risk management is overseen by our Board of Directors through three Board committees: the Risk Committee, the Audit and Compliance Committee, and the Compensation and Benefits Committee. Each committee consists entirely of independent directors and provides regular reports to the full Board regarding matters reviewed at their committee. The committees meet regularly in private sessions with our Chief Risk Officer, the Chief Compliance & Ethics Officer, the Chief Audit Executive and other senior management with regard to our risk management processes, controls, talent and capabilities. The Board monitors the “tone at the top,” our risk culture, and oversees emerging and strategic risks. The Risk Committee of our Board of Directors provides oversight of our enterprise-wide risk management framework, processes and methodologies. The Risk Committee approves our ERM policy. The ERM policy governs risk governance, risk oversight and risk appetite for risks, including individual credit risk, institutional credit risk, market risk, liquidity risk, operational risk, reputational risk, compliance risk, model risk, asset/liability risk and strategic and business risk. Risk appetite defines the authorized risk limits to control exposures within our risk capacity and risk tolerance, including stressed forward- looking scenarios. In addition, it establishes principles for risk taking in the aggregate and for each risk type, and is supported by a comprehensive system for monitoring limits, escalation triggers and assessing control programs. The Risk Committee reviews and concurs in the appointment, replacement, performance and compensation of our Chief Risk Officer and receives regular updates from the Chief Risk Officer on key risks, transactions and exposures. The Risk Committee reviews our risk profile against the tolerances specified in the Risk Appetite Framework, including significant risk exposures, risk trends in our portfolios and major risk concentrations. The Risk Committee also provides oversight of our compliance with Basel capital and liquidity standards, our Internal Capital Adequacy Assessment Process, including its Comprehensive Capital Analysis and Review (CCAR) submissions, and resolution planning. The Audit and Compliance Committee of our Board of Directors reviews and approves compliance policies, which include our Compliance Risk Tolerance Statement. In addition, the Audit and Compliance Committee reviews the effectiveness of our Corporate-wide Compliance Risk Management Program. More broadly, this committee is responsible for assisting the Board in its oversight responsibilities relating to the integrity of our financial statements and financial reporting process, internal and external auditing, including the qualifications and independence of the independent registered public accounting firm and the performance of our internal audit services function, and the integrity of our systems of internal accounting and financial controls. The Audit and Compliance Committee provides oversight of our Internal Audit Group. The Audit and Compliance Committee reviews and concurs in the appointment, replacement, performance and compensation of our Chief Audit Executive and approves Internal Audit’s annual audit plan, charter, policies and budget. The Audit and Compliance Committee also receives regular updates on the audit plan’s status and results including significant reports issued by Internal Audit and the status of our corrective actions. The Compensation and Benefits Committee of our Board of Directors works with the Chief Risk Officer to ensure our overall compensation programs, as well as those covering our business units and risk-taking employees, appropriately balance risk with business incentives and how business performance is achieved without taking imprudent or excessive risk. Our Chief Risk Officer is actively involved in setting goals, including for our business units. Our Chief Risk Officer also 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 whether performance goals and results have been achieved without taking imprudent risks. The Compensation and Benefits Committee uses a risk-balanced incentive compensation framework to decide on our bonus pools and the compensation of senior executives. There are several internal management committees, including the Enterprise-wide Risk Management Committee (ERMC), chaired by our Chief Risk Officer. The ERMC is the highest-level management committee to oversee all firm-wide risks and is responsible for risk governance, risk oversight and risk appetite. It maintains the enterprise-wide risk appetite framework and monitors compliance with limits and escalations defined in it. The ERMC oversees implementation of risk policies company- wide. The ERMC reviews key risk exposures, trends and concentrations, significant compliance matters, and provides guidance on the steps to monitor, control and report major risks. 67 As defined in the ERM policy, we follow 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, our Chief Credit Officer, Chief Market Risk Officer and Functional Risk Officer are part of the first line of defense. The second line comprises independent functions overseeing risk-taking activities of the first line. The Chief Risk Officer, the Chief Compliance & Ethics Officer, the Chief Operational Risk Officer and certain control groups, both at the enterprise level and within regulated entities, are part of the second line of defense. The global risk oversight team oversees the policies, strategies, frameworks, models, processes and capabilities deployed by the first line teams and provides challenges and independent assessments on how the first line of defense is managing risks. Our Internal Audit Group constitutes the third line of defense, and provides independent assessments and effective challenge of the first and second lines of defense. In addition, the Asset Liability Committee, chaired by our Chief Financial Officer, is responsible for managing market, liquidity, asset/liability risk, capital and resolution planning. CCREDIT RISK MANAGEMENT PROCESS Credit risk is defined as loss due to obligor or counterparty default or changes in the credit quality of a security. Our credit risks are divided into two broad categories: individual and institutional. Each has distinct risk management capabilities, strategies, and tools. Business units that create individual or institutional credit risk exposures of significant importance are supported by dedicated risk management teams, each led by a Chief Credit Officer. INDIVIDUAL CREDIT RISK Individual credit risk arises principally from consumer and small business charge cards, credit cards, lines of credit, and loans. These portfolios consist of millions of customers across multiple geographies, industries and levels of net worth. We benefit from the high-quality profile of our customers, which is driven by our brand, premium customer servicing, product features and risk management capabilities, which span underwriting, customer management and collections. Externally, the risk in these portfolios is correlated to broad economic trends, such as unemployment rates and gross domestic product (GDP) growth, which can affect customer liquidity. 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, point-of-sale authorizations, credit 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 information on prospects and customers, such as spending and payment history and data feeds from credit bureaus. Additional data, such as commercial variables, are integrated to further mitigate small business risk. We have developed data-driven economic decision logic for customer interactions to better serve our customers. INSTITUTIONAL CREDIT RISK Institutional credit risk arises principally within our Global Commercial Services, 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. Similar to Individual Credit Risk, business units 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 risk capabilities, ensures proper implementation of the underwriting standards and contractual rights of risk mitigation, monitors risk exposures, and determines 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 management teams to optimize risk-adjusted returns on capital. A centralized risk rating unit and a specialized airline risk group provide risk assessment of our institutional obligors. 68 EExposure to the Airline Industry We have multiple important cobrand, rewards, merchant acceptance and corporate payments arrangements with airlines. The ERM program evaluates the risks posed by our airline partners and the overall airline strategy companywide through comprehensive business analysis of global airlines. Our largest airline partner is Delta, and this relationship includes exclusive cobrand credit card partnerships and other arrangements including Membership Rewards redemption, merchant acceptance, travel and corporate payments. See “Risk Factors.” Debt Exposure As part of our ongoing risk management process, we monitor our financial exposure to both sovereign and non-sovereign customers and counterparties, and measure and manage 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. We evaluate countries based on the market assessment of the riskiness of their sovereign debt and our assessment of the economic and financial outlook and closely monitor those deemed high risk. As of December 31, 2017, we considered our gross credit exposures to government entities, financial institutions and corporations in those countries deemed high risk to be individually and collectively not material. OPERATIONAL RISK MANAGEMENT PROCESS We define 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 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. To appropriately measure and manage operational risk, we have implemented a comprehensive operational risk framework that is defined in the Operational Risk Management Policy approved by the Risk Committee. The Operational Risk Management Committee (ORMC), chaired by the Chief Operational Risk Officer, coordinates with all control groups on effective risk assessments and controls and oversees the preventive, responsive and mitigation efforts by Operational Excellence teams in the business units and staff groups. We use 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 us, and resolution plan accountability to correct any defect, remediate customers, and enhance controls and testing to mitigate future issues. The impact is assessed from an operational, financial, brand, regulatory compliance and legal perspective. INFORMATION AND CYBER SECURITY We have implemented an Information Security Program and Operating Model that is designed to protect the confidentiality, integrity and availability of information and information systems from unauthorized access, use, disclosure, disruption, modification or destruction. Our Information Security Program and Operating Model are based on the National Institute of Standards and Technology (NIST) Cybersecurity Common Standards Framework, which consist of controls designed to identify, protect, detect, respond and recover from information and cyber security incidents. The framework defines risks and associated controls which are embedded in our processes and technology. Those controls are measured and monitored by a combination of subject matter experts and a security operations center with our integrated cyber detection, response and recovery capabilities. Chaired by the Chief Information Security Officer, our Information Security Risk Management Committee, a sub-committee of the ORMC, provides governance for our information security risk management program. In addition, the committee is responsible for establishing cyber risk tolerances and in managing cyber crisis preparedness. The Information Security and Technology Oversight team provides independent challenge and assessment of the information, cyber security and technology risk management programs. See “A significant operating disruption, a major information or cyber security incident or an increase in fraudulent activity could lead to reputational damage to our brand and significant legal, regulatory and financial exposure, and could reduce the use and acceptance of our charge and credit cards” under “Risk Factors” for additional information. 69 PPRIVACY AND DATA GOVERNANCE Our Privacy Framework and Operating Model follow a similar structure. Chaired by the Chief Privacy Officer, our Privacy Risk Management Committee, a sub-committee of the ORMC, provides oversight and governance for our privacy program. The committee is responsible for the governance over the collection, notice, use, sharing, transfer, confidentiality and retention of personal data. Our Enterprise Data Governance Framework and Policy defines governance requirements for data used in critical processes. COMPLIANCE RISK MANAGEMENT PROCESS We define compliance risk as the risk of legal or reputational harm, fines, monetary penalties and payment of damages or other forms of sanction as a result of non-compliance with applicable laws, regulations, rules or standards of conduct. We view our ability to effectively mitigate compliance risk as an important aspect of our business model. Our Global Compliance and Ethics organization is responsible for establishing and maintaining our corporate-wide Compliance Risk Management Program. Pursuant to this program, we seek to manage and mitigate compliance risk by assessing, controlling, monitoring, measuring and reporting the legal and regulatory risks to which we are exposed. We have a comprehensive Anti-Money Laundering program that monitors and reports suspicious activity to the appropriate government authorities. As part of that program, the Global Risk Oversight team provides independent risk assessment of the models and rules used by the Anti-Money Laundering team. In addition, the Internal Audit Group reviews the processes for practices consistent with regulatory guidance. REPUTATIONAL RISK MANAGEMENT PROCESS We define reputational risk as the risk that negative stakeholder reaction to our products, services, client and partner relationships, business activities and policies, management and workplace culture, or our response to unexpected events, could cause sustained, critical media coverage, a decline in revenue or investment, talent attrition, litigation, or government or regulatory scrutiny. We view protecting our reputation for excellent customer service, trust, security and high integrity as core to our vision of providing the world’s best customer experience and fundamental to our long-term success. Our business leaders are responsible for considering the reputational risk implications of business activities and strategies and ensuring the relevant subject matter experts are engaged as needed. The ERMC is responsible for ensuring reputational risk considerations are included in the scope of appropriate subordinate risk policies and committees and properly reflected in all decisions escalated to the ERMC. MARKET RISK MANAGEMENT PROCESS Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. Our market risk exposures include: (cid:120) Interest rate risk due to changes in the relationship between interest rates on our assets (such as loans, receivables and investment securities) and our interest rates on our liabilities (such as debt and deposits); and (cid:120) Foreign exchange risk related to transactions, funding, investments and earnings in currencies other than the U.S. dollar. Our Asset-Liability Management (ALM) and Market Risk policies establish the framework that guides and governs market risk management, including quantitative limits and escalation triggers. These policies are approved by the Risk Committee of the Board of Directors or Market Risk Management Committee. Market risk is managed by the Market Risk Management Committee. The Market Risk Oversight Officer provides an independent risk assessment and oversight over the policies and exposure management for market risk and ALM activities, as well as overseeing compliance with the Volcker Rule and other regulatory requirements. Market risk management is also guided and governed by policies covering the use of derivative financial instruments, funding, liquidity and investments. We analyze a variety of interest rate scenarios to inform us of the potential impacts from interest rate changes on earnings and the value of assets, liabilities and the economic value of equity. Our interest rate exposure can vary over time as a result of, among other things, the proportion of our total funding provided by variable-and fixed-rate debt and deposits compared to our Card Member loans and receivables. Interest rate swaps are used from time to time to effectively convert debt issuances to (or from) variable-rate, from (or to) fixed-rate. We do not engage in derivative financial instruments for trading purposes other than with respect to our Foreign Exchange International Payments business activities. Refer to Note 14 to the “Consolidated Financial Statements” for further discussion of our derivative financial instruments. 70 As of December 31, 2017, a hypothetical, immediate 100 basis point increase in market interest rates would have a detrimental effect on our annual net interest income of approximately $167 million. This measure first projects net interest income over the following twelve-month time horizon considering forecasted business growth and anticipated future market interest rates. The detrimental impact from a rate increase is then measured by instantaneously increasing the anticipated future interest rates by 100 basis points. It is further assumed that our interest-rate sensitive assets and the majority of our liabilities that reprice within the twelve-month horizon generally reprice by 100 basis points. Our estimated repricing risk assumes that certain deposit liabilities reprice at a lower magnitude than benchmark rate movements consistent with historical deposit repricing experience in the industry and within our own portfolio. Actual changes in our net interest income will depend on many factors, and therefore may differ from our estimated risk to changes in market interest rates. In addition to parallel rate changes, our net interest income is subject to changes in the relationship between market benchmark rates. For example, movements in Prime rate change the yield on a large portion of our variable-rate U.S. lending receivables and loans, while LIBOR rates determine the effective interest rate on a significant portion of our outstanding funding. Differences in the rate of change of these two benchmark indices, commonly referred to as basis risk, would thus impact our net interest income. The detrimental effect on our net interest income of a hypothetical 10 basis point decrease in the spread between Prime and one-month LIBOR over the next twelve months is estimated to be $33 million. We currently have approximately $44 billion of Prime-based, variable-rate U.S. lending receivables and loans and $33 billion of LIBOR- indexed debt, including asset securitizations. The replacement of LIBOR as a benchmark rate can have a further detrimental impact on our LIBOR-indexed debt if rates suddenly rise as new market activity transfers to other benchmark curves, such as the Secured Overnight Financing Rate. Foreign exchange exposures arise in four principal ways: 1) Card Member spending in currencies that are not the billing currency, 2) cross-currency transactions and balances from our funding activities, 3) cross-currency investing activities, such as in the equity of foreign subsidiaries, and 4) revenues generated and expenses incurred in foreign currencies, which impact earnings. These foreign exchange risks are managed primarily by entering into foreign exchange spot transactions or hedged with foreign exchange forward contracts when the hedge costs are economically justified and in notional amounts designed to offset pretax impacts from currency movements in the period in which they occur. As of December 31, 2017 and 2016, foreign currency derivative instruments with total notional amounts of approximately $30 billion and $28 billion were outstanding, respectively. With respect to Card Member spending and cross-currency transactions, including related foreign exchange forward contracts outstanding, a hypothetical 10 percent strengthening of the U.S. dollar would result in an immaterial impact to projected earnings as of December 31, 2017. With respect to translation exposure of foreign subsidiary equity balances, including related foreign exchange forward contracts outstanding, a hypothetical 10 percent strengthening of the U.S. dollar would result in an immaterial reduction in other comprehensive income and equity as of December 31, 2017. 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 twelve months would be approximately $198 million as of December 31, 2017. To a much lesser extent, we are also subject to market risk arising from activities conducted by our Foreign Exchange International Payments business. We aim to minimize market risk from these activities through hedging, where appropriate, and the establishment of limits to define and protect the company from excessive exposure. The actual impact of 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 our hedging activities and changes in the volume and mix of our businesses. FFUNDING & LIQUIDITY RISK MANAGEMENT PROCESS Liquidity risk is defined as our inability to meet our ongoing financial and business obligations as they become due at a reasonable cost. Our Board-approved Liquidity Risk Policy establishes the framework that guides and governs liquidity risk management. Liquidity risk is managed by the Funding and Liquidity Committee. In addition, the Market Risk Oversight Officer provides independent oversight of liquidity risk management. We manage liquidity risk by maintaining access to a diverse set of cash, readily-marketable securities and contingent sources of liquidity, such that we can continuously meet our business requirements and expected future financing obligations for at least a twelve-month period, even in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions. We consider 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. 71 Liquidity risk is managed at an aggregate consolidated level as well as at certain subsidiaries in order to ensure that sufficient and accessible liquidity resources are maintained. The Funding and Liquidity Committee reviews forecasts of our aggregate and subsidiary cash positions and financing requirements, approves funding plans designed to satisfy those requirements under normal and stressed conditions, establishes guidelines to identify the amount of liquidity resources required and monitors positions and determines any actions to be taken. MMODEL RISK MANAGEMENT PROCESS We define model risk as the risk of adverse consequences, such as financial loss, poor business and strategic decision making, or damage to our reputation, from decisions based on incorrect or misused model outputs and reports. We manage model risk through a comprehensive model governance framework, including policies and procedures for model development, independent model validation and change management capabilities that seek to minimize erroneous model methodology, outputs and misuse. We also assess model performance on an ongoing basis. STRATEGIC AND BUSINESS RISK MANAGEMENT PROCESS Strategic and business risk is the risk related to our inability to achieve our business objectives due to poor strategic decisions, including decisions related to mergers, acquisitions, and divestitures, poor implementation of strategic decisions or declining demand for our products and services. Strategic decisions are reviewed and approved by business leaders and various committees and must be aligned with company policies. We seek to manage strategic and business risks through risk controls embedded in these processes as well as overall risk management oversight over business goals. Existing product performance is reviewed periodically by committees and business leaders. Mergers, acquisitions and divestitures can only be approved following Deal Committee due diligence, a comprehensive risk assessment by operational, market, credit and oversight leaders provided to the Chief Risk Officer and approval by either the Chief Risk Officer or appropriate risk committees. All new products and material changes in business processes are reviewed and approved by the New Products Committee and appropriate credit or risk committees. 72 CCRITICAL ACCOUNTING ESTIMATES Refer to Note 1 to the “Consolidated Financial Statements” for a summary of our significant accounting policies. Certain of our accounting policies requiring significant management assumptions and judgments are as follows: RESERVES FOR CARD MEMBER LOSSES Reserves for Card Member losses represent our best estimate of the probable losses inherent in our outstanding portfolio of Card Member loans and receivables, as of the balance sheet date. In estimating these losses, we use statistical and analytical models that analyze portfolio performance and reflect our judgment regarding the quantitative components of the reserve. The models take into account several factors, including delinquency-based loss migration rates, loss emergence periods and average losses over an appropriate historical period, as well as expected future recoveries. We also consider whether to adjust the quantitative reserve for certain external and internal qualitative factors that may increase or decrease the reserves for losses on Card Member loans and receivables. The process of estimating these reserves requires a high degree of judgment. To the extent historical credit experience, updated for any external and internal qualitative factors such as environmental trends, is not indicative of future performance, actual losses could differ significantly from our judgments and expectations, resulting in either higher or lower future provisions for Card Member losses in any quarter. As of December 31, 2017, a 10 percent increase in our estimate of losses inherent in the outstanding portfolio of Card Member loans and receivables, evaluated collectively for impairment, would increase reserves for losses with a corresponding change to provisions for losses by approximately $223 million. This sensitivity analysis is provided as a hypothetical scenario to assess the sensitivity of the provisions for losses. It does not represent our expectations for losses in the future, nor does it include how other portfolio factors such as delinquency-based loss migration rates or recoveries, or the amount of outstanding balances, may impact the level of reserves for losses and the corresponding impact on the provisions for losses. LIABILITY FOR MEMBERSHIP REWARDS EXPENSE The Membership Rewards program is our largest card-based rewards program. Card Members can earn points for purchases charged on their enrolled card products. A significant portion of our cards, by their terms, allow Card Members to earn bonus points for purchases at merchants in particular industry categories. Membership Rewards points are redeemable for a broad variety of rewards, including travel, shopping, gift cards, and covering eligible charges. Points typically do not expire, and there is no limit on the number of points a Card Member may earn. Membership Rewards expense is driven by charge volume on enrolled cards, customer participation in the program and contractual arrangements with redemption partners. We record 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 liability is impacted over time by enrollment levels, attrition, the volume of points earned and redeemed, and the associated redemption costs. We estimate the Membership Rewards liability by determining the URR and the WAC per point, which are applied to the points of current enrollees. Refer to Note 10 to the “Consolidated Financial Statements” for additional information. The URR assumption is used to estimate the number of points earned by current enrollees that will ultimately be redeemed in future periods. We use statistical and actuarial models to estimate the URR of points earned to date by current Card Members based on redemption trends, card product type, enrollment tenure, card spend levels and credit attributes. The WAC per point assumption is used to estimate future redemption costs and is primarily based on redemption choices made by Card Members, reward offerings by partners, and Membership Rewards program changes. The WAC per point is derived from the previous 12 months of redemptions and is adjusted as appropriate for certain changes in redemption costs that are not representative of future cost expectations. We periodically evaluate our liability estimation process and assumptions based on developments in redemption patterns, cost per point redeemed, partner contract changes and other factors. The process of estimating the Membership Rewards liability includes a high degree of judgment. Actual redemptions and associated redemption costs could differ significantly from our estimates, resulting in either higher or lower Membership Rewards expense. 73 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, 2017, an increase in the estimated URR of current enrollees of 25 basis points would increase the Membership Rewards liability and corresponding rewards expense by approximately $103 million. Similarly, an increase in the WAC per point of 1 basis point would increase the Membership Rewards liability and corresponding rewards expense by approximately $98 million. FFAIR VALUE MEASUREMENT Our investment securities and derivative instruments are carried at fair value on the Consolidated Balance Sheets, which require management to make assumptions and apply judgments when assessing fair value. 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 by utilizing the three-level hierarchy of inputs to valuation techniques used to measure fair value. When available, we use quoted market prices to determine fair value (Level 1). If quoted market prices are not available, we will measure fair value based on pricing models with significant observable inputs (Level 2). We do not have any financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3). For additional information on our fair value hierarchy, refer to Note 15 to the “Consolidated Financial Statements.” Investment Securities Our investment securities are mostly composed of fixed-income securities issued by states and municipalities in the United States, the U.S. Government and its Agencies and select foreign governments. The fair value of our investment securities, including investments comprising defined benefit pension plan assets, are obtained primarily from third-party pricing services. 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. We did not apply any adjustments to prices received from the pricing services used as of December 31, 2017 and 2016. For additional information on our investment securities, refer to Note 5 to the “Consolidated Financial Statements.” Derivative Instruments Our primary derivative instruments are interest rate swaps and foreign currency forward agreements. The fair value of our derivative instruments is estimated internally by using third-party pricing models, where the inputs to those models are readily observable from actively quoted markets. For additional information on our derivatives and hedging activities, refer to Note 14 to the “Consolidated Financial Statements.” In the measurement of fair value for our investment securities and derivative instruments, although the underlying inputs used in the pricing models are based on observable markets inputs, the pricing models do entail a certain amount of subjectivity, and therefore differing judgments in the underlying inputs, or how they are modeled, could result in a different estimate of fair value. While we rely on the third-party pricing model, we reaffirm our understanding of the valuation techniques at least annually and validate the valuation output on a quarterly basis. GOODWILL RECOVERABILITY Goodwill represents the excess of acquisition cost of an acquired business over the fair value of assets acquired and liabilities assumed. 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. Our methodology for conducting this goodwill impairment testing contains both a qualitative and quantitative assessment. We have the option to initially perform an assessment of qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other company and reporting unit-specific events. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then perform the impairment evaluation using a more detailed quantitative assessment. We could also directly perform this quantitative assessment for any reporting unit, bypassing the qualitative assessment. 74 Our methodology for conducting the quantitative goodwill impairment testing is fundamentally based on the measurement of fair value for our reporting units, which inherently entails the use of significant management judgment. For valuation, we use a combination of the income approach (discounted cash flows) and market approach (market multiples) in estimating the fair value of our reporting units. When preparing discounted cash flow models under the income approach, we estimate future cash flows using the reporting unit’s internal multi-year forecast, and a terminal value calculated using a growth rate that we believe is appropriate in light of current and expected future economic conditions. To discount these cash flows we use our expected cost of equity, determined using a capital asset pricing model. When using the market method under the market approach, we apply comparable publicly traded companies’ multiples (e.g., earnings, revenues) to our 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 our reporting units. We could be exposed to an increased risk of further goodwill impairment if future operating results or macroeconomic conditions differ significantly from management’s current assumptions. IINCOME TAXES We are subject to the income tax laws of the United States, its states and municipalities and those of the foreign jurisdictions in which we operate. 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, we must make judgments about the application of inherently complex tax laws. In particular, the Tax Act is complex and requires interpretation of certain provisions to estimate the impact on our income tax expense. The estimates are based on the information available and our current interpretation of the Tax Act, and may change due to changes in interpretations and assumptions we make and additional guidance or context from the Internal Revenue Service, the U.S. Treasury Department, the Financial Accounting Standards Board or others regarding the Tax Act. Our accounting for the impacts of the Tax Act is provisional and actual income tax expense could differ from our estimates. Refer to Note 21 to the “Consolidated Financial Statements” for additional information. Unrecognized Tax Benefits We establish 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 tax benefit recognized is the largest benefit that we believe is more likely than not to be realized on ultimate settlement. As new information becomes available, we evaluate our tax positions and adjust our unrecognized tax benefits, as appropriate. 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, we analyze and estimate the impact of future taxable income, reversing temporary differences and available tax planning strategies. These assessments are performed quarterly, taking into account any new information. Changes in facts or circumstances can lead to changes in the ultimate realization of deferred tax assets due to uncertainties. 75 OOTHER MATTERS RECENTLY ISSUED ACCOUNTING STANDARDS Refer to the Recently Issued Accounting Standards section of Note 1 to the “Consolidated Financial Statements.” GLOSSARY OF SELECTED TERMINOLOGY Adjusted net interest income — A non-GAAP measure that represents net interest income attributable to our Card Member loans and loans HFS (which includes, on a GAAP basis, interest that is deemed uncollectible), excluding the impact of interest expense and interest income not attributable to our Card Member loans. We believe adjusted net interest income is useful to investors because it represents the interest expense and interest income attributable to our Card Member loan portfolio and it is a component of net interest yield on average Card Member loans. Asset securitizations — Asset securitization involves the transfer and sale of loans or receivables to a special-purpose entity created for the securitization activity, typically a trust. The trust, in turn, issues securities, commonly referred to as asset- backed securities that are secured by the transferred loans and receivables. The trust uses the proceeds from the sale of such securities to pay the purchase price for the underlying loans or receivables. The loans and receivables of our Lending Trust and Charge Trust (collectively, the Trusts) securitized are reported as assets and the securities issued by the Trusts are reported as liabilities on our “Consolidated Balance Sheets.” Average discount rate — This calculation is generally designed to reflect pricing at merchants accepting general-purpose American Express cards. It represents the percentage of billed business (generated from both proprietary and GNS Card Member spending) retained by us from merchants we acquire, or for merchants acquired by a third party on our behalf, net of amounts retained by such third party. Basic cards-in-force — Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner, (i.e., not including additional supplemental cards issued on accounts). Proprietary basic small business and corporate cards- in-force includes both basic and supplemental cards issued. Non-proprietary basic cards-in-force includes cards that are issued and outstanding under network partnership agreements, except for supplemental cards and retail cobrand Card Member accounts which have had no out-of-store spending activity during the prior twelve-month period. Billed business — Includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements (non-proprietary billed business), corporate payment services and certain insurance fees charged on proprietary cards. In-store spending activity within retail cobrand portfolios in GNS, from which we earn no revenue, is not included in non-proprietary billed business. Card billed business is included in the United States or outside the United States based on where the issuer is located. Capital ratios — Represents the minimum standards established by the regulatory agencies as a measure to determine whether the regulated entity has sufficient capital to absorb on- and off-balance sheet losses beyond current loss accrual estimates. Refer to the Capital Strategy section under “Consolidated Capital Resources and Liquidity” for further related definitions under Transitional Basel III and Fully Phased-in Basel III. Card Member — The individual holder of an issued American Express-branded charge, credit and certain prepaid cards. Card Member loans — Represents the outstanding amount due from Card Members for charges made on their American Express credit cards, as well as any interest charges and card-related fees. Card Member loans also include revolving balances on certain American Express charge card products. Card Member loans and receivables HFS — Beginning as of December 1, 2015 and continuing until the sales were completed, represents Card Member loans and receivables related to our cobrand partnerships with Costco in the United States and JetBlue. The JetBlue and Costco portfolio sales were completed on March 18 and June 17, 2016, respectively. Card Member receivables — Represents the outstanding amount due from Card Members for charges made on their American Express charge cards, as well as any card-related fees. Charge cards — Represents cards that generally carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge Card Members generally must pay the full amount billed each month. No finance charges are assessed on charge cards. Each charge card transaction is authorized based on its likely economics reflecting a Card Member’s most recent credit information and spend patterns. Some charge card accounts have additional Pay Over Time feature(s) that allow revolving of certain charges. 76 Cobrand cards — Cards issued under cobrand agreements with selected commercial firms. Pursuant to the cobrand agreements, we make payments to our cobrand partners, which can be significant, based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. In some cases, the partner is liable for providing rewards to the Card Member under the cobrand partner’s own loyalty program. Credit cards — Represents cards that have a range of revolving payment terms, grace periods, and rate and fee structures. Discount revenue — Represents revenue earned from fees generally charged to merchants who have entered into a card acceptance agreement. The discount fee generally is deducted from our payment for Card Member purchases. Discount revenue is reduced by incentive payments made to merchants, payments to third-party card issuing partners, cash-back reward costs and statement credits, corporate incentive payments and other similar items. Interest expense — Includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs, and is recognized as incurred. Interest expense is divided principally into two categories: (i) deposits, which primarily relates to interest expense on deposits taken from customers and institutions, and (ii) debt, which primarily relates to interest expense on our long-term financing and short-term borrowings, (e.g., commercial paper, federal funds purchased, bank overdrafts and other short-term borrowings), as well as the realized impact of derivatives hedging interest rate risk on our long-term debt. Interest income — Includes (i) interest on loans, (ii) interest and dividends on investment securities and (iii) interest income on deposits with banks and other. Interest on loans — Assessed using the average daily balance method for Card Member loans and loans HFS. Unless the loan is classified as non-accrual, interest is recognized based upon the principal amount outstanding in accordance with the terms of the applicable account agreement until the outstanding balance is paid or written off. Interest and dividends on investment securities — Primarily relates to our performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so a constant rate of return is recognized on the outstanding balance of the related investment security throughout its term. Amounts are recognized until securities are in default or when it is likely that future interest payments will not be made as scheduled. Interest income on deposits with banks and other — Recognized as earned, and primarily relates to the placement of cash in excess of near-term funding requirements in interest-bearing time deposits, overnight sweep accounts, and other interest- bearing demand and call accounts. Liquidity Coverage Ratio — Represents the minimum standards established by the regulatory agencies as a measure to determine whether the regulated entity has sufficient liquidity to meet liquidity needs in periods of financial and economic stress. Merchant acquisition — Represents our process of entering into agreements with merchants to accept American Express- branded cards. Net card fees — Represents the card membership fees earned during the period. These fees are recognized as revenue over the covered card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation and deferred acquisition costs. Net interest yield on average Card Member loans — A non-GAAP measure that is computed by dividing adjusted net interest income by average Card Member loans, computed on an annualized basis. Reserves and net write-offs related to uncollectible interest are recorded through provisions for losses, and are thus not included in the net interest yield calculation. We believe net interest yield on average Card Member loans is useful to investors because it provides a measure of profitability of our Card Member loan portfolio. Net loss ratio — Represents the ratio of GCP charge card write-offs, consisting of principal (resulting from authorized transactions) and fee components, less recoveries, on Card Member receivables expressed as a percentage of gross amounts billed to corporate Card Members. Net write-off rate — principal only — Represents the amount of proprietary consumer or small business Card Member loans or receivables written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage of the average loan or receivables balance during the period. Net write-off rate — principal, interest and fees — Includes, in the calculation of the net write-off rate, amounts for interest and fees in addition to principal for Card Member loans and fees in addition to principal for Card Member receivables. 77 Operating expenses — Represents salaries and employee benefits, professional services, occupancy and equipment, and other expenses. Return on average equity — Calculated by dividing one-year period net income by one-year average total shareholders’ equity. Total cards-in-force — Represents the total number of charge and credit cards that are issued and outstanding and accepted on our network. Non-proprietary cards-in-force includes all charge and credit cards that are issued and outstanding under network partnership agreements, except for retail cobrand Card Member accounts which have no out-of-store spending activity during the prior twelve-month period. CCAUTIONARY 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 our expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “estimate,” “anticipate,” “intend,” “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. We undertake 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: (cid:120) our ability to grow in the future, which will depend in part on the following: revenues growing consistently with current expectations, which could be impacted by, among other things, the factors identified in the subsequent bullet; credit performance remaining consistent with current expectations; the impact of any future contingencies, including, but not limited to, litigation-related settlements, judgments or expenses, the imposition of fines or civil money penalties, an increase in Card Member reimbursements, restructurings, impairments and changes in reserves; the ability to continue to realize benefits from restructuring actions and manage operating expense growth; the amount we spend on Card Member engagement and our ability to drive growth from such investments; changes in interest rates beyond current expectations (including the impact of hedge ineffectiveness and deposit rate increases); a greater impact from certain cobrand agreements than expected, which could be affected by volumes and Card Member engagement; the impact of regulation and litigation, which could affect the profitability of our business activities, limit our ability to pursue business opportunities, require changes to business practices or alter our relationships with partners, merchants and Card Members; our tax rate remaining in line with current expectations, which could be impacted by, among other things, changes in interpretations and assumptions we have made and actions we may take as a result of the Tax Act, our geographic mix of income, further changes in tax laws and regulation, unfavorable tax audits and other unanticipated tax items; and the impact of accounting changes and reclassifications; (cid:120) our ability to grow revenues net of interest expense and maintain billings momentum, which could be impacted by, among other things, weakening economic conditions in the United States or internationally, a decline in consumer confidence impacting the willingness and ability of Card Members to sustain and grow spending, continued growth of Card Member loans, a greater erosion of the average discount rate than expected, the strengthening of the U.S. dollar, more cautious spending by large and global corporate Card Members, the willingness of Card Members to pay higher card fees, lower spending on new cards acquired than estimated; and will depend on factors such as our success in addressing competitive pressures and implementing our strategies and business initiatives, including growing profitable spending from existing and new Card Members, increasing penetration among middle market and small business clients, expanding our international footprint and increasing merchant acceptance; (cid:120) changes in the substantial and increasing worldwide competition in the payments industry, including competitive pressure that may impact the prices we charge merchants that accept our cards, competition for cobrand relationships, competition from new and non-traditional competitors and the success of marketing, promotion or rewards programs; (cid:120) the erosion of the average discount rate by a greater amount than anticipated, including as a result of changes in the mix of spending by location and industry, merchant negotiations (including merchant incentives, concessions and volume-related pricing discounts), competition, pricing regulation (including regulation of competitors’ interchange rates in the European Union and elsewhere), a greater shift of existing merchants into the OptBlue program and other factors; (cid:120) our delinquency and write-off rates and growth of provisions for losses being higher than current expectations, which will depend in part on changes in the level of loan balances and delinquencies, mix of loan balances, loans and receivables related to new Card Members and other borrowers performing as expected, credit performance of new and enhanced lending products, unemployment rates, the volume of bankruptcies and recoveries of previously written-off loans; (cid:120) our ability to continue to grow loans faster than the industry, which may be affected by increasing competition, brand perceptions and reputation, our ability to manage risk in a growing Card Member loan portfolio, and the behavior of Card Members and their actual spending and borrowing patterns, which in turn may be driven by our ability to issue new and enhanced card products, offer attractive non-card lending products, capture a greater share of existing Card Members’ spending and borrowings, reduce Card Member attrition and attract new customers; 78 (cid:120) our net interest yield on average Card Member loans not remaining consistent with current levels, which will be influenced by, among other things, interest rates, changes in consumer behavior that affect loan balances, such as paydown rates, Card Member acquisition strategy, product mix, cost of funds, credit actions, including line size and other adjustments to credit availability, potential pricing changes and deposit rates, which could be impacted by, among other things, changes in benchmark interest rates, competitive pressure and regulatory constraints; (cid:120) (cid:120) rewards expense and cost of Card Member services growing inconsistently from expectations, which will depend in part on Card Member behavior as it relates to their spending patterns, including the level of spend in bonus categories, and the redemption of rewards and offers, as well as the degree of interest of Card Members in the value proposition we offer; increasing competition, which could result in greater rewards offerings; our ability to enhance card products and services to make them attractive to Card Members; and the amount we spend on the promotion of enhanced services and rewards categories and the success of such promotion; the actual amount to be spent on Card Member engagement, which will be based in part on management’s assessment of competitive opportunities; overall business performance and changes in macroeconomic conditions; the actual amount of advertising and Card Member acquisition costs; our ability to continue to shift Card Member acquisition to digital channels; contractual obligations with business partners and other fixed costs and prior commitments; management’s ability to identify attractive investment opportunities and make such investments, which could be impacted by business, regulatory or legal complexities; and our ability to realize efficiencies, optimize investment spending and control expenses to fund such spending; (cid:120) our ability to manage operating expense growth, which could be impacted by the need to increase significant categories of operating expenses, such as consulting or professional fees, including as a result of increased litigation, compliance or regulatory-related costs, or fraud costs; continuing to implement and achieve benefits from reengineering plans, which could be impacted by factors such as an inability to mitigate the operational and other risks posed by potential staff reductions and underestimating hiring and other employee needs; higher than expected employee levels; the impact of changes in foreign currency exchange rates on costs; the payment of civil money penalties, disgorgement, restitution, non- income tax assessments and litigation-related settlements; impairments of goodwill or other assets; management’s decision to increase or decrease spending in such areas as technology, business and product development and sales forces; greater than expected inflation; the impact of accounting changes and reclassifications; and the level of M&A activity and related expenses; (cid:120) our ability to satisfy our commitments to certain of our cobrand partners as part of the ongoing operations of the business, which will be impacted in part by competition, brand perceptions and reputation, and our ability to develop and market value propositions that appeal to current cobrand Card Members and new customers and offer attractive services and rewards programs, which will depend in part on ongoing investment in marketing and promotion expenses, new product innovation and development, Card Member acquisition efforts and enrollment processes, including through digital channels, and infrastructure to support new products, services and benefits; (cid:120) changes affecting our plans regarding the return of capital to shareholders through dividends and share repurchases, which will depend on factors such as the pace at which we are able to rebuild our capital levels, including from earnings and a lower effective tax rate; the approval of our capital plans by our primary regulators; the amount we spend on acquisitions of companies; and our results of operations and economic environment in any given period; (cid:120) implementation of legislation and additional guidance or context from the Internal Revenue Service, the U.S. Treasury Department, state and foreign taxing authorities, the Financial Accounting Standards Board or others regarding the Tax Act, and any future changes or amendments to that legislation; (cid:120) changes in global economic and business conditions, consumer and business spending, the availability and cost of capital, unemployment rates, geopolitical conditions, foreign currency rates and interest rates, all of which may significantly affect demand for and spending on American Express cards, delinquency rates, loan balances and other aspects of our business and results of operations; (cid:120) changes in capital and credit market conditions, including sovereign creditworthiness, which may significantly affect our ability to meet our 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 our assets; or any reduction in our credit ratings or those of our subsidiaries, which could materially increase the cost and other terms of our funding or restrict our access to the capital markets; (cid:120) legal and regulatory developments, including with regard to broad payment system regulatory regimes, actions by the CFPB and other regulators and the stricter regulation of financial institutions, which could require us to make fundamental changes to many of our business practices, including our ability to continue certain GNS and other partnerships; exert further pressure on the average discount rate and GNS volumes; result in increased costs related to regulatory oversight, litigation-related settlements, judgments or expenses, restitution to Card Members or the imposition of fines or civil money penalties; materially affect our capital or liquidity requirements, results of operations or ability to pay dividends or repurchase our stock; or result in harm to the American Express brand; 79 (cid:120) uncertainty relating to the ultimate outcome of the antitrust lawsuit filed against us by the U.S. Department of Justice and certain state attorneys general, including the review of the case by the U.S. Supreme Court and the impact on existing private merchant cases and potentially additional litigation and/or arbitrations; (cid:120) our funding plan being 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 we offer, regulatory changes, ability to securitize and sell receivables and the performance of receivables previously sold in securitization transactions; (cid:120) changes in the financial condition and creditworthiness of our business partners, such as bankruptcies, restructurings or consolidations, including merchants that represent a significant portion of our business, such as the airline industry, or our partners in GNS or financial institutions that we rely on for routine funding and liquidity, which could materially affect our financial condition or results of operations; and (cid:120) factors beyond our control such as fire, power loss, disruptions in telecommunications, severe weather conditions, natural disasters, health pandemics, terrorism, cyber-attacks or fraud, any of which could significantly affect demand for and spending on American Express cards, delinquency rates, loan balances and other aspects of our business and results of operations or disrupt our global network systems and ability to process transactions. A further description of these uncertainties and other risks can be found in “Risk Factors” above and our other reports filed with the Securities and Exchange Commission. 80 IITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to “Risk Management” under “MD&A” for quantitative and qualitative disclosures about market risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP), and includes those policies and procedures that: (cid:120) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; (cid:120) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (cid:120) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our 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. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —Integrated Framework (2013). Based on management’s assessment and those criteria, we conclude that, as of December 31, 2017, our internal control over financial reporting is effective. PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued an audit report appearing on the following page on the effectiveness of our internal control over financial reporting as of December 31, 2017. 81 RREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AMERICAN EXPRESS COMPANY: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of American Express Company and its subsidiaries (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for 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 the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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. 82 DDefinition and Limitations of Internal Control over Financial Reporting 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 those policies and procedures that (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 16, 2018 We have served as the Company’s auditor since 2005. 83 IINDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Income – For the Years Ended December 31, 2017, 2016 and 2015 Consolidated Statements of Comprehensive Income – For the Years Ended December 31, 2017, 2016 and 2015 Consolidated Balance Sheets – December 31, 2017 and 2016 Consolidated Statements of Cash Flows – For the Years Ended December 31, 2017, 2016 and 2015 Consolidated Statements of Shareholders’ Equity – For the Years Ended December 31, 2017, 2016 and 2015 PAGE 85 86 87 88 89 90 96 97 104 106 108 109 111 112 115 116 118 118 120 123 127 127 129 130 131 132 135 135 137 138 141 143 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Summary of Significant Accounting Policies Note 2 – Business Events Note 3 – Loans and Accounts Receivable Note 4 – Reserves for Losses Note 5 – Investment Securities Note 6 – Asset Securitizations Note 7 – Other Assets Note 8 – Customer Deposits Note 9 – Debt Note 10 – Other Liabilities Note 11 – Stock Plans Note 12 – Retirement Plans Note 13 – Contingencies and Commitments Note 14 – Derivatives and Hedging Activities Note 15 – Fair Values Note 16 – Guarantees Note 17 – Common and Preferred Shares Note 18 – Changes in Accumulated Other Comprehensive Income Note 19 – Non-Interest Revenue and Expense Detail Includes further details of: Other Fees and Commissions Other Revenues Other Expenses Note 20 – Restructuring Note 21 – Income Taxes Note 22 – Earnings Per Common Share Note 23 – Regulatory Matters and Capital Adequacy Note 24 – Significant Credit Concentrations Note 25 – Reportable Operating Segments and Geographic Operations Note 26 – Parent Company Note 27 – Quarterly Financial Data (Unaudited) 84 Years Ended December 31 (Millions, except per share amounts) 22017 2016 2015 CCONSOLIDATED STATEMENTS OF INCOME Revenues Non-interest revenues Discount revenue Net card fees Other fees and commissions 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 and promotion Card Member rewards Card Member services and other Salaries and employee benefits Other, net Total expenses Pretax income Income tax provision Net income Earnings per Common Share —— ((Note 22)(a) Basic Diluted Average common shares outstanding for earnings per common share: Basic Diluted $$ 19,186 3,090 3,022 1,732 27,030 $ 18,680 2,886 $ 19,297 2,700 2,753 2,029 26,348 2,866 2,033 26,896 8,138 7,205 7,309 89 326 131 139 157 79 8,553 7,475 7,545 779 1,333 2,112 6,441 598 1,106 1,704 5,771 33,471 32,119 795 1,868 96 2,759 30,712 3,217 7,608 1,439 5,258 5,776 23,298 7,414 4,678 696 1,235 95 2,026 30,093 3,650 6,793 1,133 5,259 5,162 21,997 8,096 2,688 475 1,148 1,623 5,922 32,818 737 1,190 61 1,988 30,830 3,109 6,996 1,018 4,976 6,793 22,892 7,938 2,775 $$ $$ $$ 2,736 $ 5,408 $ 5,163 2.98 2.97 $ $ 5.67 5.65 $ $ 5.07 5.05 883 886 933 935 999 1,003 (a) Represents net income less (i) earnings allocated to participating share awards of $21 million, $43 million and $38 million for the years ended December 31, 2017, 2016 and 2015, respectively, and (ii) dividends on preferred shares of $81 million, $80 million and $62 million for the years ended December 31, 2017, 2016 and 2015, respectively. See Notes to Consolidated Financial Statements. 85 CCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 (Millions) Net income Other comprehensive income (loss): Net unrealized securities losses, net of tax Foreign currency translation adjustments, net of tax Net unrealized pension and other postretirement benefits, net of tax Other comprehensive income (loss): Comprehensive income 22017 2,736 $ 2016 5,408 $ 2015 5,163 $ ((7) 301 62 356 (51) (218) 19 (250) (38) (545) (32) (615) $$ 3,092 $ 5,158 $ 4,548 See Notes to Consolidated Financial Statements. 86 CCONSOLIDATED BALANCE SHEETS December 31 (Millions, except share data) Assets Cash and cash equivalents Cash and due from banks Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2017, $48; 2016, $115) Short-term investment securities Total cash and cash equivalents Accounts receivable Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2017, $8,919; 2016, $8,874), less reserves: 2017, $521; 2016, $467 Other receivables, less reserves: 2017, $31; 2016, $45 Loans Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2017, $25,695; 2016, $26,129), less reserves: 2017, $1,706; 2016, $1,223 Other loans, less reserves: 2017, $80; 2016, $42 Investment securities Premises and equipment, less accumulated depreciation and amortization: 2017, $5,455; 2016, $5,145 Other assets (includes restricted cash of consolidated variable interest entities: 2017, $62; 2016, $38) Total assets Liabilities and Shareholders’ Equity Liabilities Customer deposits Travelers Cheques and other prepaid products Accounts payable Short-term borrowings Long-term debt (includes debt issued by consolidated variable interest entities: 2017, $18,560; 2016, $15,113) Other liabilities Total liabilities Contingencies and Commitments (Note 13) Shareholders’ Equity Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of December 31, 2017 and 2016 (Note 17) Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 859 million shares as of December 31, 2017 and 904 million shares as of December 31, 2016 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Net unrealized securities gains, net of tax of: 2017,$1; 2016, $5 Foreign currency translation adjustments, net of tax of: 2017, $(363); 2016, $24 Net unrealized pension and other postretirement benefits, net of tax of: 2017, $(179); 2016, $(186) Total accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2017 2016 $$ 5,148 $ 3,278 27,709 70 32,927 20,779 1,151 25,208 53,526 3,163 46,841 3,232 71,693 2,607 3,159 4,329 9,755 64,042 1,419 3,157 4,433 10,561 $$ 181,159 $ 158,893 $$ 64,452 2,593 14,657 3,278 55,804 22,148 $ 53,042 2,812 11,190 5,581 46,990 18,777 $$ 162,932 $ 138,392 — — 172 12,210 8,273 — (1,961) (467) (2,428) 18,227 181,159 181 12,733 10,371 7 (2,262) (529) (2,784) 20,501 $ 158,893 $$ See Notes to Consolidated Financial Statements. 87 CCONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 (Millions) Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: 22017 2016 2015 $$ 2,736 $ 5,408 $ 5,163 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 Net cash provided by operating activities Cash Flows from Investing Activities Sales of available-for-sale investment securities Maturities and redemptions of available-for-sale investment securities Sales of other investments Purchase of investments Net (increase) decrease in Card Member loans and receivables, including held for sale Purchase of premises and equipment, net of sales: 2017, $1; 2016, $2; 2015, $42 Acquisitions/dispositions, net of cash acquired Net (increase) decrease in restricted cash Net cash (used in) provided by investing activities Cash Flows from Financing Activities Net increase (decrease) in customer deposits Net (decrease) increase in short-term borrowings Proceeds from long-term borrowings Payments of long-term borrowings Issuance of American Express preferred shares Issuance of American Express common shares Repurchase of American Express common shares and other Dividends paid Net cash provided by (used in) financing activities Effect of foreign currency exchange rates on cash and cash equivalents Net 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 investing activities 22,759 11,321 7783 2282 4473 ((62) 55,505 ((257) 113,540 22 22,494 —— (2,612) ((16,853) ((1,062) ((211) ((31) ((18,273) 111,385 ((2,300) 332,764 ((24,082) —— 1129 ((4,400) ((1,251) 112,245 2207 77,719 225,208 2,026 1,095 (1,132) 254 (281) 192 1,139 (410) 8,291 88 2,429 10 (2,162) 3,220 (1,375) (487) 145 1,868 (1,935) 888 8,824 (9,848) — 177 (4,498) (1,207) (7,599) (114) 2,446 22,762 1,988 1,043 507 234 (714) 2,058 794 (367) 10,706 12 2,091 — (1,713) (6,967) (1,341) (155) (120) (8,193) 10,878 1,395 9,923 (19,246) 841 193 (4,575) (1,172) (1,763) (276) 474 22,288 $$ 32,927 $ 25,208 $ 22,762 Transfer of Card Member loans and receivables, during the fourth quarter of 2015, to Card Member loans and receivables held for sale, net of reserves $$ — $ — $ 14,524 See Notes to Consolidated Financial Statements. 88 CCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Millions, except per share amounts) Total Preferred Shares Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Loss Balances as of December 31, 2014 $ 20,673 $ — $ 205 $ 12,874 $ (1,919) $ Net income Other comprehensive loss Preferred shares issued Repurchase of common shares Other changes, primarily employee plans Cash dividends declared preferred Cash dividends declared common, $1.13 per share Balances as of December 31, 2015 Net income Other comprehensive loss Repurchase of common shares Other changes, primarily employee plans Cash dividends declared preferred Cash dividends declared common, $1.22 per share Balances as of December 31, 2016 Net income Other comprehensive gain Repurchase of common shares Other changes, primarily employee plans Cash dividends declared preferred 5,163 (615) 841 (4,509) 310 (62) (1,128) 20,673 5,408 (250) (4,421) 308 (80) (1,137) 20,501 22,736 3356 ((4,314) 2212 ((81) Cash dividends declared common, $1.34 per share ((1,183) — — — — — — — — — — — — — — — — — — — — — — — — (12) 1 — — 194 — — (14) 1 — — 181 —— —— ((10) 11 —— —— — — 841 (714) 347 — — 13,348 — — (924) 309 — — — (615) — — — — — (2,534) — (250) — — — — 12,733 (2,784) — — (742) 219 — — — 356 — — — — Balances as of December 31, 2017 $ 118,227 $ — $ 172 $ 12,210 $ (2,428) $ Retained Earnings 9,513 5,163 — — (3,783) (38) (62) (1,128) 9,665 5,408 — (3,483) (2) (80) (1,137) 10,371 2,736 — (3,562) (8) (81) (1,183) 8,273 See Notes to Consolidated Financial Statements. 89 NNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company’s principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (the GBT JV). The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising. Effective for the first quarter of 2016, the Company realigned its segment presentation to reflect the organizational changes announced during the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments. Refer to Note 25 for additional discussion of the products and services that comprise each segment. Corporate functions and certain other businesses and operations are included in Corporate & Other. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Significant intercompany transactions are eliminated. The Company consolidates entities in which it holds a “controlling financial interest.” For voting interest entities, the Company is considered to hold a controlling financial interest when it is able to exercise control over the investees’ operating and financial decisions. For variable interest entities (VIEs), the determination of which is based on the amount and characteristics of the entity’s equity, the Company is considered to hold a controlling financial interest when it is determined to be the primary beneficiary. A primary beneficiary is the party that has both: (1) the power to direct the activities that most significantly impact that VIE’s economic performance, and (2) the obligation to absorb the losses of, or the right to receive the benefits from, the VIE that could potentially be significant to that VIE. 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 operating and financial decisions, are accounted for under the equity method. All other investments in equity securities, to the extent they are not considered marketable securities, are accounted for under the cost method. FOREIGN CURRENCY Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of the reporting period; non-monetary assets and liabilities are translated at the historic exchange rate at the date of the transaction; revenues and expenses are translated at the average month-end exchange rates during the year. Resulting translation adjustments, along with any related qualifying hedge and tax effects, are included in accumulated other comprehensive income (loss) (AOCI), a component of shareholders’ equity. Translation adjustments, including qualifying hedge and tax effects, are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Gains and losses related to transactions in a currency other than the functional currency are reported net in Other expenses, in the Company’s Consolidated Statements of Income. Net foreign currency transaction gains amounted to approximately $7 million and $68 million in 2017 and 2015, respectively, and net foreign currency transaction losses amounted to $18 million in 2016. AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in part, on 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 measurements, goodwill and income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ. 90 IINCOME STATEMENT Discount Revenue Discount revenue generally represents the amount earned by the Company on transactions occurring at merchants with which the Company, or a Global Network Services (GNS) partner, has entered into a card acceptance agreement for facilitating transactions between the merchants and the Company’s Card Members. The amount of fees charged, or merchant discount, is generally deducted from the payment to the merchant and recorded as discount revenue at the time a Card Member enters into a point-of-sale transaction with a merchant. Where the Company acts as the merchant acquirer and the card presented at a merchant is issued by a third-party financial institution, such as in the case of GNS partners, the Company makes financial settlement to the merchant and receives the discount revenue. In the Company’s role as the operator of the card network, it also receives financial settlement from the GNS card issuer, which in turn receives an issuer rate that is individually negotiated between that issuer and the Company. The difference between the merchant discount the Company receives from the merchant (which is directly agreed between a merchant and the Company, and is not based on the issuer rate) and the issuer rate received by the GNS card issuer is recorded as discount revenue. In cases where the Company is the card issuer and the merchant acquirer is a third party (which can be the case in a country in which an Independent Operator partner is the local merchant acquirer or in the United States under our OptBlue program with certain third-party merchant acquirers), the Company receives a network rate in its settlement with the merchant acquirer, which is individually negotiated between the Company and that merchant acquirer and is recorded as discount revenue. In contrast with networks such as those operated by Visa Inc. and MasterCard Incorporated, there are no collectively set interchange rates on the American Express network, issuer rates do not serve as a basis for merchant discount rates and no fees are agreed or due between the third-party financial institution participants on the network. Net Card Fees Net card fees represent revenue earned from annual card membership fees, which vary based on the type of card and the number of cards for each account. These fees, net of acquisition costs and a reserve for projected refunds for Card Member cancellations, are deferred and recognized on a straight-line basis over the twelve-month card membership period as Net Card Fees in the Consolidated Statements of Income. The unamortized net card fee balance is reported in Other Liabilities on the Consolidated Balance Sheets (refer to Note 10). Other Fees and Commissions Other fees and commissions represent Card Member delinquency fees, foreign currency conversion fees, loyalty coalition- related fees, travel commissions and fees and service fees, which are primarily recognized in the period in which they are charged to the Card Member (refer to Note 19). In addition, service fees are also earned from other customers (e.g., merchants) for a variety of services and are recognized when the service is performed, which is generally in the period the fee is charged. Also included are fees related to the Company’s Membership Rewards program, which are deferred and recognized over the period covered by the fee, typically one year; the unamortized portion of which is included in Other Liabilities on the Consolidated Balance Sheets (refer to Note 10). Contra-revenue The Company regularly makes payments through contractual arrangements with merchants, corporate payments clients, Card Members, third-party issuing partners and certain other customers. These payments, including cash rebates and statement credits provided to Card Members, are generally classified as contra-revenue unless a specifically identifiable benefit (e.g., goods or services) is received by the Company or its Card Members in consideration for that payment, and the fair value of such benefit is determinable and measurable. If such conditions are met, then the payment is classified as expense up to the estimated fair value of the benefit. If no such benefit is identified, then the entire payment is classified as contra-revenue and included in the Consolidated Statements of Income in the revenue line item where the related transactions are recorded (e.g., Discount revenue or Other fees and commissions). Interest Income Interest on Card Member loans is assessed using the average daily balance method. Unless the loan is classified as non- accrual, interest is recognized based upon the principal amount outstanding, in accordance with the terms of the applicable account agreement, until the outstanding balance is paid, or written off. 91 Interest and dividends on investment securities primarily relate to the Company’s performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so that a constant rate of return is recognized on the investment security’s outstanding balance. Amounts are recognized until securities are in default or when it becomes likely that future interest payments will not be made as scheduled. Interest on deposits with banks and other is recognized as earned, and primarily relates to the placement of cash, in excess of near-term funding requirements, in interest-bearing time deposits, overnight sweep accounts, and other interest-bearing demand and call accounts. IInterest Expense Interest expense includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs, and is recognized as incurred. Interest expense is divided principally into two categories: (i) deposits, which primarily relates to interest expense on deposits taken from customers and institutions, and (ii) debt, which primarily relates to interest expense on the Company’s long-term debt and short-term borrowings, as well as the realized impact of derivatives used to hedge interest rate risk on the Company’s long-term debt. Expenses Marketing and promotion expense includes costs incurred in the development and initial placement of advertising, which are expensed in the year in which the advertising first takes place. BALANCE SHEET Cash and Cash Equivalents Cash and cash equivalents include cash and amounts due from banks, interest-bearing bank balances, including securities purchased under resale agreements, and other highly liquid investments with original maturities of 90 days or less. Goodwill Goodwill represents the excess of acquisition cost of an acquired business over the fair value of assets acquired and liabilities assumed. The Company allocates goodwill to its reporting units for the purpose of impairment testing. A reporting unit is defined as an operating segment, or a business that is one level below an operating segment, for which discrete financial information is regularly reviewed by the operating segment manager. The Company evaluates goodwill for impairment annually as of June 30, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of one or more of the Company’s reporting units below its carrying value. Prior to completing the assessment of goodwill for impairment, the Company also performs a recoverability test of certain long-lived assets. The Company has the option to perform a qualitative assessment of goodwill impairment to determine whether it is more likely than not that the fair value of its reporting units is less than the carrying values. Alternatively, the Company performs a more detailed quantitative assessment of goodwill impairment. This qualitative assessment entails the evaluation of factors such as economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other company and reporting unit-specific events. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it then performs the impairment evaluation using the quantitative assessment. Under the quantitative assessment, the first step identifies whether there is a potential impairment by comparing the fair value of a reporting unit to the carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds the fair value, then a test is performed to determine the implied fair value of goodwill. An impairment loss is recognized based on the amount that the carrying amount of goodwill exceeds the implied fair value. When measuring the fair value of its reporting units in the quantitative assessment, the Company uses widely accepted valuation techniques, applying 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. To discount these cash flows, the Company uses the expected cost of equity, determined by using a capital asset pricing model. The Company believes the discount rates used appropriately reflect the risks and uncertainties in the financial markets generally and specifically in the Company’s internally-developed forecasts. When using market multiples under the market approach, the Company applies comparable publicly traded companies’ multiples (e.g., earnings or revenues) to its reporting units’ actual results. 92 For the year ended December 31, 2017, the Company performed a qualitative assessment and determined that it was more likely than not that the fair values of its reporting units exceeded their carrying values. For the year ended December 31, 2016, the Company performed the quantitative assessment for all of its reporting units and determined that there was no impairment of goodwill. OOther Intangible Assets Intangible assets, primarily customer relationships, are amortized on a straight-line basis over their estimated useful lives of 1 to 22 years. The Company reviews long-lived assets and asset groups, including intangible assets, for impairment whenever events and circumstances indicate their carrying amounts may not be recoverable. An impairment is recognized if the carrying amount is not recoverable and exceeds the asset or asset group’s fair value. Premises and Equipment Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation. Costs incurred during construction are capitalized and are depreciated once an asset is placed in service. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years for equipment, furniture and building improvements, and from 40 to 50 years for premises, which are depreciated based upon their estimated useful life at the acquisition date. Leasehold improvements are depreciated using the straight-line method over the lesser of the remaining term of the leased facility, or the economic life of the improvement, and ranges from 5 to 10 years. The Company maintains operating leases worldwide for facilities and equipment. Rent expense for facility leases is recognized ratably over the lease term, and includes adjustments for rent concessions, rent escalations and leasehold improvement allowances. The Company recognizes lease restoration obligations at the fair value of the restoration liabilities when incurred and amortizes the restoration assets over the lease term. Certain costs associated with the acquisition or development of internal-use software are also capitalized and recorded in Premises and equipment. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s estimated useful life, generally 5 years. The Company reviews these assets for impairment using the same impairment methodology used for its intangible assets. OTHER SIGNIFICANT ACCOUNTING POLICIES The following table identifies the Company’s other significant accounting policies, along with the related Note and page number where the Note can be found. Significant Accounting Policy Note Number NNote Title Accounts Receivable Loans Reserves for Losses Investment Securities Asset Securitizations Membership Rewards Stock-based Compensation Retirement Plans Legal Contingencies Note 3 Loans and Accounts Receivable Note 3 Loans and Accounts Receivable Note 4 Reserves for Losses Note 5 Investment Securities Note 6 Asset Securitizations Note 10 Other Liabilities Note 11 Stock Plans Note 12 Retirement Plans Note 13 Contingencies and Commitments Derivative Financial Instruments and Hedging Activities Note 14 Derivatives and Hedging Activities Fair Value Measurements Income Taxes Note 15 Fair Values Note 21 Income Taxes Regulatory Matters and Capital Adequacy Note 23 Regulatory Matters and Capital Adequacy Reportable Operating Segments Note 25 Reportable Operating Segments and Geographic Operations PPage Page 97 Page 97 Page 104 Page 106 Page 108 Page 115 Page 116 Page 118 Page 118 Page 120 Page 123 Page 132 Page 135 Page 138 RECENTLY ISSUED ACCOUNTING STANDARDS In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The accounting standard establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows. The guidance, as amended and effective January 1, 2018, supersedes most of the revenue recognition requirements in effect prior to that date. 93 Beginning with the quarter ending March 31, 2018, the Company’s consolidated financial statements will reflect the adoption of the standard using the full retrospective method, which applies the new standard to each prior reporting period presented. The most significant impacts of the adoption are changes to the presentation of certain credit and charge card related costs that previously were netted against Discount revenue, including Card Member cash-back reward costs and statement credits, corporate client incentive payments, as well as payments to third-party card issuing partners. Under the new standard, these costs are not considered components of the transaction price of our card acceptance agreements with merchants and thus are not netted against Discount revenue, but instead recognized as expenses. Our payments to third-party card issuing partners will be presented net of related Other revenues earned from the partners. These reclassifications are expected to have the following impacts to the reported results for the fiscal years ended: December 31 (Millions) RRevenuees Discount revenue Other EExpenses Marketing and promotion Card Member rewards Increase (Decrease) 22017 2016 $$ 33,7077 $ ((2788)) 3,699 (253) 22,3500 11,079 $$ 2,420 1,026 $ The adoption of the new guidance also results in changes to the recognition timing of certain revenues, the impact of which is not material to net income. Similarly, the adoption does not have a material impact on the Company’s consolidated balance sheets or statements of cash flows. The Company is in the process of implementing changes to its accounting policies, business processes, systems and internal controls to support the recognition, measurement and disclosure requirements under the new standard. In January 2016, the FASB issued new accounting guidance on the recognition and measurement of financial assets and financial liabilities, which was effective and adopted by the Company as of January 1, 2018. The guidance makes targeted changes to GAAP; specifically to the classification and measurement of equity securities, and to certain disclosure requirements associated with the fair value of financial assets and liabilities. In the ordinary course of business, the Company makes investments in non-public companies, which historically were recognized under the cost method of accounting. Under the new guidance, these investments are prospectively adjusted for observable price changes through earnings upon the identification of identical or similar transactions of the same issuer. The adoption of the guidance, as of January 1, 2018, did not have a material impact on the Company’s financial position, results of operations and cash flows. The Company implemented changes to its accounting policies, business processes and internal controls in support of the new guidance. In February 2016, the FASB issued new accounting guidance on leases. The guidance, effective January 1, 2019, with early adoption permitted, requires virtually all leases to be recognized on the Consolidated Balance Sheets. The Company will adopt the standard effective January 1, 2019, and is currently planning on using the modified retrospective approach, which requires recording existing operating leases on the Consolidated Balance Sheets upon adoption and in the comparative period. The Company is in the process of upgrading its lease administration software and changing business processes and internal controls in preparation for the adoption. Specifically, the Company is currently reviewing its lease portfolio and is evaluating and interpreting the requirements under the guidance, including the available accounting policy elections, in order to determine the impacts on the Company’s financial position, results of operations and cash flows upon adoption. In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial instruments, effective January 1, 2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. In addition, for available-for-sale debt securities, the new guidance replaces the other-than- temporary impairment model, and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security when a valuation decline was determined to be other-than-temporary. The guidance also requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the CECL model will alter the assumptions used in estimating credit losses on Card Member loans and receivables, and may result in material increases to the Company’s credit reserves as the new guidance involves earlier recognition of expected losses for the life of the assets. The Company has established an enterprise-wide, cross-discipline governance structure to implement the new standard, and continues to identify and conclude on key interpretive issues along with evaluating its existing credit loss forecasting models and processes in relation to the new guidance to determine what modifications may be required. 94 In August 2017, the FASB issued new accounting guidance providing targeted improvements to the accounting for hedging activities, effective January 1, 2019, with early adoption permitted in any interim period or fiscal year before the effective date. The guidance introduces a number of amendments, several of which are optional, that are designed to simplify the application of hedge accounting, improve financial statement transparency and more closely align hedge accounting with an entity’s risk management strategies. Effective January 1, 2018, the Company adopted the guidance, with no material impact on its financial position, results of operations and cash flows, along with associated changes to its accounting policies, business processes and internal controls in support of the new guidance. In February 2018, as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Act), the FASB issued new accounting guidance on the reclassification of certain tax effects from AOCI to retained earnings. The optional guidance is effective January 1, 2019, with early adoption permitted. The Company is evaluating whether it will adopt the new guidance along with any impacts on the Company’s financial position, results of operations and cash flows, none of which are expected to be material. CCLASSIFICATION OF VARIOUS ITEMS Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Specifically, during 2016, the Company determined that in the Consolidated Statements of Cash Flows for the comparative periods ended June 30, 2015, September 30, 2015 and December 31, 2015, certain activities related to long-term debt repayments were misclassified between financing activities and operating activities. There is no impact to the Consolidated Statements of Income or Consolidated Balance Sheets. The Company evaluated the effects of these misclassifications and concluded that none are material to any of its previously issued Consolidated Financial Statements. Nevertheless, the Company elected to revise prospectively the comparative periods mentioned above. For the year ended December 31, 2015, this revision resulted in a $361 million decrease to both Net cash used in financing activities and Net cash provided by operating activities. In addition, travel commissions and fees, which were previously disclosed separately on the Consolidated Statements of Income, are now included within Other fees and commissions. 95 NNOTE 2 BUSINESS EVENTS LOANS AND RECEIVABLES HELD FOR SALE During the fourth quarter of 2015, it was determined the Company would sell the Card Member loans and receivables related to its cobrand partnerships with JetBlue Airways Corporation (JetBlue) and Costco Wholesale Corporation (Costco) in the United States (the HFS portfolios). As a result, the HFS portfolios were presented as held for sale (HFS) on the Consolidated Balance Sheets within Card Member loans and receivables HFS as of December 31, 2015. During the first half of 2016, the Company completed the sales of substantially all of these outstanding Card Member loans and receivables HFS and recognized gains, as an expense reduction in Other expenses, of $127 million and $1.1 billion during the three months ended March 31, 2016 and June 30, 2016, respectively. The impact of the sales, including the recognition of the proceeds received and the reclassification of the retained Card Member loans and receivables, was reported within the investing section of the Consolidated Statements of Cash Flows as a net decrease in Card Member receivables and loans, including HFS. From the point of classification as HFS through the sale completion dates, the Company continued to recognize discount revenue, interest income, other revenues and expenses related to the HFS portfolios in the respective line items on the Consolidated Statements of Income, with changes in the valuation of the HFS portfolios recognized in Other expenses. GOODWILL AND TECHNOLOGY IMPAIRMENT As discussed in Note 1, the Company evaluates goodwill for impairment annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of one or more of the Company’s reporting units below its carrying value. Based on its annual assessment as of June 30, 2015, the Company determined that goodwill was not impaired; however, during the fourth quarter of 2015, the Company announced changes to its management organizational structure under which reconsideration of the Company’s Prepaid Services business (a reporting unit that is included in Corporate & Other) occurred. As a result, the Company determined that sufficient indicators of potential impairment of goodwill existed and performed an impairment evaluation. In performing its quantitative impairment assessment, it was determined the carrying value of the Prepaid Services business’ goodwill exceeded its implied fair value and the Company recognized an impairment loss. The fair value of the Prepaid Services business asset group was measured based on an income approach (discounted cash flow valuation methodology), with the assistance of a third-party valuation firm. Prior to completing the assessment of goodwill for impairment, the Company performed a recoverability test of certain long-lived assets in the Prepaid Services business and determined that certain long-lived assets, primarily technology assets, were not recoverable. As a result, during the fourth quarter of 2015, the Company recorded a $384 million impairment charge, comprising a $219 million write-down of the entire balance of goodwill in the Prepaid Services business and a $165 million write-down of technology and other assets to fair value. These charges were reported in Other expenses. Refer to Note 7 for further discussion of the Company’s goodwill and intangible assets. 96 NNOTE 3 LOANS AND ACCOUNTS RECEIVABLE The Company’s lending and charge payment card products result in the generation of Card Member loans and Card Member receivables, respectively. CARD MEMBER AND OTHER LOANS Card Member loans are recorded at the time a Card Member enters into a point-of-sale transaction with a merchant and represent revolving amounts due on lending card products, as well as amounts due from charge Card Members who utilize the Pay Over Time features on their account and elect to revolve a portion of the outstanding balance by entering into a revolving payment arrangement with the Company. These loans have a range of terms such as credit limits, interest rates, fees and payment structures, which can be revised over time based on new information about Card Members, and in accordance with applicable regulations and the respective product’s terms and conditions. Card Members holding revolving loans are typically required to make monthly payments based on pre-established amounts and the amounts that Card Members choose to revolve are subject to finance charges. Card Member loans are presented on the Consolidated Balance Sheets net of reserves for losses (refer to Note 4), and include principal and any related accrued interest and fees. The 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. Card Member loans by segment and Other loans as of December 31, 2017 and 2016 consisted of: (Millions) U.S. Consumer Services(a) International Consumer and Network Services Global Commercial Services Card Member loans Less: Reserve for losses Card Member loans, net Other loans, net(b) 22017 53,668 8,651 11,080 73,399 1,706 71,693 2,607 $ $ $ 2016 48,758 6,971 9,536 65,265 1,223 64,042 1,419 $$ $$ $$ (a) Includes approximately $25.7 billion and $26.1 billion of gross Card Member loans available to settle obligations of a consolidated VIE as of December 31, 2017 and 2016, respectively. (b) Other loans primarily represent personal and commercial financing products. Other loans are presented net of reserves for losses of $80 million and $42 million as of December 31, 2017 and 2016, respectively. CARD MEMBER AND OTHER RECEIVABLES Card Member receivables are also recorded at the time a Card Member enters into a point-of-sale transaction with a merchant and represent amounts due on charge card products. Each charge card transaction is authorized based on its likely economics, a Card Member’s most recent credit information and spend patterns. Additionally, global spend limits are established to limit the maximum exposure for the Company. Charge Card Members generally must pay the full amount billed each month. Card Member receivable balances are presented on the Consolidated Balance Sheets net of reserves for losses (refer to Note 4), and include principal and any related accrued fees. Card Member accounts receivable by segment and Other receivables as of December 31, 2017 and 2016 consisted of: (Millions) U.S. Consumer Services (a) International Consumer and Network Services Global Commercial Services Card Member receivables Less: Reserve for losses Card Member receivables, net Other receivables, net (b) $$ $$ $$ 22017 13,143 $ 7,803 33,101 54,047 521 53,526 $ 3,163 $ 2016 12,302 5,966 29,040 47,308 467 46,841 3,232 (a) Includes $8.9 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of both December 31, 2017 and 2016. (b) Other receivables primarily represent amounts related to (i) GNS partner banks for items such as royalty and franchise fees, (ii) certain merchants for billed discount revenue, (iii) tax-related receivables, and (iv) loyalty coalition partners for points issued, as well as program participation and servicing fees. Other receivables are presented net of reserves for losses of $31 million and $45 million as of December 31, 2017 and 2016, respectively. 97 CCARD MEMBER LOANS AND CARD MEMBER RECEIVABLES AGING Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of December 31, 2017 and 2016: 2017 (Millions) Card Member Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services Global Small Business Services Global Corporate Payments(a) Card Member Receivables: U.S. Consumer Services International Consumer and Network Services Global Commercial Services Global Small Business Services Global Corporate Payments(a) 2016 (Millions) Card Member Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services Global Small Business Services Global Corporate Payments(a) Card Member Receivables: U.S. Consumer Services International Consumer and Network Services Global Commercial Services Global Small Business Services Global Corporate Payments(a) $ $ $ $ Current 52,961 8,530 $ 10,892 (b) 12,993 7,703 15,868 (b) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due 201 37 43 (b) 53 29 91 (b) 162 28 31 (b) 33 21 54 (b) $ 344 56 $ 59 — 64 50 106 148 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due 48,216 6,863 $ $ 156 32 9,378 (b) 12,158 5,888 $ 14,047 (b) $ 34 (b) 45 22 77 (b) $ $ 119 24 23 (b) 30 15 47 (b) $ 267 52 $ 49 — 69 41 102 135 Total 53,668 8,651 11,025 55 13,143 7,803 16,119 16,982 Total 48,758 6,971 9,484 52 12,302 5,966 14,273 14,767 (a) For Global Corporate Payments (GCP) Card Member loans and receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member loan and receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. See also (b). (b) Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances. 98 CCREDIT 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. Consumer Services International Consumer and Network Services Global Small Business Services Card Member RReceivables: U.S. Consumer Services International Consumer and Network Services Global Small Business Services 22017 Net Write-Off Rate 2016 Net Write-Off Rate Principal Only(a) Principal, Interest, & Fees (a) 30+ Days Past Due as a % of Total Principal Only (a) Principal, Interest, & Fees(a) 30+ Days Past Due as a % of Total 11.8 % 22.1 % 11.6 % 11.3 % 22.0 % 11.6 % 2.1 % 2.5 % 1.9 % 1.4 % 2.1 % 1.8 % 1.3 % 1.4 % 1.2 % 1.1 % 1.3 % 1.6 % 1.5 % 2.0 % 1.4 % 1.4 % 2.0 % 1.5 % 1.8% 2.5% 1.7% 1.6% 2.2% 1.7% 1.1 % 1.6 % 1.1 % 1.2 % 1.3 % 1.6 % 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 2017 2016 Card Member Receivables: Global Corporate Payments 00.10 % 0.9 % 0.09% 0.9% (a) The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. Refer to Note 4 for additional indicators, including external environmental qualitative factors, management considers in its monthly evaluation process for reserves for losses. IMPAIRED CARD MEMBER LOANS AND RECEIVABLES Impaired Card Member loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. The Company considers impaired loans and receivables to include: (i) loans over 90 days past due still accruing interest, (ii) nonaccrual loans and (iii) loans and receivables modified as troubled debt restructurings (TDRs). In instances where the Card Member is experiencing financial difficulty, the Company may modify, through various programs, Card Member loans and receivables in order to minimize losses and improve collectability, while providing Card Members with temporary or permanent financial relief. The Company has classified Card Member loans and receivables in these modification programs as TDRs and continues to classify Card Member accounts that have exited a modification program as a TDR, with such accounts identified as “Out of Program TDRs.” Such modifications to the loans and receivables primarily include (i) temporary interest rate reductions (possibly as low as zero percent, in which case the loan is characterized as non-accrual in the Company’s TDR disclosures), (ii) placing the Card Member on a fixed payment plan not to exceed 60 months and (iii) suspending delinquency fees until the Card Member exits the modification program. Upon entering the modification program, the Card 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 may revert back to the original contractual terms (including the contractual interest rate) when the Card Member exits the modification program, which is (i) when all payments have been made in accordance with the modification agreement or, (ii) when the Card Member defaults out of the modification program. The Company establishes a reserve for Card Member interest charges and fees considered to be uncollectible. Reserves for Card Member loans and receivables modified as TDRs are determined as the difference between the cash flows expected to be received from the Card Member (taking into consideration the probability of subsequent defaults), discounted at the original effective interest rates, and the carrying value of the related Card Member loan or receivables 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 Provisions for losses in the Consolidated Statements of Income. 99 The following tables provide additional information with respect to the Company’s impaired Card Member loans and receivables. Impaired Card Member receivables are not significant for ICNS as of December 31, 2017, 2016 and 2015; therefore, this segment’s receivables are not included in the following tables. As of December 31, 2017 Accounts Classified as a TDR (c) (Millions) CCard Member Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services CCard Member Receivables: U.S. Consumer Services Global Commercial Services Total Over 90 days Past Due & Accruing Interest (a) Non- Accruals(b) In Program (d) Out of Program (e) Total Impaired Balance Unpaid Principal Balance Allowance for TDRs $$ 2233 $$ 1168 $$ 1178 $$ 556 338 —— —— 3327 $$ —— 331 —— —— 1199 $$ —— 331 115 337 2261 $$ $$ 1131 —— 227 99 119 1186 $$ 7710 $$ 6639 $$ 556 1127 224 556 9973 $$ 555 1118 224 556 8892 $$ $$ 449 —— 88 11 22 660 As of December 31, 2016 Accounts Classified as a TDR (c) (Millions) CCard Member Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services CCard Member Receivables: U.S. Consumer Services Global Commercial Services Total Over 90 days Past Due & Accruing Interest (a) Non- Accruals(b) In Program (d) Out of Program (e) Total Impaired Balance Unpaid Principal Balance Allowance for TDRs $ 178 $ 139 $ 165 $ 129 $ 611 $ 558 $ 52 30 — — $ 260 $ — 30 — — 169 $ — 26 11 28 230 — 26 6 10 171 $ $ 52 112 17 38 830 $ 51 103 17 38 767 $ 51 — 9 7 21 88 As of December 31, 2015 Accounts Classified as a TDR (c) (Millions) CCard Member Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services CCard Member Receivables: U.S. Consumer Services Global Commercial Services Total Over 90 days Past Due & Accruing Interest (a) Non- Accruals(b) In Program (d) Out of Program (e) Total Impaired Balance Unpaid Principal Balance Allowance for TDRs $ 140 $ 124 $ 149 $ 52 24 — — $ 216 $ — 26 — — 150 $ — 23 11 16 199 $ 89 — 18 3 3 113 $ 502 $ 463 $ 52 91 14 19 678 $ 51 85 14 19 $ 632 $ 44 — 9 8 12 73 (a) The Company’s policy is generally to accrue interest through the date of write-off (typically 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts presented exclude Card Member loans classified as a TDR. (b) Non-accrual loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest. Amounts presented exclude Card Member loans classified as a TDR. (c) Accounts classified as a TDR include $15 million, $20 million and $20 million that are over 90 days past due and accruing interest and $5 million, $11 million and $18 million that are non-accruals as of December 31, 2017, 2016 and 2015, respectively. (d) In Program TDRs include Card Member accounts that are currently enrolled in a modification program. (e) Out of Program TDRs include $141 million, $132 million and $84 million of Card Member accounts that have successfully completed a modification program and $45 million, $39 million and $29 million of Card Member accounts that were not in compliance with the terms of the modification programs as of December 31, 2017, 2016 and 2015, respectively. 100 The following table provides information with respect to the Company’s average balances and interest income recognized from Impaired Card Member loans and the average balances of impaired Card Member receivables for the years ended December 31: 22017 (Millions) CCard MMember Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services CCard Member Receivables: U.S. Consumer Services Global Commercial Services Total 2016 (Millions) CCard Memmber Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services CCard Member Receivables: U.S. Consumer Services Global Commercial Services Total 2015 (Millions) CCard Memmber Loans: U.S. Consumer Services International Consumer and Network Services Global Commercial Services CCard Member Receivables: U.S. Consumer Services Global Commercial Services Total Average Balance Interest Income Recognized $$ $$ $ $ $ $ 6643 556 1120 220 445 8884 Average Balance 559 53 103 14 28 757 Average Balance 569 54 104 13 20 760 $$ $$ $ $ $ $ 668 117 117 —— —— 1102 Interest Income Recognized 53 15 13 — — 81 Interest Income Recognized 48 14 11 — — 73 101 CCARD MEMBER LOANS AND RECEIVABLES MODIFIED AS TDRS The following table provides additional information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs for the years ended December 31, 2017, 2016 and 2015. The ICNS Card Member loans and receivables modifications were not significant; therefore, this segment is not included in the following TDR disclosures. 2017 Troubled Debt Restructurings: Card Member Loans Card Member Receivables Total 2016 Troubled Debt Restructurings: Card Member Loans Card Member Receivables Total 2015 Troubled Debt Restructurings: Card Member Loans Card Member Receivables Total Number of Accounts (in thousands) Outstanding Balances ($ in millions) (a) Average Interest Rate Reduction (% points) Average Payment Term Extensions (# of months) 333 $ 66 339 $ 224 83 307 10 (c) (b) 28 Number of Accounts (in thousands) Outstanding Balances ($ in millions) (a) Average Interest Rate Reduction (% points) Average Payment Term Extensions (# of months) 31 $ 9 40 $ 220 123 343 9 (c) (b) 18 Number of Accounts (in thousands) Outstanding Balances ($ in millions) (a) Average Interest Rate Reduction (% points) Average Payment Term Extensions (# of months) 40 $ 12 52 $ 285 147 432 9 (c) (b) 12 (a) Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables. Modifications did not reduce the principal balance. (b) For Card Member loans, there have been no payment term extensions. (c) The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing. 102 The following table provides information with respect to the USCS and GCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification for the years ended December 31, 2017, 2016 and 2015. A Card Member is considered in default of a modification program after one and up to two missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables. 22017 TTroubled Debt Restructurings That Subsequently Defaulted: Card Member Loans Card Member Receivables Total 2016 TTroubled Debt Restructurings That Subsequently Defaulted: Card Member Loans Card Member Receivables Total 2015 TTroubled Debt Restructurings That Subsequently Defaulted: Card Member Loans Card Member Receivables Total Aggregated Outstanding Balances Upon Default(a) Number of Accounts (thousands) (millions) 66 33 99 $$ $$ 339 77 446 Aggregated Outstanding Balances Upon Default(a) Number of Accounts (thousands) (millions) 7 3 10 $ $ 41 4 45 Aggregated Outstanding Balances Upon Default(a) Number of Accounts (thousands) (millions) 8 3 11 $ $ 52 5 57 (a) The outstanding balances upon default include principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables. 103 NNOTE 4 RESERVES FOR LOSSES Reserves for losses relating to Card Member loans and receivables represent management’s best estimate of the probable inherent losses in the Company’s outstanding portfolio of loans and receivables, as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments. 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 factors, including delinquency-based loss migration rates, loss emergence periods and average losses and recoveries over an appropriate historical period. Management considers whether to adjust the quantitative reserves for certain external and internal qualitative factors, which may increase or decrease the reserves for losses on Card Member loans and receivables. These external factors include employment, spend, sentiment, housing and credit, and changes in the legal and regulatory environment, while the internal factors include increased risk in certain portfolios, impact of risk management initiatives, changes in underwriting requirements and overall process stability. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of Card Member loans or receivables, and net write-off coverage ratios. Card Member loans and receivables balances are written off when management considers amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due. Card Member loans and receivables in bankruptcy or owed by deceased individuals are generally written off upon notification, and recoveries are recognized as they are collected. This Note is presented excluding amounts associated with the Card Member loans and receivables HFS as of December 31, 2015; the Company did not have any Card Member loans and receivables HFS as of December 31, 2017 or 2016. 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 Provisions(a) Net write-offs Principal(b) Interest and fees(b) Transfer of reserves on HFS loan portfolios Other(c) Balance, December 31 (a) Provisions for principal, interest and fee reserve components. 22017 1,223 1,868 (1,181) (227) — 23 1,706 $ $ 2016 1,028 1,235 (930) (175) — 65 1,223 $ $ 2015 1,201 1,190 (967) (162) (224) (10) 1,028 $$ $$ (b) Principal write-offs are presented less recoveries of $409 million, $379 million and $418 million, and include net write-offs from TDRs of $30 million, $34 million and $41 million, for the years ended December 31, 2017, 2016 and 2015, respectively. Recoveries of interest and fees were not significant. (c) Includes foreign currency translation adjustments of $8 million, $(10) million and $(20) million, and other adjustments of $15 million, $8 million and $10 million for the years ended December 31, 2017, 2016 and 2015, respectively. The year ended December 31, 2016 included reserves of $67 million associated with $265 million of retained Card Member loans reclassified from HFS to held for investment as a result of retaining certain loans in connection with the respective sales of JetBlue and Costco cobrand card portfolios. CARD MEMBER LOANS EVALUATED INDIVIDUALLY AND COLLECTIVELY FOR IMPAIRMENT The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of December 31: (Millions) Card Member loans evaluated individually for impairment (a) Related reserves(a) Card Member loans evaluated collectively for impairment (b) Related reserves(b) (a) Represents loans modified as a TDR and related reserves. 22017 367 57 73,032 1,649 $ $ $ $ 2016 346 $ 60 $ 64,919 $ 1,163 $ 2015 279 53 58,294 975 $ $ $ $ (b) Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are specific to individual pools of loans, and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment. 104 CCHANGES 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 Provisions(a) Net write-offs(b) Other(c) Balance, December 31 $$ $$ 2017 467 795 ((736) (5) 521 $ $ 2016 462 696 (674) (17) 467 $ $ 2015 465 737 (713) (27) 462 (a) Provisions for principal and fee reserve components. (b) Principal and fee write-offs are presented less recoveries of $359 million, $391 million and $401 million, including net write-offs from TDRs of $(2) million, $16 million and $60 million, for the years ended December 31, 2017, 2016 and 2015, respectively. (c) Includes foreign currency translation adjustments of $12 million, $(12) million and $(16) million, and other adjustments of $(17) million, $(5) million and $(11) million for the years ended December 31, 2017, 2016 and 2015, respectively. Additionally, 2015 included the impact of the transfer of the HFS receivables portfolio, which was not significant. 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) Card Member receivables evaluated individually for impairment(a) Related reserves(a) Card Member receivables evaluated collectively for impairment Related reserves(b) (a) Represents receivables modified as a TDR and related reserves. 22017 80 3 53,967 518 $ $ $ $ 2016 55 28 47,253 439 $ $ $ $ 2015 33 20 44,100 442 $ $ $ $ (b) The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are collectively evaluated for impairment. 105 NNOTE 5 INVESTMENT SECURITIES Investment securities principally include debt securities the Company classifies as available-for-sale and carries at fair value on the Consolidated Balance Sheets, with unrealized gains and losses recorded in AOCI, net of income taxes. Realized gains and losses are recognized upon disposition of the securities using the specific identification method. Refer to Note 15 for a description of the Company’s methodology for determining the fair value of investment securities. The following is a summary of investment securities as of December 31: 22017 2016 2015 Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value 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) Foreign government bonds and obligations Equity securities (b) Total $$ Cost 1,369 $ 11 1,051 28 67 581 51 3,158 $ 11 $ — 3 — 2 — — 16 $ (3) $ — (9) — — — (3) (15) $ 1,377 $ 11 1,045 28 69 581 48 3,159 $ Cost 2,019 $ 12 465 19 92 486 51 3,144 $ 28 $ — 3 — 3 1 — 35 $ (11) $ — (8) — — (1) (2) (22) $ 2,036 $ 12 460 19 95 486 49 3,157 $ Cost 2,813 $ 2 406 29 117 250 51 3,668 $ 85 $ — 4 1 4 6 — 100 $ (5) $ 2,893 — (1) — — (1) (2) (9) $ 2 409 30 121 255 49 3,759 (a) Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. (b) Equity securities comprise investments in common stock and various mutual funds. The following table provides information about the Company’s investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31: Less than 12 months 12 months or more Less than 12 months 12 months or more 2017 2016 Description of Securities (Millions) State and municipal obligations U.S. Government treasury obligations Equity securities Total Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value $$ $ 157 $ 650 — 807 $ (3) $ (3) — (6) $ — $ 175 36 211 $ — $ (6) (2) (8) $ 153 $ 298 — 451 $ (11) $ (8) — (19) $ — $ — 32 32 $ Gross Unrealized Losses — — (2) (2) 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) 2017: 90%–100% Total as of December 31, 2017 2016: 90%–100% Less than 90% Total as of December 31, 2016 Less than 12 months 12 months or more Total 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 334 $$ 334 $$ 33 $ 4 37 $ 807 $$ 807 $$ 411 $ 40 451 $ (6) (6) (13) (6) (19) 13 $$ 13 $$ 6 $ — 6 $ 211 $$ 211 $$ 32 $ — 32 $ (8) (8) (2) — (2) 47 $$ 47 $$ 1,018 $$ 1,018 $$ 39 $ 4 43 $ 443 $ 40 483 $ (14) (14) (15) (6) (21) The gross unrealized losses are attributed to wider credit spreads for specific issuers, adverse changes in benchmark interest rates, or a combination thereof, all compared to those prevailing when the investment securities were purchased. Overall, for the investment securities in gross unrealized loss positions, (i) the Company does not intend to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented. 106 Weighted average yields and contractual maturities for investment securities with stated maturities as of December 31, 2017 were as follows: (Millions) State and municipal obligations(a) U.S. Government agency obligations U.S. Government treasury obligations Corporate debt securities Mortgage-backed securities(a) Foreign government bonds and obligations Total Estimated Fair Value Total Cost Weighted average yields(b) $$ $$ $$ Due within 1 year 118 $$ —— 330 44 —— 5573 6625 $$ 6625 $$ 33.65 %% Due after 1 year but within 5 years 887 —— 8879 224 —— 44 9994 11,000 $$ $$ $$ 11.95 %% Due after 5 years but within 10 years 998 —— 1125 —— —— —— 2223 2222 44.39 %% $$ $$ $$ Due after 10 years 11,174 111 111 —— 669 44 11,269 $$ $$ Total 11,377 111 11,045 228 669 5581 33,111 11,260 $$ 44.47 %% 33,107 33.49 %% (a) (b) 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. Average yields for investment securities have been calculated using the effective yield on the date of purchase. Yields on tax-exempt investment securities have been computed on a tax-equivalent basis using the U.S. federal statutory tax rate of 35 percent. Effective January 1, 2018, the U.S. federal statutory tax rate was reduced to 21 percent. Refer to Note 21 for additional information. 107 NNOTE 6 ASSET SECURITIZATIONS The Company periodically securitizes Card Member loans and receivables arising from its card businesses through the transfer of those assets to securitization trusts. The trusts then issue debt securities collateralized by the transferred assets to third-party investors. Card Member loans are transferred to the American Express Credit Account Master Trust (the Lending Trust) and Card Member receivables are transferred to the American Express Issuance Trust II (the Charge Trust and together with the Lending Trust, the Trusts). The Trusts are consolidated by the Company. The Trusts are considered VIEs as they have insufficient equity at risk to finance their activities, which are to issue debt securities that are collateralized by the underlying Card Member loans and receivables. Refer to Note 1 for further details on the principles of consolidation. The Company performs the servicing and key decision making for the Trusts, and therefore has the power to direct the activities that most significantly impact the Trusts’ economic performance, which are the collection of the underlying Card Member loans and receivables. In addition, the Company holds all of the variable interests in both Trusts, with the exception of the debt securities issued to third-party investors. As of December 31, 2017, the Company’s ownership of variable interests was $11.6 billion for the Lending Trust and $4.6 billion for the Charge Trust. These variable interests held by the Company provide it with the right to receive benefits and the obligation to absorb losses, which could be significant to both the Lending Trust and the Charge Trust. Based on these considerations, the Company is the primary beneficiary of both Trusts and therefore consolidates both Trusts. The debt securities issued by the Trusts are non-recourse to the Company. The securitized Card Member loans and receivables held by the Lending Trust and the Charge Trust, respectively, are available only for payment of the debt securities or other obligations issued or arising in the securitization transactions (refer to Note 3). The long-term debt of each Trust is payable only out of collections on their respective underlying securitized assets (refer to Note 9). The following table provides information on the restricted cash held by the Lending Trust and the Charge Trust as of December 31, 2017 and 2016, included in Other assets on the Consolidated Balance Sheets: (Millions) Lending Trust Charge Trust Total $$ $$ 22017 2016 55 $ 7 62 $ 35 3 38 These amounts relate to collections of Card Member loans and receivables to be used by the Trusts to fund future expenses and obligations, including interest on debt securities, credit losses and upcoming debt maturities. Under the respective terms of the Lending Trust and the Charge Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each Trust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of debt securities. During the year ended December 31, 2017, no such triggering events occurred. 108 NNOTE 7 OTHER ASSETS The following is a summary of Other assets as of December 31: (Millions) Goodwill Deferred tax assets, net(a) Tax credit investments Other intangible assets, at amortized cost Prepaid expenses Restricted cash(b) Derivative assets(a) Other Total $$ $$ 22017 3,009 $ 1,647 1,023 899 684 336 124 2,033 9,755 $ 2016 2,927 2,336 824 868 696 286 555 2,069 10,561 (a) Refer to Notes 14 and 21 for a discussion of derivative assets and deferred tax assets, net, as of December 31, 2017 and 2016. For 2017 and 2016, $98 million and $81 million, respectively, of foreign deferred tax liabilities is reflected in Other liabilities. Derivative assets reflect the impact of master netting agreements and cash collateral. (b) Includes restricted cash available to settle obligations related to certain Card Member credit balances and customer deposits, as well as coupon and maturity obligations of consolidated VIEs. GOODWILL The changes in the carrying amount of goodwill reported in the Company’s reportable operating segments and Corporate & Other were as follows: (Millions) Balance as of January 1, 2016 Acquisitions Dispositions Other(a) Balance as of December 31, 2016 Acquisitions Dispositions Other(a) Balance as of December 31, 2017 $ $ $$ USCS 122 $ — — — 122 $ 44 —— 1 127 $ ICNS 620 $ — — (16) 604 $ 15 — 41 660 $ GCS 1,715 $ — — (3) 1,712 $ — — 12 1,724 $ (a) Primarily includes foreign currency translation. Accumulated impairment losses were $220 million as of both December 31, 2017 and 2016. OTHER INTANGIBLE ASSETS The components of other intangible assets were as follows: Corporate & Other GMS 291 $ 201 — (3) 489 $ — — 9 498 $ 1 $ — — (1) — $ — — — — $ Total 2,749 201 — (23) 2,927 19 — 63 3,009 2017 2016 (Millions) Customer relationships Other Total Gross Carrying Amount 1,863 242 2,105 $$ $$ Accumulated Amortization (1,073) (133) (1,206) $ $ Net Carrying Amount 790 109 899 Gross Carrying Amount 1,625 260 1,885 $ $ Accumulated Amortization (895) (122) (1,017) $ $ Net Carrying Amount 730 138 868 $ $ $ $ Amortization expense for the years ended December 31, 2017, 2016 and 2015 was $207 million, $194 million and $183 million, respectively. Intangible assets acquired in 2017 and 2016 are being amortized, on average, over 6 and 7 years, respectively. Estimated amortization expense for other intangible assets over the next five years is as follows: (Millions) Estimated amortization expense 2018 2019 2020 2021 2022 $ 221 $ 183 $ 156 $ 126 $ 98 109 TTAX CREDIT INVESTMENTS The Company accounts for its tax credit investments, including Qualified Affordable Housing (QAH) investments, using the equity method of accounting. The Company had $1,023 million and $824 million in tax credit investments as of December 31, 2017 and 2016, respectively, included in Other assets on the Consolidated Balance Sheets, of which $1,018 million and $798 million, respectively, specifically related to QAH investments. Included in QAH investments as of December 31, 2017 and 2016, the Company had $933 million and $701 million, respectively, specifically related to investments in unconsolidated VIEs for which the Company does not have a controlling financial interest. As of December 31, 2017, the Company had committed to provide funding related to certain of these QAH investments, which is expected to be paid between 2018 and 2032, resulting in a $373 million unfunded commitment reported in Other liabilities, of which $352 million specifically related to unconsolidated VIEs. In addition, the Company had contractual off-balance sheet obligations, which were not deemed probable of being drawn, to provide additional funding up to $66 million for these QAH investments as of December 31, 2017, fully related to unconsolidated VIEs. During the years ended December 31, 2017 and 2016, the Company recognized equity method losses related to its QAH investments of $112 million and $43 million, respectively, which were recognized in Other, net expenses; and associated tax credits of $74 million and $63 million, respectively, recognized in Income tax provision. 110 NNOTE 8 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: 2017, $358 million; 2016, $331 million) Non-U.S.: Interest-bearing Non-interest-bearing (includes Card Member credit balances of: 2017, $344 million; 2016, $285 million) Total 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:(a) Direct Third-party (brokered) Sweep accounts —Third-party (brokered) Other deposits: U.S. non-interest bearing deposits Non-U.S. deposits Card Member credit balances — U.S. and non-U.S. Total customer deposits 22017 2016 $$ 63,666 $ 52,316 395 34 357 367 58 301 $$ 64,452 $ 53,042 22017 2016 $$ 31,915 $ 30,980 290 16,684 14,777 37 47 702 64,452 $ 291 11,925 9,120 36 74 616 53,042 $$ (a) The weighted average remaining maturity and weighted average interest rate at issuance on the total portfolio of U.S. retail certificates of deposit issued through direct and third-party programs were 45 months and 2.15 percent, respectively, as of December 31, 2017. The scheduled maturities of certificates of deposit as of December 31, 2017 were as follows: (Millions) 2018 2019 2020 2021 2022 After 5 years Total $$ $$ U.S. 5,236 $$ 4,604 3,674 1,310 2,150 — 16,974 $$ Non-U.S. 20 $$ — — — — — 20 $$ Total 5,256 4,604 3,674 1,310 2,150 — 16,994 As of December 31, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows: (Millions) U.S. Non-U.S. Total 22017 $$ 114 $ 11 $$ 125 $ 2016 117 7 124 111 NNOTE 9 DEBT SHORT-TERM BORROWINGS The Company’s short-term borrowings outstanding, defined as borrowings with original contractual maturity dates of less than one year, as of December 31 were as follows: 22017 2016 (Millions, except percentages) Commercial paper(b) Other short-term borrowings(c) Total Outstanding Balance $$ $$ 1,168 2,110 3,278 Year-End Stated Rate on Debt (a) 11.54 % 22.34 22.05 % $ Outstanding Balance $ 2,993 2,588 5,581 Year-End Stated Rate on Debt(a) 1.13 % 1.28 1.20 % (a) For floating-rate issuances, the stated interest rates are weighted based on the outstanding balances and rates in effect as of December 31, 2017 and 2016. (b) Average commercial paper outstanding was $1,076 million and $491 million in 2017 and 2016, respectively. (c) Includes overdrafts with banks of $132 million and $369 million as of December 31, 2017 and 2016, respectively. In addition, balances include certain book overdrafts (i.e., primarily timing differences arising in the ordinary course of business), short-term borrowings from banks, as well as interest-bearing amounts due to merchants in accordance with merchant service agreements. The Company maintained a three-year committed, revolving, secured borrowing facility that gives the Company the right to sell up to $2.0 billion face amount of eligible certificates issued from the Lending Trust at any time through September 15, 2020. The facility was undrawn as of both December 31, 2017 and 2016. The Company paid $9.2 million and $8.6 million in fees to maintain the secured borrowing facility in 2017 and 2016, respectively. The committed facility does not contain a material adverse change clause, which might otherwise preclude borrowing under the facility, nor is it dependent on the Company’s credit rating. 112 LLONG-TERM DEBT The Company’s long-term debt outstanding, defined as debt with original contractual maturity dates of one year or greater, as of December 31 was as follows: 22017 Original Contractual Maturity Dates Year-End Stated Rate Year-End Effective Interest Rate with on Debt(b) Swaps(b)(c) Outstanding Balance(a) Outstanding Balance (a) 2016 Year-End Stated Rate on Debt Year-End Effective Interest Rate with (b) Swaps (b)(c) 22018 -- 22042 $$ 10,377 3.85 % 3.17 % $ 6,932 5.13 % 4.24 % 22018 -- 22022 22024 22018 -- 22027 22018 -- 22022 22018 22019 -- 22022 22018 -- 22022 22020 -- 22022 22018 -- 22022 22021 -- 22033 22018 -- 22020 1,750 5598 119,652 44,550 — 1125 — — 88,099 55,800 2206 1192 44,200 887 223 2256 ((111) 1.93 3.63 2.24 2.09 — 1.89 — — 1.90 2.03 2.21 2.05 1.79 2.11 5.59 0.42 — 2.66 2.27 — — — — — — — — — — — — — %% 850 598 16,201 4,350 1,306 125 1,000 300 3,500 7,025 - 316 4,200 87 24 247 (71) 1.51 3.63 1.98 1.52 5.99 1.26 6.00 0.96 1.41 1.20 - 1.34 1.12 1.34 5.62 0.44 — 1.92 1.44 — 4.83 — — — — — — — — — — — % (Millions, except percentages) American Exxpress Company (Parent Company only) Fixed Rate Senior Notes Floating Rate Senior Notes Subordinated Notes American Express Credit Corporation Fixed Rate Senior Notes Floating Rate Senior Notes American Express Centurion Bank Fixed Rate Senior Notes Floating Rate Senior Notes American Express Bank, FSB Fixed Rate Senior Notes Floating Rate Senior Notes American Express Lending Trust Fixed Rate Senior Notes Floating Rate Senior Notes Fixed Rate Subordinated Notes Floating Rate Subordinated Notes American Express Charge Trust II Other Fixed Rate Instruments(d) Floating Rate Borrowings Unamortized Underwriting Fees Total Long-Term Debt Floating Rate Senior Notes 22018 -- 22020 Floating Rate Subordinated Notes 22018 $$ 55,804 2.44 % $ 46,990 2.39 % (a) The outstanding balances include (i) unamortized discount and premium, (ii) the impact of movements in exchange rates on foreign currency denominated debt and (iii) the impact of fair value hedge accounting on certain fixed-rate notes that have been swapped to floating rate through the use of interest rate swaps. Under fair value hedge accounting, the outstanding balances on these fixed-rate notes are adjusted to reflect the impact of changes in fair value due to changes in interest rates. Refer to Note 14 for more details on the Company’s treatment of fair value hedges. (b) For floating-rate issuances, the stated and effective interest rates are weighted based on the outstanding balances and rates in effect as of December 31, 2017 and 2016. (c) Effective interest rates are only presented when swaps are in place to hedge the underlying debt. (d) Includes $23 million and $24 million as of December 31, 2017 and 2016, respectively, related to capitalized lease transactions. 113 Aggregate annual maturities on long-term debt obligations (based on contractual maturity or anticipated redemption dates) as of December 31, 2017 were as follows: (Millions) American Express Company (Parent Company only) American Express Credit Corporation American Express Centurion Bank American Express Lending Trust American Express Charge Trust II Other 2018 33,850 $$ 33,654 1125 22,885 11,287 1133 111,934 $$ 2019 6641 $$ 77,150 —— 33,488 —— 335 111,314 $$ 2020 22,000 $$ 66,600 —— 55,924 33,000 888 117,612 $$ $$ $$ 2021 —— $$ 22,939 —— —— —— 112 22,951 $$ Unamortized Underwriting Fees Unamortized Discount and Premium Impacts due to Fair Value Hedge Accounting Total Long-Term Debt 2022 Thereafter 33,525 $$ 22,050 —— 22,001 —— —— 77,576 $$ 33,523 $$ 22,000 —— —— —— 112 Total 113,539 224,393 1125 114,298 44,287 2280 55,535 $$ 556,922 ((111) ((825) ((182) $$ 555,804 The Company maintained a bank line of credit of $3.5 billion and $3.0 billion as of December 31, 2017 and 2016, respectively, all of which was undrawn as of the respective dates. These undrawn amounts support contingent funding needs. The availability of the credit line is subject to the Company’s compliance with certain financial covenants, principally the maintenance by American Express Credit Corporation (Credco) of a 1.25 ratio of combined earnings and fixed charges, to fixed charges. As of December 31, 2017 and 2016, the Company was not in violation of any of its debt covenants. Additionally, the Company maintained a three-year committed, revolving, secured borrowing facility that gives the Company the right to sell up to $3.0 billion face amount of eligible notes issued from the Charge Trust at any time through July 15, 2020. As of both December 31, 2017 and 2016, $3.0 billion was drawn on this facility. The Company paid $16.3 million and $11.5 million in fees to maintain these lines in 2017 and 2016, respectively. These committed facilities do not contain material adverse change clauses, which might otherwise preclude borrowing under the credit facilities, nor are they dependent on the Company’s credit rating. The Company paid total interest, primarily related to short- and long-term debt, corresponding interest rate swaps and customer deposits, of $2.0 billion, $1.7 billion and $1.6 billion in 2017, 2016 and 2015, respectively. 114 NNOTE 10 OTHER LIABILITIES The following is a summary of Other liabilities as of December 31: (Millions) Membership Rewards liability Book overdraft balances Employee-related liabilities(a) Repatriation tax liability(b) Card Member rebate and reward accruals(c) Deferred card and other fees, net Other(d) Total $$ 22017 7,751 $ 2,837 2,277 1,703 1,564 1,554 4,462 2016 7,060 2,255 2,055 — 1,382 1,411 4,614 $$ 22,148 $ 18,777 Employee-related liabilities include employee benefit plan obligations and incentive compensation. (a) (b) Refer to Note 21 for additional information. (c) Card Member rebate and reward accruals include payments to third-party reward partners and cash-back rewards. (d) Other includes accruals for general operating expenses, client incentives, merchant rebates, payments to third-party card-issuing partners, marketing and promotion, restructuring and reengineering reserves, QAH unfunded commitments and derivatives. MEMBERSHIP REWARDS The Membership Rewards program allows enrolled Card Members to earn points that can be redeemed for a broad range of rewards including travel, shopping, gift cards, and covering eligible charges. The Company records a balance sheet liability that represents management’s best estimate of the cost of points earned that are expected to be redeemed in the future. The weighted average cost (WAC) per point and the Ultimate Redemption Rate (URR) are key assumptions used to estimate the Membership Rewards liability. The expense for Membership Rewards points is included in Card Member rewards expense. The Company periodically evaluates its liability estimation process and assumptions based on developments in redemption patterns, cost per point redeemed, partner contract changes and other factors. DEFERRED CARD AND OTHER FEES, NET The carrying amount of deferred card and other fees, net of deferred direct acquisition costs and reserves for membership cancellations as of December 31, was as follows: (Millions) Deferred card and other fees(a) Deferred direct acquisition costs Reserves for membership cancellations Deferred card and other fees, net (a) Includes deferred fees for Membership Rewards program participants. 2017 1,996 $ (280) (162) 1,554 $ 2016 1,767 (204) (152) 1,411 $$ $$ 115 NNOTE 11 STOCK PLANS STOCK OPTION AND AWARD PROGRAMS Under the 2016 Incentive Compensation Plan and previously under the 2007 Incentive Compensation Plan, awards may be granted to employees and other key individuals who perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, restricted stock awards or units (RSAs/RSUs), portfolio grants (PGs) or other incentives, and similar awards designed to meet the requirements of non-U.S. jurisdictions. For the Company’s Incentive Compensation Plans, there were a total of 14 million, 17 million and 33 million common shares unissued and available for grant as of December 31, 2017, 2016, and 2015, respectively, as authorized by the Company’s Board of Directors and shareholders. A summary of stock option and RSA/RSU activity as of December 31, 2017, and changes during the year, is presented below: Stock Options RSAs/RSUs (Shares in thousands) Outstanding as of December 31, 2016 Granted Exercised/vested Forfeited Expired Outstanding as of December 31, 2017 Options vested and expected to vest as of December 31, 2017 Options exercisable as of December 31, 2017 Shares 10,272 869 (3,766) (102) (11) 7,262 7,194 3,399 $ Weighted- Average Exercise Price 47.68 87.19 34.48 67.57 86.11 58.92 58.86 45.93 $ Weighted- Average Grant Price 69.22 77.80 75.85 68.80 — 70.29 Shares 7,500 2,670 (2,335) (620) — 7,215 $ $ 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. Stock options generally vest 100 percent on the third anniversary of the grant date and have a contractual term of 10 years from the date of grant. 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, vested, and expected to vest as of December 31, 2017, were as follows: Weighted-average remaining contractual life (in years) Aggregate intrinsic value (millions) Outstanding 55.8 2293 $ $ Exercisable 3.1 181 $ Vested and Expected to Vest 5.7 291 The intrinsic value of options exercised during 2017, 2016 and 2015 was $197 million, $51 million and $87 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 2017, 2016 and 2015 was $130 million, $175 million and $146 million, respectively. Effective January 1, 2017, the Company adopted new accounting guidance for employee share-based payments and accordingly, income tax benefits related to stock-based incentive arrangements were recognized in the Company’s Consolidated Statements of Income in the amount of $59 million for the year ended December 31, 2017. Previously, such benefits were recorded in additional paid-in capital. The tax benefit realized from income tax impacts of stock option exercises, which was recorded in additional paid-in capital, in 2016 and 2015 was $4 million and $18 million, respectively. 116 The fair value of each option is estimated on the date of grant using a Black-Scholes-Merton option-pricing model. The following weighted-average assumptions were used for options granted in 2017, 2016 and 2015: Dividend yield Expected volatility(a) Risk-free interest rate Expected life of stock option (in years)(b) Weighted-average fair value per option 22017 11.8 %% 224 %% 22.3 %% 66.9 118.18 $ 2016 1.9 % 25 % 1.5 % 6.3 13.67 $ 2015 1.1% 37% 1.7% 6.7 29.20 $ (a) The expected volatility is based on both weighted historical and implied volatilities of the Company’s common stock price. (b) The expected life of stock options was determined using both historical data and expectations of option exercise behavior. On October 31, 2017, certain senior executives were awarded stock options with a term of seven years, and include a three- year service condition, as well as performance and market conditions. Therefore, the fair values of these options were estimated at the grant date using a Monte Carlo Valuation model with the following assumptions: Dividend yield Expected volatility(a) Risk-free interest rate Expected life of stock option (in years) Fair value per option October 31, 2017 1.58 % 21.41 % 2.26 % 7 19.18 $ (a) The expected volatility is based on both weighted historical and implied volatilities of the Company’s common stock price. RRESTRICTED STOCK AWARDS AND UNITS RSAs/RSUs are valued based on the stock price on the date of grant and contain either a) service conditions or b) both service and performance conditions. RSAs/RSUs containing only service conditions generally vest 25 percent per year beginning with the first anniversary of the grant date. RSAs/RSUs containing both service and performance conditions generally vest on the third anniversary of the grant date, and the number of shares earned depends on the achievement of predetermined Company metrics. All RSA/RSU holders receive non-forfeitable dividends or dividend equivalents. The total fair value of shares vested during 2017, 2016 and 2015, was $180 million, $171 million and $247 million, respectively (based upon the Company’s stock price at the vesting date). The weighted-average grant date fair value of RSAs/RSUs granted in 2017, 2016 and 2015 was $77.80, $55.55 and $81.99, 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/or service conditions, and vest over periods of one to three years. PGs and other incentive awards are generally settled with cash and thus are classified as liabilities; therefore, the fair value is determined at the date of grant and remeasured quarterly as part of compensation expense over the vesting period. Cash paid upon vesting of these awards in 2017, 2016 and 2015 was $48 million, $41 million and $74 million, respectively. 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) Restricted stock awards(a) Stock options(a) Liability-based awards Total stock-based compensation expense (b) $$ 22017 170 $ 21 92 $$ 283 $ 2016 178 $ 14 60 252 $ 2015 190 12 32 234 (a) As of December 31, 2017, the total unrecognized compensation cost related to unvested RSAs/RSUs and options of $178 million and $21 million, respectively, will be recognized ratably over the weighted-average remaining vesting period of 2.1 years. (b) The total income tax benefit recognized in the Consolidated Statements of Income for stock-based compensation arrangements for the years ended December 31, 2017, 2016 and 2015 was $102 million, $89 million and $83 million, respectively. 117 NNOTE 12 RETIREMENT PLANS DEFINED CONTRIBUTION RETIREMENT PLANS The Company sponsors defined contribution retirement plans, the principal plan being the Retirement Savings Plan (RSP), a 401(k) savings plan with a profit-sharing component. The RSP is a tax-qualified retirement plan subject to the Employee Retirement Income Security Act of 1974 and covers most employees in the United States. The total expense for all defined contribution retirement plans globally was $349 million, $234 million and $224 million in 2017, 2016 and 2015, respectively. DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company’s primary defined benefit pension plans that cover certain employees in the United States and United Kingdom are closed to new entrants and existing participants do not accrue any additional benefits. Most employees outside the United States and United Kingdom are covered by local retirement plans, some of which are funded, while other employees receive payments at the time of retirement or termination under applicable labor laws or agreements. The Company complies with minimum funding requirements in all countries. The Company sponsors unfunded other postretirement benefit plans that provide health care and life insurance to certain retired U.S. employees. The total expense for these plans was $25 million, $24 million and $23 million in 2017, 2016 and 2015, 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, 2017 and 2016, the funded status related to the defined benefit pension plans and other postretirement benefit plans was underfunded by $626 million and $700 million, respectively, and is recorded in Other liabilities. NOTE 13 CONTINGENCIES AND COMMITMENTS CONTINGENCIES In the ordinary course of business, the Company and its subsidiaries are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings). The Company discloses its material legal proceedings under Part I, Item 3. “Legal Proceedings.” In addition to the matters disclosed under “Legal Proceedings,” the Company is being challenged in a number of countries regarding its application of value-added taxes (VAT) to certain of its international transactions, which are in various stages of audit, or are being contested in legal actions (collectively, VAT matters). While the Company believes it has complied with all applicable tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that the Company owes additional VAT. In certain jurisdictions where the Company is contesting the assessments, it was required to pay the VAT assessments prior to contesting. The Company’s legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members. These legal proceedings involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, application of tax laws, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff or class, many seek an unspecified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss, while other matters have progressed sufficiently such that the Company is able to estimate an amount of loss or a range of possible loss. 118 The Company has recorded reserves for certain of its outstanding legal proceedings. A reserve is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the recorded reserve. The Company evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable. For those disclosed material legal proceedings and VAT matters where a loss is reasonably possible in future periods, whether in excess of a related reserve for legal or tax contingencies or where there is no such reserve, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $500 million in excess of any reserves related to those matters. This range represents management’s estimate based on currently available information and does not represent the Company’s maximum loss exposure; actual results may vary significantly. As such legal proceedings evolve, the Company may need to increase its range of possible loss or reserves. Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes it is not a party to, nor are any of its properties the subject of, any legal proceeding that would have a material adverse effect on the Company’s consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims, could have a material impact on the Company’s results of operations. CCOMMITMENTS The Company leases certain facilities and equipment under non-cancelable and cancelable agreements, for which total rental expense was $151 million, $169 million and $187 million in 2017, 2016 and 2015, respectively. As of December 31, 2017, the minimum aggregate rental commitment under all non-cancelable operating leases (net of subleases of $20 million) was as follows: (Millions) 2018 2019 2020 2021 2022 Thereafter Total $$ $$ 131 124 98 72 57 831 1,313 As of December 31, 2017, the Company’s future minimum lease payments under capital leases or other similar arrangements is approximately $4 million per annum in 2018 through 2020, $2 million in 2021, $1 million in 2022 and $10 million in aggregate thereafter. As of December 31, 2017, the Company had $5.6 billion in commitments related to agreements with certain cobrand partners under which it makes payments based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. 119 NNOTE 14 DERIVATIVES AND HEDGING ACTIVITIES The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rates, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Company’s market risk management. The Company does not transact in derivatives for trading purposes. Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. The Company’s market risk exposures include: (cid:120) Interest rate risk due to changes in the relationship between interest rates on the Company’s assets (such as loans, receivables and investment securities) and interest rates on the Company’s liabilities (such as debt and deposits); and (cid:120) Foreign exchange risk related to earnings, funding, transactions and investments in currencies other than the U.S. dollar. The Company centrally monitors market risks using market risk limits and escalation triggers as defined in its Asset/Liability Management Policy. The Company’s market exposures are in large part byproducts of the delivery of its products and services. Interest rate risk primarily arises through the funding of Card Member receivables and fixed-rate loans with variable-rate borrowings, as well as through the risk to net interest margin from changes in the relationship between benchmark rates such as Prime, LIBOR and the overnight indexed swap rate. 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 United States. 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. Derivatives may give rise to counterparty credit risk, which is the risk that a derivative counterparty will default on, or otherwise be unable to perform pursuant to, an uncollateralized derivative exposure. The Company manages this risk by considering the current exposure, which is the replacement cost of contracts on the measurement date, as well as estimating the maximum potential value of the contracts over the next 12 months, considering such factors as the volatility of the underlying or reference index. To mitigate derivative credit risk, counterparties are required to be pre-approved by the Company and rated as investment grade, and counterparty risk exposures are centrally monitored. Additionally, in order to mitigate the bilateral counterparty credit risk associated with derivatives, the Company has in certain instances entered into master netting agreements with its derivative counterparties, which provide a right of offset for certain exposures between the parties. A majority of the Company’s derivative assets and liabilities as of December 31, 2017 and 2016 are subject to such master netting agreements with its derivative counterparties, and there are no instances in which management makes an accounting policy election to not net assets and liabilities subject to an enforceable master netting agreement on the Company’s Consolidated Balance Sheets. To further mitigate bilateral counterparty credit risk, the Company exercises its rights under executed credit support agreements with certain of its derivative counterparties. These agreements require that, in the event the fair value change in the net derivatives position between the two parties exceeds certain dollar thresholds, the party in the net liability position posts collateral to its counterparty. All derivative contracts cleared through a central clearinghouse are collateralized to the full amount of the fair value of the contracts. In relation to the 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. The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. Based on its assessment of the credit risk of the Company’s derivative counterparties as of December 31, 2017 and 2016, no credit risk adjustment to the derivative portfolio was required. 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 15 for a description of the Company’s methodology for determining the fair value of derivatives. 120 The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of December 31: Other Assets Fair Value Other Liabilities Fair Value (Millions) Derivatives designated as hedging instruments: Fair value hedges - Interest rate contracts(a) Net investment hedges - Foreign exchange contracts Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments: Foreign exchange contracts, including certain embedded derivatives(b) Total derivatives, gross Less: Cash collateral netting(c) (d) Derivative asset and derivative liability netting(e) 22017 2016 22017 $$ 111 $ 1117 1128 882 2210 ((6) ((80) 111 $$ 347 458 308 766 (54) (157) 334 $ 889 1123 995 2218 ((45) ((80) Total derivatives, net $$ 1124 $ 555 $$ 993 $ 2016 69 35 104 176 280 (68) (157) 55 (a) Effective January 2017, the Central Clearing Party (CCP) changed the legal characterization of variation margin payments for centrally cleared derivatives to be settlement payments, as opposed to collateral. As of December 31, 2017, there was no unsettled derivative asset or liability with the CCP. The Company also maintained several bilateral interest rate contracts that are not subject to the CCP’s rule change and amounts related to such contracts are shown gross of any collateral exchanged. (b) Includes foreign currency derivatives embedded in certain operating agreements. (c) Represents the offsetting of the fair value of bilateral interest rate contracts and certain foreign exchange contracts with the right to reclaim cash collateral or the obligation to return cash collateral. (d) The Company held no non-cash collateral as of December 31, 2017. As of December 31, 2016, the Company received non-cash collateral from a counterparty in the form of security interests in U.S. Treasury securities, with a fair value of $18 million, none of which was sold or repledged. Such non-cash collateral economically reduced the Company’s risk exposure to $537 million as of December 31, 2016, but did not reduce the net exposure on the Company’s Consolidated Balance Sheets. Additionally, the Company posted $146 million and $169 million as of December 31, 2017 and 2016, respectively, as initial margin on its centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Consolidated Balance Sheets and are not netted against the derivative balances. (e) Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement. DDERIVATIVE FINANCIAL INSTRUMENTS THAT QUALIFY FOR HEDGE ACCOUNTING Derivatives executed for hedge accounting purposes are documented and designated as such when the Company enters into the contracts. In accordance with its risk management policies, the Company structures its hedges with terms similar to those of the item being hedged. The Company formally assesses, at inception of the hedge accounting relationship and on a quarterly basis, whether derivatives designated as hedges are highly effective in offsetting the fair value or cash flows of the hedged items. These assessments usually are made through the application of a regression analysis method. If it is determined that a derivative is not highly effective as a hedge, the Company will discontinue the application of hedge accounting. FAIR VALUE HEDGES A fair value hedge involves a derivative designated to hedge the 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 obligations. At the time of issuance, certain fixed-rate debt obligations are designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest rate. The Company has $23.8 billion and $17.7 billion of fixed-rate debt obligations designated in fair value hedging relationships as of December 31, 2017 and 2016, respectively. To the extent the fair value hedge is effective, the gain or loss on the hedging instrument offsets the loss or gain on the hedged item attributable to the hedged risk. Any difference between the changes in the fair value of the derivative and the changes in the hedged item is referred to as hedge ineffectiveness and is reported as a component of Other expenses. Hedge ineffectiveness may be caused by differences between a debt obligation’s interest rate and the benchmark rate, primarily due to credit spreads at inception of the hedging relationship that are not reflected in the fair value of the interest rate swap. Furthermore, hedge ineffectiveness may be caused by changes in 1-month LIBOR, 3-month LIBOR and the overnight indexed swap rate, as spreads between these rates impact the fair value of the interest rate swap without causing an exact offsetting impact to the fair value of the hedged debt. For the periods presented, the Company considers all fair value hedges to be highly effective and did not de-designate any fair value hedge relationships. 121 The following table summarizes the gains (losses) recognized in Other expenses associated with the Company’s fair value hedges for the year ended December 31: (Millions) OOther expenses: Interest rate derivative contracts Hedged items Net hedge ineffectiveness (losses) gains 22017 2016 2015 $$ $$ ((246) $ 2206 ((40) $ (184) 163 (21) $ $ (83) 93 10 The Company also recognized a net reduction in interest expense on long-term debt of $133 million, $224 million and $284 million for the years ended December 31, 2017, 2016 and 2015, respectively, primarily related to the net settlements (interest accruals) on the Company’s interest rate derivatives designated as fair value hedges. 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 a loss of $370 million and gains of $281 million and $577 million for the years ended December 31, 2017, 2016 and 2015, respectively, with any ineffective portion recognized in Other expenses during the period. The net hedge ineffectiveness recognized was nil for the years ended December 31, 2017 and December 31, 2016, and a gain of $1 million for the year ended December 31, 2015. Accumulated losses within AOCI of $31 million, $5 million and nil for the years ended December 31, 2017, 2016 and 2015, respectively, were reclassified to Other expenses upon investment sales or liquidations. 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 from time to time may be partially or fully economically hedged through foreign currency contracts, primarily foreign exchange forwards. These hedges generally mature within one year. Foreign currency contracts involve the purchase and sale of designated currencies at an agreed upon rate for settlement on a specified date. The Company also has certain operating agreements containing payments that may be linked to a market rate or price, primarily foreign currency rates. The payment components of these agreements may meet the definition of an embedded derivative, in which case the embedded derivative is accounted for separately and is classified as a foreign exchange contract based on its primary risk exposure. The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in a net loss of $29 million for the year ended December 31, 2017 and net gains of $1 million and $83 million for the years ended December 31, 2016 and 2015, respectively, and are recognized in Other expenses. The changes in the fair value of an embedded derivative was nil for the year ended December 31, 2017 and resulted in gains of $9 million and $5 million for the years ended December 31, 2016 and 2015, respectively, and are recognized in Card Member services and other expenses. 122 NNOTE 15 FAIR VALUES Fair value is defined as the price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s 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:120) Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access. (cid:120) 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. (cid:120) 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 circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). The Company did not measure any financial instruments presented on the Consolidated Balance Sheets at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2017 and 2016, although the disclosed fair value of certain assets that are not carried at fair value, as presented later in this Note, are classified within Level 3. The Company monitors the market conditions and evaluates the fair value hierarchy levels at least quarterly. For any transfers in and out of the levels of the fair value hierarchy, the Company discloses the fair value measurement at the beginning of the reporting period during which the transfer occurred. For the years ended December 31, 2017 and 2016, there were no significant transfers between levels. 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 fair value hierarchy (as described in the preceding paragraphs), as of December 31: (Millions) Assets: Investment securities:(a) Total 22017 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 2016 Equity securities and other $$ 48 $ 1 $ 47 $ Debt securities Derivatives(a) Total Assets Liabilities: Derivatives(a) Total Liabilities 3,111 210 3,369 1,045 — 1,046 2,066 210 2,323 $$ 218 218 $ — — $ 218 218 $ — $ — — — — — $ 49 $ 1 $ 48 $ 3,108 765 3,922 280 280 460 — 461 — — 2,648 765 3,461 280 280 — — — — — — (a) Refer to Note 5 for the fair values of investment securities and to Note 14 for the fair values of derivative assets and liabilities, on a further disaggregated basis. 123 VVALUATION TECHNIQUES USED IN THE FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT FAIR VALUE For the financial assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table above) the Company applies the following valuation techniques: Investment Securities When available, quoted prices of identical investment securities in active markets are used to estimate fair value. Such investment securities are classified within Level 1 of the fair value hierarchy. When quoted prices of identical investment securities in active markets are not available, the fair values for the 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 inputs or recent trades of similar securities. Such investment securities are classified within Level 2 of the fair value hierarchy. The inputs to the valuation techniques applied by the pricing services vary depending on the type of security being priced but are typically benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades and broker-dealer quotes, all with reasonable levels of transparency. The pricing services did not apply any adjustments to the pricing models used. In addition, the Company did not apply any adjustments to prices received from the pricing services. The Company reaffirms its understanding of the valuation techniques used by its pricing services at least annually. In addition, the Company corroborates the prices provided by its pricing services by comparing them to alternative pricing sources. In instances where price discrepancies are identified between different pricing sources, the Company evaluates such discrepancies to ensure that the prices used for its valuation represent the fair value of the underlying investment securities. Refer to Note 5 for additional fair value information. Derivative Financial Instruments The fair value of the Company’s derivative financial instruments is estimated internally by using third-party pricing models, where the inputs to those models are readily observable from actively quoted markets. The pricing models used are consistently applied and reflect the contractual terms of the derivatives as described below. The Company reaffirms its understanding of the valuation techniques at least annually and validates the valuation output on a quarterly basis. The Company’s derivative instruments are classified within Level 2 of the fair value hierarchy. 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 and tenor, as well as discount rates consistent with the underlying economic factors of the currency in which the cash flows are denominated. The fair value of foreign exchange forward contracts is determined based on a discounted cash flow method using the following significant inputs: the contractual terms of the forward contracts such as the notional amount, maturity dates and contract rate, as well as relevant foreign currency forward curves, and discount rates consistent with the underlying economic factors of the currency in which the cash flows are denominated. Credit valuation adjustments are necessary when the market parameters, such as a benchmark curve, used to value derivatives are not indicative of the credit quality of the Company or its counterparties. The Company considers the counterparty credit risk by applying an observable forecasted default rate to the current exposure. Refer to Note 14 for additional fair value information. 124 FFINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT OTHER THAN FAIR VALUE The following table summarizes the estimated fair values of the Company’s financial assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of December 31, 2017 and 2016. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2017 and 2016, and require management’s judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented. 2017 (Billions) Financial Assets: Financial assets for which carrying values equal or approximate fair value Cash and cash equivalents(a) Other financial assets(b) Financial assets carried at other than fair value Loans, net(c) 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(c) 2016 (Billions) Financial Assets: Financial assets for which carrying values equal or approximate fair value Cash and cash equivalents(a) Other financial assets(b) Financial assets carried at other than fair value Loans, net(c) 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(c) $$ $$ $ Carrying Value CCorresponding Fair Value Amount Total Level 1 Level 2 Level 3 33 $$ 57 74 76 17 56 $$ 33 $ 32 $ 57 75 76 17 — — — — 57 $ — $ 1 57 — 76 17 57 $ $ — — 75 — — — Carrying Value Corresponding Fair Value Amount Total Level 1 Level 2 Level 3 25 $ 51 65 67 12 25 $ 22 $ 51 66 67 12 — — — — $ 3 51 — 67 12 — — 66 — — — $ 47 $ 48 $ — $ 48 $ (a) Level 2 amounts reflect time deposits and short-term investments. (b) Includes Card Member receivables (including fair values of Card Member receivables of $8.9 billion and $8.8 billion held by a consolidated VIE as of December 31, 2017 and 2016, respectively), Other receivables, restricted cash and other miscellaneous assets. (c) Balances include amounts held by a consolidated VIE for which the fair values of Card Member loans were $25.6 billion and $26.0 billion as of December 31, 2017 and 2016, respectively, and the fair values of long-term debt were $18.6 billion and $15.2 billion as of December 31, 2017 and 2016, respectively. (d) Presented as a component of customer deposits on the Consolidated Balance Sheets. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2017, 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. 125 VVALUATION TECHNIQUES USED IN THE FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT OTHER THAN FAIR VALUE For the financial assets and liabilities that are not required to be carried at fair value on a recurring basis (categorized in the valuation hierarchy table) the Company applies the following valuation techniques to measure fair value: Financial Assets For Which Carrying Values Equal Or Approximate Fair Value Financial assets for which carrying values equal or approximate fair value include cash and cash equivalents, Card Member receivables, accrued interest and certain other assets. For these assets, the carrying values approximate fair value because they are short term in duration, have no defined maturity or have a market-based interest rate. Financial Assets Carried At Other Than Fair Value Loans, net Loans are recorded at historical cost, less 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 loans and the lack of observable pricing inputs thereof, the Company uses various inputs derived from an equivalent securitization market to estimate fair value. Such inputs include projected income, pay-down rates, discount rates, relevant credit costs and cost of funding assumptions. The valuation does not include economic value attributable to future receivables generated by the accounts associated with the loans. Financial Liabilities For Which Carrying Values Equal Or Approximate Fair Value Financial liabilities for which carrying values equal or approximate fair value include accrued interest, customer deposits (excluding certificates of deposit, which are described further below), Travelers Cheques and other prepaid products outstanding, accounts payable, short-term borrowings and certain other liabilities for which the carrying values approximate fair value because they are short term in duration, have no defined maturity or have a market-based interest rate. Financial Liabilities Carried At Other Than Fair Value Certificates of Deposit Certificates of deposit (CDs) are recorded at their historical issuance cost on the Consolidated Balance Sheets. Fair value is estimated using a discounted cash flow methodology based on the future cash flows and the discount rate that reflects the current market rates for similar types of CDs within similar markets. Long-term Debt Long-term debt is recorded at historical issuance cost on the Consolidated Balance Sheets adjusted for the impact of fair value hedge accounting on certain fixed-rate notes and current translation rates for foreign-denominated debt. The fair value of the 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 years ended December 31, 2017 and 2016, the Company did not have any material assets that were measured at fair value due to impairment. 126 NNOTE 16 GUARANTEES As of December 31, 2017, the maximum potential undiscounted future payments and related liability resulting from guarantees and indemnifications provided by the Company in the ordinary course of business were $1 billion and $52 million, respectively, and related primarily to the Company’s real estate and business dispositions. As of December 31, 2016, the maximum potential undiscounted future payments and related liability were $48 billion and $86 million, respectively. Amounts related to the Company’s Card Member protection plans were included as of December 31, 2016, in addition to its real estate and business dispositions. To date, the Company has not experienced any significant losses related to guarantees or indemnifications. The Company’s recognition of these instruments is at fair value. In addition, the Company establishes reserves when a loss is probable and the amount can be reasonably estimated. NOTE 17 COMMON AND PREFERRED SHARES The following table shows authorized shares and provides a reconciliation of common shares issued and outstanding for the years ended December 31: (Millions, except where indicated) 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 December 31 22017 3.6 9904 ((50) 55 8859 2016 3.6 969 (70) 5 904 2015 3.6 1,023 (59) 5 969 (a) Of the common shares authorized but unissued as of December 31, 2017, approximately 29 million shares are reserved for issuance under employee stock and employee benefit plans. On September 26, 2016, the Board of Directors authorized the repurchase of 150 million of common shares over time in accordance with the Company’s capital distribution plans submitted to the Board of Governors of the Federal Reserve System (the Federal Reserve) and subject to market conditions. This authorization replaces all prior repurchase authorizations. During 2017, 2016 and 2015, the Company repurchased 50 million common shares with a cost basis of $4.3 billion, 70 million common shares with a cost basis of $4.4 billion, and 59 million common shares with a cost basis of $4.5 billion, respectively. The cost basis includes commissions paid of $2.9 million, $1.2 million and $1.1 million in 2017, 2016 and 2015, respectively. As of December 31, 2017, the Company had approximately 85 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 2.9 million, 3.0 million and 3.0 million shares held as treasury shares as of December 31, 2017, 2016 and 2015, 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 $217 million, $197 million and $242 million as of December 31, 2017, 2016 and 2015, respectively, are included as a reduction to additional paid-in capital in shareholders’ equity on the Consolidated Balance Sheets. 127 PPREFERRED SHARES The Board of Directors is authorized to permit the Company to issue up to 20 million Preferred Shares at a par value of $1.662/3 without further shareholder approval. The Company has the following perpetual Fixed Rate/Floating Rate Noncumulative Preferred Share series issued and outstanding as of December 31, 2017: Issuance date Securities issued Aggregate liquidation preference Fixed dividend rate per annum Semi-annual fixed dividend payment dates Floating dividend rate per annum Quarterly floating dividend payment dates Fixed to floating rate conversion date(a) Series B November 10, 2014 750 Preferred Shares; represented by 750,000 depositary shares Series C March 2, 2015 850 Preferred Shares; represented by 850,000 depositary shares $750 million 5.20% Beginning May 15, 2015 3 month LIBOR+ 3.428% Beginning February 15, 2020 November 15, 2019 $850 million 4.90% Beginning September 15, 2015 3 month LIBOR+ 3.285% Beginning June 15, 2020 March 15, 2020 (a) The date on which dividends convert from a fixed-rate calculation to a floating rate calculation. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Company, the preferred stock then outstanding takes precedence over the Company’s common stock for the payment of dividends and the distribution of assets out of funds legally available for distribution to shareholders. Each outstanding series of Preferred Shares has a liquidation price of $1 million per Preferred Share, plus any accrued but unpaid dividends. The Company may redeem these Preferred Shares at $1 million per Preferred Share (equivalent to $1,000 per depositary share) plus any declared but unpaid dividends in whole or in part, from time to time, on any dividend payment date on or after the respective fixed to floating rate conversion date, or in whole, but not in part, within 90 days of certain bank regulatory changes. There were no warrants issued and outstanding as of December 31, 2017, 2016 and 2015. 128 NNOTE 18 CHANGES IN ACCUMULATED OTHER COMPREHENSIVE 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 for the three years ended December 31 were as follows: (Millions), net of tax Balances as of December 31, 20144 Net unrealized losses Decrease due to amounts reclassified into earnings Net translation loss of investments in foreign operations Net gains related to hedges of investments in foreign operations Pension and other postretirement benefit Net change in accumulated other comprehensive loss Balances as of December 31, 2015 Net unrealized losses (Decrease) increase due to amounts reclassified into earnings Net translation loss of investments in foreign operations Net gains related to hedges of investment in foreign operations Pension and other postretirement benefit Net change in accumulated other comprehensive (loss) income Balances as of December 31, 2016 Net unrealized losses Decrease due to amounts reclassified into earnings Net translation gain of investments in foreign operations(a) Net losses related to hedges of investment in foreign operations Pension and other postretirement benefit Net change in accumulated other comprehensive (loss) income Balances as of December 31, 2017 $$ Net Unrealized Gains (Losses) on Investment Securities Foreign Currency Translation Adjustments Net Unrealized Pension and Other Postretirement Benefit Gains (Losses) $ 96 $ Accumulated Other Comprehensive (Loss) Income (1,919) (37) (1) — — — (38) 58 (45) (6) — — — (51) 7 (7) — — — — (7) — $ (1,499) $ — (1) (1,122) 578 — (545) (2,044) — 4 (503) 281 — (218) (2,262) — (7) 678 (370) — 301 (1,961) $ (516) $ — — — — (32) (32) (548) — — — — 19 19 (529) — — — — 62 62 (467) $ (37) (2) (1,122) 578 (32) (615) (2,534) (45) (2) (503) 281 19 (250) (2,784) (7) (7) 678 (370) 62 356 (2,428) (a) Includes $289 million of recognized tax benefits in the year ended December 31, 2017 (refer to Note 21). The following table shows the tax impact for the years ended December 31 for the changes in each component of AOCI presented above: (Millions) Investment securities Foreign currency translation adjustments(a) Net investment hedges Pension and other postretirement benefit Total tax impact Tax expense (benefit) 22017 (4) $ (172) (215) 7 (384) $ 2016 (27) $ (15) 139 37 134 $ 2015 (20) (124) 340 — 196 $$ $$ (a) Includes $289 million of recognized tax benefits in the year ended December 31, 2017 (refer to Note 21). The following table presents the effects of reclassifications out of AOCI and into the Consolidated Statements of Income for the years ended December 31: Description (Millions) Available-for-sale securities Reclassifications for previously unrealized net gains on investment securities Related income tax expense Reclassification to net income related to available-for-sale securities Foreign currency translation adjustments Reclassification of realized losses on translation adjustments and related net investment hedges Related income tax benefit Reclassification to net income related to foreign currency translation adjustments Total Income Statement Line Item Gains (losses) recognized in earnings 2016 22017 Other non-interest revenues $$ Income tax provision Other expenses Income tax provision $$ — $ — —— ((7) 114 77 7 $ 9 (3) 6 (4) — (4) 2 129 NNOTE 19 NON-INTEREST REVENUE AND EXPENSE DETAIL The following is a detail of Other fees and commissions for the years ended December 31: (Millions) Delinquency fees Foreign currency conversion fee revenue Loyalty coalition-related fees Travel commissions and fees Service fees Other(a) Total Other fees and commissions (a) Other primarily includes fees related to Membership Rewards programs. The following is a detail of Other revenues for the years ended December 31: (Millions) Global Network Services partner revenues Other(a) Total Other revenues 22017 888 851 453 354 309 167 3,022 $ $ 2016 762 809 410 338 291 143 2,753 $ $ 2015 788 852 379 349 361 137 2,866 $$ $$ $$ 22017 615 1,117 $ 2016 654 1,375 $ 2015 640 1,393 $ 1,732 $ 2,029 $ 2,033 (a) Other includes revenues arising from net revenue earned on cross-border Card Member spending, insurance premiums earned from Card Member travel and other insurance programs, merchant-related fees, Prepaid card and Travelers Cheque-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees. The following is a detail of Other expenses for the years ended December 31: (Millions) Professional services Occupancy and equipment Communications Gain on sale of HFS portfolios(a) Other(b) Total Other expenses $$ $$ 22017 2,070 2,019 276 — 1,411 5,776 $ $ 2016 2,583 $ 1,838 302 (1,218) 1,657 5,162 $ 2015 2,750 1,854 345 — 1,844 6,793 (a) Refer to Note 2 for additional information. (b) Other expense primarily includes general operating expenses, goodwill and technology impairment costs (refer to Note 2), Card and merchant-related fraud losses, foreign currency-related gains and losses (including the favorable impact from the reassessment of the functional currency of certain UK legal entities in the year ended December 31, 2015) and insurance costs. In addition, beginning December 1, 2015 through to the portfolio sale completion dates, included the valuation allowance adjustment associated with the HFS portfolios. 130 NNOTE 20 RESTRUCTURING The Company initiates restructuring programs to support new business strategies and to enhance its overall effectiveness and efficiency. In connection with these programs, the Company typically will incur severance and other exit costs. The following table summarizes the Company’s restructuring reserves activity for the years ended December 31, 2017, 2016 and 2015: (Millions) Liability balance as of December 31, 2014 Restructuring charges, net of $61 in revisions(b) Payments Other non-cash(c) Liability balance as of December 31, 2015 Restructuring charges, net of $81 in revisions(b) Payments Other non-cash(c) Liability balance as of December 31, 2016 Restructuring charges(d) Payments Other non-cash(c) Liability balance as of December 31, 2017(e) $ $$ Severance 435 (33) (141) (23) 238 305 (171) (12) 360 34 (219) 11 186 $ $ Other(a) 35 7 (14) (5) 23 24 (21) (3) 23 8 (16) (2) 113 $ $ Total 470 (26) (155) (28) 261 329 (192) (15) 383 42 (235) 9 199 (a) Other primarily includes facility exit and contract termination costs. (b) Revisions primarily relate to higher than anticipated redeployments of displaced employees to other positions within the Company, business changes and modifications to existing initiatives. (c) Consists primarily of foreign exchange impacts and other non-cash charges. (d) Net revisions to existing restructuring reserves were immaterial for the year ended December 31, 2017. (e) The majority of cash payments related to the remaining restructuring liabilities are expected to be completed in 2018, and to a lesser extent certain contractual long-term severance arrangements and lease obligations are expected to be completed in 2019 and 2023, respectively. 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 charges, net of revisions, by reportable operating segment and Corporate & Other for the year ended December 31, 2017, and the cumulative amounts relating to the restructuring programs that were in progress during 2017 and initiated at various dates between 2011 and 2017. (Millions) USCS ICNS GCS GMS Corporate & Other Total 22017 Cumulative Restructuring Expense Incurred To Date On In-Progress Restructuring Programs Total Restructuring Charges, net revisions Severance Other $$ $$ (8) $ (6) (10) 5 61 42 $ 54 $ 132 85 40 322 633 $ — $ — 8 — 81 89 $ Total 54 132 93 40 403 (a) 722 (b) (a) Corporate & Other includes certain severance and other charges of $336 million related to companywide 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, 2017, 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. 131 NNOTE 21 INCOME TAXES The Tax Act, enacted by the U.S. government on December 22, 2017, makes broad and complex changes to the U.S. tax code which will require time to interpret. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118) in December, 2017, to provide guidance on accounting for the effects of the Tax Act. SAB 118 provides for a measurement period of up to one year from the Tax Act enactment date for companies to complete their assessment of and accounting for those effects of the Tax Act required under ASC 740 “Implementation Guidance on Accounting for Uncertainty in Income Taxes” to be reported in the period of enactment. Under SAB 118, a company must first reflect the income tax effects of the Tax Act for which the accounting is complete in the period of the date of enactment. To the extent the accounting for other income tax effects is incomplete, but a reasonable estimate can be determined, companies must record a provisional estimate to be included in their financial statements. For any income tax effect for which a reasonable estimate cannot be determined, an entity must continue to apply ASC 740 based on the provisions of the tax laws in effect immediately prior to the Tax Act being enacted until such time as a reasonable estimate can be determined. The Company has recorded a discrete net charge of $2.6 billion in the period ended December 31, 2017 related to the Tax Act. For the reasons stated below, the Company requires additional time to complete its analysis of the impacts of the Tax Act and therefore its accounting for the Tax Act is provisional. (cid:120) Impacts of Deemed Repatriation: The Tax Act imposed a one-time transition tax on unrepatriated post-1986 accumulated earnings and profits of certain foreign subsidiaries (E&P). To calculate this tax, the Company must determine the cumulative amount of E&P, as well as the amount of foreign taxes paid on such earnings. In addition, the Company made a decision to no longer assert that the accumulated post-1986 E&P of its non-U.S. subsidiaries that are subject to this one- time transition tax are intended to be permanently reinvested outside the United States. As a result, the Company recorded a deferred tax liability for the state income and foreign withholding tax consequences of any future cash dividends paid from such E&P. The Company has recorded reasonable estimates based on data available for both the deemed repatriation tax for 2017 of $1.7 billion and the deferred state income and foreign withholding taxes on potential future distributions of these earnings of $0.3 billion. Until the Company fully completes its analysis, the accounting for these items is provisional. (cid:120) Remeasurement of Deferred Tax Assets and Liabilities: The Company has recorded a deferred charge of $0.6 billion related to the remeasurement of its U.S. federal net deferred tax assets for 2017. This charge reflects the change in the corporate tax rate from 35 percent to 21 percent, effective January 1, 2018, as well as other provisions of the Tax Act. Certain components of the remeasurement are reasonable estimates based on available information. Until the Company fully completes its analysis of all components, the accounting for the remeasurement of the Company’s net deferred tax assets is provisional. The Company will complete its analysis of, and finalize its accounting for, these provisional estimates during the one-year measurement period as prescribed by SAB 118. The components of income tax expense for the years ended December 31 included in the Consolidated Statements of Income were as follows: (Millions) Current income tax expense: U.S. federal(a) U.S. state and local Non-U.S. Total current income tax expense Deferred income tax (benefit) expense: U.S. federal(b) U.S. state and local Non-U.S. Total deferred income tax (benefit) expense Total income tax expense 2017 3,408 259 386 4,053 541 (7) 91 625 4,678 $ $ 2016 2,179 272 342 2,793 (45) (8) (52) (105) 2,688 $ $ 2015 2,107 335 416 2,858 (23) (5) (55) (83) 2,775 $$ $$ (a) (b) 2017 includes a charge of $1.7 billion related to the Tax Act deemed repatriation tax on certain non-U.S. earnings. 2017 includes charges related to the Tax Act of $0.6 billion due to the remeasurement of certain federal net deferred tax assets to the lower federal tax rate of 21 percent and $0.3 billion due to deferred state income and foreign withholding tax consequences of future cash distributions from non-U.S. subsidiaries. 132 A reconciliation of the U.S. federal statutory rate of 35 percent as of December 31, 2017, 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 (Decrease) increase 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) Non deductible expenses(c) U.S. Tax Act(d) Other Actual tax rates 22017 335.0 %% ((1.7) 22.3 ((5.7) ((0.7) —— 334.8 ((0.9) 663.1 %% 2016 35.0 % (1.7) 2.7 (2.0) (0.6) — — (0.2) 33.2 % 2015 35.0 % (1.7) 2.8 (1.8) (0.2) 0.9 — — 35.0 % (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, 2017 included tax benefits of $156 million, which decreased the actual tax rate by 2.1 percent, related to the realization of certain foreign tax credits. (b) Relates to the resolution of tax matters in various jurisdictions. (c) Relates to the nondeductible portion of the Prepaid Services goodwill impairment in 2015. (d) Relates to the $2.6 billion charge for the impacts of the Tax Act. 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. In particular, the 2017 balances were reduced to reflect the remeasurement of certain federal net deferred tax assets due to the enacted lower federal tax rate of 21 percent. The significant components of deferred tax assets and liabilities as of December 31 are reflected in the following table: (Millions) Deferred tax assets: Reserves not yet deducted for tax purposes Employee compensation and benefits Other Gross deferred tax assets Valuation allowance Deferred tax assets after valuation allowance Deferred tax liabilities: Intangibles and fixed assets Deferred revenue Deferred interest Investment in joint ventures Other Gross deferred tax liabilities Net deferred tax assets 22017 22,724 4403 4409 33,536 ((46) 33,490 11,057 3306 1183 1137 2259 11,942 11,548 $ $ 2016 3,889 595 592 5,076 (54) 5,022 1,691 441 305 209 121 2,767 2,255 $ $ 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, 2017 and 2016 are associated with net operating losses and other deferred tax assets in certain non-U.S. operations of the Company. Net income taxes paid by the Company during 2017, 2016 and 2015, were approximately $1.4 billion, $3.0 billion and $3.4 billion, respectively. These amounts include estimated tax payments and cash settlements relating to prior tax years. The Company is subject to the income tax laws of the United States, its states and municipalities and those of the foreign jurisdictions in which the Company operates. These tax laws are complex, and the manner in which they apply to the 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 only when, based on management’s judgment regarding the application of income tax laws, it is more likely than not that the tax position will be sustained upon examination. The amount of benefit recognized for financial reporting purposes is based on 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. 133 The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. In February 2017, the Company received notification that all matters outstanding with the IRS for tax years 1997-2007 were resolved. The resolution of such matters did not have a material impact on the Company’s effective tax rate. The Company is currently under examination with the IRS for tax years 2008 through 2014. The following table presents changes in unrecognized tax benefits: (Millions) Balance, January 1 Increases: Current year tax positions Tax positions related to prior years Decreases: Tax positions related to prior years(a) Settlements with tax authorities Lapse of statute of limitations Effects of foreign currency translations Balance, December 31 22017 9974 $ 2016 870 $ 2015 909 $ 2200 339 ((289) ((77) ((26) —— 8821 $ 167 117 (81) (76) (22) (1) 974 $ 81 177 (256) (15) (26) — 870 $ (a) Decrease due to the resolution with the IRS of an uncertain tax position in January 2017, which resulted in the recognition of $289 million in AOCI. Included in the unrecognized tax benefits of $0.8 billion, $1.0 billion and $0.9 billion for December 31, 2017, 2016 and 2015, respectively, are approximately $723 million, $516 million and $502 million, respectively, that, if recognized, would favorably affect the effective tax rate in a future period. The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $324 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 $324 million of unrecognized tax benefits, approximately $295 million relates to amounts that, if recognized, would impact the effective tax rate in a future period. Interest and penalties relating to unrecognized tax benefits are reported in the income tax provision. For the year ended December 31, 2017 the Company recognized a benefit of approximately $90 million for interest and penalties. For the years ended December 31, 2016 and 2015, the Company recognized approximately $9 million and $38 million, respectively, in expenses for interest and penalties. The interest expense benefit in 2017 includes approximately $56 million related to the resolution of an uncertain tax position with the IRS in January 2017, which had no net impact on the income tax provision. The Company had approximately $83 million and $173 million accrued for the payment of interest and penalties as of December 31, 2017 and 2016, respectively. During the year ended December 31, 2017, the Company filed a request with the IRS for a change in the method of accounting for certain expenditures. If approved, the Company will claim approximately $2.6 billion of additional tax deductions on its 2017 U.S. tax return and record a tax benefit of approximately $360 million. Such benefit has not yet been reported by the Company, as affirmative consent of the IRS is required to make the change. 134 NNOTE 22 EARNINGS PER COMMON SHARE (EPS) The computations of basic and diluted EPS for the years ended December 31 were as follows: (Millions, except per share amounts) Numerator: Basic and diluted: Net income Preferred dividends Net income available to common shareholders Earnings allocated to participating share awards(a) Net income attributable to common shareholders Denominator:(a) Basic: Weighted-average common stock Add: Weighted-average stock options(b) Diluted Basic EPS Diluted EPS 22017 2016 2015 $$ $$ $$ $$ 2,736 (81) 2,655 (21) 2,634 $ $ 5,408 (80) 5,328 (43) 5,285 $ $ 883 3 886 933 2 935 5,163 (62) 5,101 (38) 5,063 999 4 1,003 2.98 2.97 $ $ 5.67 5.65 $ $ 5.07 5.05 (a) The Company’s unvested restricted stock awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator. (b) The dilutive effect of unexercised stock options excludes from the computation of EPS 0.6 million, 2.4 million and 0.5 million of options for the years ended December 31, 2017, 2016 and 2015, respectively, because inclusion of the options would have been anti-dilutive. NOTE 23 REGULATORY MATTERS AND CAPITAL ADEQUACY The Company is supervised and regulated by the Federal Reserve and is subject to the Federal Reserve’s requirements for risk-based capital and leverage ratios. The Company’s two U.S. bank operating subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank and together with Centurion Bank, the Banks), are subject to supervision and regulation, including similar regulatory capital requirements by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), respectively. Under the risk-based capital guidelines of the Federal Reserve, the Company is required to maintain minimum ratios of Common Equity Tier 1 (CET1), Tier 1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets, as well as a minimum leverage ratio (Tier 1 capital to average adjusted on-balance sheet assets). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Company’s and the Banks’ operating activities. As of December 31, 2017 and 2016, the Company and the Banks met all capital requirements to which each was subject and maintained regulatory capital ratios in excess of those required to qualify as well capitalized. 135 The following table presents the regulatory capital ratios for the Company and the Banks: (Millions, except percentages) DDecember 331, 2017:(a) American Express Company American Express Centurion Bank American Express Bank, FSB December 31, 2016:(a) American Express Company American Express Centurion Bank American Express Bank, FSB Well-capitalized ratios(b) Basel III Standards 2017(d) CET 1 capital Tier 1 capital Total capital CET 1 Capital ratio Tier 1 capital ratio Total capital ratio Tier 1 leverage ratio $$ 113,189 $$ 114,721 $$ 117,142 99.0 %% 110.1 %% 111.88 %% 88.6 %% 55,954 66,065 55,954 66,547 66,065 66,653 112.7 112.9 112.7 112.9 114.0 114.2 110.2 111.7 $ 16,134 $ 17,665 $ 19,893 12.3 % 13.5 % 15.2 % 11.6 % 6,134 6,681 6,134 6,600 6,681 7,194 16.5 16.3 16.5 16.3 17.8 17.5 16.2 13.9 66.5 % 55.8 % 88.0 % 77.3 % 110.0 % 99.3 % 55.0 % (c) 44.0 % (a) As a Basel III advanced approaches institution in parallel run, capital ratios are reported using Basel III capital definitions, inclusive of transition provisions, and risk-weighted assets using the Basel III standardized approach. (b) As defined by the regulations issued by the Federal Reserve, OCC and FDIC for the year ended December 31, 2017. (c) Represents requirements for banking subsidiaries to be considered “well-capitalized” pursuant to regulations issued under the Federal Deposit Insurance Corporation Improvement Act. There is no CET1 capital ratio or Tier 1 leverage ratio requirement for a bank holding company to be considered “well- capitalized.” (d) Transitional Basel III minimum capital requirement and additional capital conservation buffer as defined by the Federal Reserve for calendar year 2017 for advanced approaches institutions. The additional capital conservation buffer does not apply to Tier 1 leverage ratio. RRESTRICTED 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, 2017, the aggregate amount of net assets of subsidiaries that are restricted to be transferred to the Company was approximately $9.3 billion. BANK HOLDING COMPANY DIVIDEND RESTRICTIONS The Company is limited in its ability to pay dividends by the Federal Reserve, which could prohibit a dividend that would be considered an unsafe or unsound banking practice. It is the policy of the Federal Reserve that bank holding companies generally should pay dividends on preferred and common stock only out of net income available to common shareholders generated over the past year, and only if prospective earnings retention is consistent with the 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. The Company may be limited in its ability to pay dividends if the Federal Reserve objects to its capital plan. In addition, the Capital Rules include a capital conservation buffer which is being phased in from January 1, 2016 through January 1, 2019. The Capital Rules also include a countercyclical capital buffer, which is currently set at zero but which could be increased by the Federal Reserve in the future. These buffers can be satisfied only with CET1 capital. If the Company’s risk- based capital ratios were to fall below the applicable buffer levels, the Company would be subject to certain restrictions on dividends, stock repurchases and other capital distributions, as well as discretionary bonus payments to executive officers. BANKS’ DIVIDEND RESTRICTIONS In the year ended December 31, 2017, Centurion Bank and American Express Bank paid dividends from retained earnings to their parent of $1.9 billion and $2.6 billion, respectively. The Banks are limited in their ability to pay dividends by banking statutes, regulations and supervisory policy. In general, applicable federal and state banking laws prohibit, without first obtaining regulatory approval, insured depository institutions, such as Centurion Bank and American Express Bank from making dividend distributions if such distributions are not paid out of available retained earnings or would cause the institution to fail to meet capital adequacy standards. The Banks must maintain a capital conservation buffer (and countercyclical buffer if in effect). If the Banks’ risk-based capital ratios do not satisfy minimum requirements plus the combined capital conservation buffer (and the countercyclical capital buffer, if 136 applicable), they will face graduated constraints on dividends and other capital distributions based on the amount of the shortfall. As of December 31, 2017, the Banks’ aggregate retained earnings available for the payment of dividends was $3.8 billion. In determining the dividends to pay their parent, the Banks must also consider the effects on applicable risk-based capital and leverage ratio requirements, as well as policy statements of the federal regulatory agencies. In addition, the Banks’ banking regulators have authority to limit or prohibit the payment of a dividend by the Banks under a number of circumstances, including if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound banking practice in light of the financial condition of the banking organization. NNOTE 24 SIGNIFICANT CREDIT CONCENTRATIONS Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to American Express’ total credit exposure. The Company’s customers operate in diverse industries, economic sectors and geographic regions. The following table details the Company’s maximum credit exposure of the on-balance sheet assets by category as of December 31: (Billions) On-balance sheet: Individuals(a) Institutions(b) Financial Services(c) U.S. Government and agencies(d) Total on-balance sheet $$ 22017 2016 112 $ 20 35 3 170 98 18 28 3 147 (a) Primarily reflects loans and receivables from global consumer and small business Card Members, which are governed by individual credit risk management. (b) Primarily reflects loans and receivables from global corporate Card Members, which are governed by institutional credit risk management. (c) Represents banks, broker-dealers, insurance companies and savings and loan associations. (d) Represent debt obligations of the U.S. Government and its agencies, states and municipalities and government-sponsored entities. As of December 31, 2017 and 2016, the Company’s most significant concentration of credit risk was with individuals, including Card Member loans and receivables. These amounts are generally advanced on an unsecured basis. However, the Company reviews each potential 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. The following table details the Company’s Card Member loans and receivables exposure (including unused lines-of-credit available to Card Members as part of established lending product agreements) in the United States and outside the United States as of December 31: (Billions) On-balance sheet: U.S. Non-U.S. On-balance sheet Unused lines-of-credit:(a) U.S. Non-U.S. Total unused lines-of-credit 22017 2016 $$ 102 $ 25 127 224 49 273 $ $$ 93 20 113 203 39 242 (a) Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Because the Company’s charge card products generally have no preset spending limit, the associated credit limit on charge products is not quantifiable, and therefore is not reflected in unused credit available to Card Members. 137 NNOTE 25 REPORTABLE OPERATING SEGMENTS AND GEOGRAPHIC OPERATIONS REPORTABLE OPERATING SEGMENTS The Company is a global services company that is principally engaged in businesses comprising four reportable operating segments: USCS, ICNS, GCS and GMS. The Company considers a combination of factors when evaluating the composition of its reportable operating segments, including the results reviewed by the chief operating decision maker, economic characteristics, products and services offered, classes of customers, product distribution channels, geographic considerations (primarily United States versus outside the United States), and regulatory environment considerations. The following is a brief description of the primary business activities of the Company’s four reportable operating segments: (cid:120) USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including travel services. (cid:120) ICNS issues a wide range of proprietary consumer cards outside the United States and enters into partnership agreements with third-party card issuers and acquirers, licensing the American Express brand and extending the reach of the global network. It also provides travel services outside the United States. (cid:120) GCS issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products. (cid:120) GMS operates a global payments network that processes and settles proprietary and non-proprietary card transactions. GMS acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging the Company’s global integrated network. GMS also operates loyalty coalition businesses in certain countries around the world. Corporate functions and certain other businesses and operations are included in Corporate & Other. 138 The following table presents certain selected financial information for the Company’s reportable operating segments and Corporate & Other as of or for the years ended December 31, 2017, 2016 and 2015: $$ (Millions, except where indicated) 22017 Non-interest revenues Interest income Interest expense Total revenues net of interest expense Total provisions Pretax income (loss) from continuing operations Income tax provision (benefit) Net income (loss) Total assets (billions) 2016 Non-interest revenues Interest income Interest expense Total revenues net of interest expense Total provisions (b) Pretax income (loss) from continuing operations Income tax provision (benefit) Net income (loss) Total assets (billions) 2015 Non-interest revenues Interest income Interest expense Total revenues net of interest expense Total provisions (b) Pretax income (loss) from continuing operations Income tax provision (benefit) Net income (loss) Total assets (billions) $$ $ $ $ $ USCS ICNS GCS GMS Other(a) Consolidated Corporate & 77,923 $$ 55,755 7742 112,936 11,630 22,803 9912 11,891 994 $$ 7,874 $ 5,082 536 12,420 1,065 3,881 1,368 2,513 87 $ 8,479 $ 5,198 488 13,189 1,064 3,677 1,322 2,355 93 $ 55,052 $$ 11,029 2251 55,830 3367 11,093 1181 9912 339 $$ 4,785 $ 922 219 5,488 325 818 163 655 36 $ 4,627 $ 945 235 5,337 300 904 220 684 35 $ 99,463 $$ 11,361 5540 110,284 7744 22,999 9972 22,027 553 $$ 9,007 $ 1,209 401 9,815 604 2,945 1,036 1,909 47 $ 8,930 $ 1,175 365 9,740 588 3,164 1,142 2,022 45 $ 44,333 $$ 11 ((262) 44,596 115 22,389 8815 11,574 229 $$ 4,235 $ 1 (237) 4,473 25 2,295 837 1,458 24 $ 4,471 $ 1 (211) 4,683 31 2,381 882 1,499 24 $ 2259 4407 8841 ((175) 33 ((1,870) 11,798 ((3,668) ((34) 447 261 785 (77) 7 (1,843) (716) (1,127) (35) 389 226 746 (131) 5 (2,188) (791) (1,397) (36) $$ $$ $ $ $ $ 227,030 88,553 22,112 333,471 22,759 77,414 44,678 22,736 1181 26,348 7,475 1,704 32,119 2,026 8,096 2,688 5,408 159 26,896 7,545 1,623 32,818 1,988 7,938 2,775 5,163 161 (a) Corporate & Other includes adjustments and eliminations for intersegment activity. (b) Beginning December 1, 2015 through to the sale completion dates, in the USCS and GCS segments, total provisions did not include credit costs related to Card Member loans and receivables HFS, which were reported in Other expenses through a valuation allowance adjustment. TTotal Revenues Net of Interest Expense The Company allocates discount revenue and certain other revenues among segments using a transfer pricing methodology. Within the USCS, ICNS and GCS segments, discount revenue reflects the issuer component of the overall discount revenue generated by each segment’s Card Members; within the GMS segment, discount revenue reflects the network and acquirer component of the overall discount revenue. Net card fees and Other fees and commissions are directly attributable to the segment in which they are reported. Interest and fees on loans and certain investment income is directly attributable to the segment in which it is reported. Interest expense represents an allocated funding cost based on a combination of segment funding requirements and internal funding rates. Provisions for Losses The provisions for losses are directly attributable to the segment in which they are reported. Expenses Marketing and promotion expenses are included in each segment based on actual expenses incurred. Global brand advertising is primarily reflected in Corporate & Other and may be allocated to the segment based on the actual expense incurred. Rewards and Card Member services expenses are included in each segment based on the actual expenses incurred within the segment. 139 Salaries and employee benefits and other operating expenses includes expenses such as professional services, occupancy and equipment and communications incurred directly within each segment. In addition, expenses related to support services, such as 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. IIncome Taxes An income tax provision (benefit) is allocated to each business segment based on the effective tax rates applicable to various businesses that comprise the segment. GEOGRAPHIC OPERATIONS The following table presents the Company’s total revenues net of interest expense and pretax income (loss) from continuing operations in different geographic regions based, in part, upon internal allocations, which necessarily involve management’s judgment: (Millions) 2017 Total revenues net of interest expense Pretax income (loss) from continuing operations 2016 Total revenues net of interest expense Pretax income (loss) from continuing operations 2015 Total revenues net of interest expense Pretax income (loss) from continuing operations $ $ $ United States EMEA (a) JAPA (a) LACC(a) Unallocated (b) Consolidated Other 24,737 $$ 7,071 24,133 $ 8,202 24,927 $ 7,500 $ $ $ 3,583 898 3,248 482 3,293 544 $ 3,204 602 3,052 $ 559 2,791 $ 587 $ $ $ 2,396 610 2,274 597 2,412 693 $ (449) (1,767) (588) $ (1,744) 33,471 7,414 32,119 8,096 (605) $ (1,386) 32,818 7,938 (a) EMEA represents Europe, the Middle East and Africa; JAPA represents Japan, Asia/Pacific and Australia; and LACC represents Latin America, Canada and the Caribbean. (b) Other Unallocated includes net costs which are not directly allocable to specific geographic regions, including costs related to the net negative interest spread on excess liquidity funding and executive office operations expenses. 140 NNOTE 26 PARENT COMPANY PARENT COMPANY – CONDENSED STATEMENTS OF INCOME Years Ended December 31 (Millions) Revenues Non-interest revenues Other Total non-interest revenues Interest income Interest expense Total revenues net of interest expense Expenses Salaries and employee benefits Other Total expenses Pretax loss Income tax benefit Net loss before equity in net income of subsidiaries and affiliates Equity in net income of subsidiaries and affiliates Net income $$ PARENT COMPANY – CONDENSED BALANCE SHEETS As of December 31 (Millions) Assets Cash and cash equivalents Investment securities Equity in net assets of subsidiaries and affiliates Accounts receivable, less reserves Premises and equipment, less accumulated depreciation: 2017, $9; 2016, $96 Loans to subsidiaries and affiliates Due from subsidiaries and affiliates Other assets Total assets 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 Preferred Shares Common shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2017 2016 2015 358 358 258 493 123 362 553 915 (792) (354) (438) 3,174 2,736 $ $$ $ 391 391 196 515 72 388 510 898 (826) (327) (499) 5,907 5,408 $ 400 400 172 526 46 341 443 784 (738) (268) (470) 5,633 5,163 2017 2016 4,726 1 18,191 103 5 11,664 1,962 252 36,904 3,076 175 2,731 12,695 18,677 — 172 12,210 8,273 (2,428) 18,227 36,904 $ $ 5,229 1 20,522 513 30 7,620 867 277 35,059 1,531 619 4,044 8,364 14,558 — 181 12,733 10,371 (2,784) 20,501 35,059 141 PPARENT COMPANY – CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31 (Millions) Cash Flows from Operating Activities Net income Adjustments to reconcile net income to cash provided by operating activities: Equity in net income of subsidiaries and affiliates Dividends received from subsidiaries and affiliates Other operating activities, primarily with subsidiaries and affiliates Net cash provided by operating activities Cash Flows from Investing Activities Purchase of investments Purchase of premises and equipment Loans to subsidiaries and affiliates Investments in subsidiaries and affiliates Net cash provided by (used in) investing activities Cash Flows from Financing Activities Proceeds from long-term debt Payments on long-term debt Short-term debt of subsidiaries and affiliates Issuance of American Express preferred shares Issuance of American Express common shares and other Repurchase of American Express common shares Dividends paid Net cash (used in) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2017 2016 2015 $$ 2,736 $ 5,408 $ 5,163 ((3,174) 5,755 6559 5,9766 — — (4,044) — (4,044) 5,900 (1,500) (1,313) — 1229 (4,400) (1,2511) (2,435) (5033) 5,229 4,7266 $ (5,903) 4,999 (102) 4,402 — (1) 4,142 (25) 4,116 — (1,350) (2,879) — 176 (4,430) (1,206) (9,689) (1,171) 6,400 5,229 $ (5,633) 5,331 332 5,193 (3.00) (29) (3,952) — (3,984) — — 986 841 192 (4,480) (1,172) (3,633) (2,424) 8,824 6,400 $$ 142 NNOTE 27 QUARTERLY FINANCIAL DATA (UNAUDITED) (Millions, except per share amounts) 22017 Quarters Ended 12/31 9/30 6/30 3/31 Total revenues net of interest expense Pretax income Net income (loss) Earnings Per Common Share — Basic: Net income attributable to common $$ 8,839 $$ 1,821 (1,197) 8,436 1,827 1,356 $ $ 8,307 1,949 1,340 7,889 $ 1,817 1,237 12/31 8,022 1,161 825 $ 2016 9/30 7,774 1,735 1,142 $ 6/30 8,235 3,016 2,015 $ 3/31 8,088 2,184 1,426 shareholders((a) $$ (1.41) $$ 1.51 $ 1.47 $ 1.34 $ 0.88 $ 1.21 $ 2.11 $ 1.45 Earnings Per Common Share — Diluted: Net income attributable to common shareholders((a) Cash dividends declared per common share Common share price: (1.41) 0.35 1.50 0.35 1.47 0.32 1.34 0.32 0.88 0.32 1.20 0.32 2.10 0.29 1.45 0.29 High Low 100.53 90.04 $$ 90.77 83.33 $ 85.39 75.51 $ 82.00 74.74 $ 75.74 59.50 $ 66.71 58.25 $ 67.34 57.15 $ 68.18 50.27 $$ (a) Represents net income, less (i) earnings allocated to participating share awards of $2 million, $11 million, $11 million and $10 million for the quarters ended December 31, September 30, June 30 and March 31, 2017, respectively, and $6 million, $9 million, $17 million and $11 million for the quarters ended December 31, September 30, June 30 and March 31, 2016, respectively, and (ii) dividends on preferred shares of $20 million, $21 million, $19 million and $21 million for the quarters ended December 31, September 30, June 30 and March 31, 2017, respectively, and $19 million, $21 million, $19 million and $21 million for the quarters ended December 31, September 30, June 30 and March 31, 2016, respectively. 143 IITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. “Management’s Report on Internal Control over Financial Reporting,” which sets forth management’s evaluation of internal control over financial reporting, and the “Report of Independent Registered Public Accounting Firm” on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 are set forth in “Financial Statements and Supplementary Data.” ITEM 9B. OTHER INFORMATION On January 22, 2018, the Compensation and Benefits Committee of our Board of Directors approved certain arrangements for Kenneth Chenault, our recently retired Chairman and Chief Executive Officer. We have agreed to provide an annual stipend of $300,000 per year to Mr. Chenault for office space with administrative support for use after retirement (consistent with past practice for retiring chief executive officers) for a period of nine years (the year Mr. Chenault turns age 75), with an additional one-time set-up payment of $500,000 plus appropriate office hardware on a one-time basis. We have also agreed to provide Mr. Chenault with a driver for ground transportation security for one year. Consistent with prior arrangements with Mr. Chenault, on February 13, 2018, Stephen J. Squeri, our Chairman and Chief Executive Officer, entered into a Time Sharing Agreement with American Express Travel Related Services Company, Inc. (TRS) providing for Mr. Squeri’s reimbursement of TRS for incremental costs in excess of $200,000 per year for his personal travel using our corporate aircraft, which our security policy requires him to use for all travel purposes. This summary is qualified in its entirety by the terms of the Time Sharing Agreement, a copy of which is filed as an exhibit to this report and incorporated herein by reference. On February 14, 2018, the Compensation and Benefits Committee of our Board of Directors approved an increase to the annual base salary (effective February 16, 2018) of Douglas E. Buckminster in connection with Mr. Buckminster’s promotion to Group President, Global Consumer Services. Mr. Buckminster’s base salary has been increased from $750,000 per annum to $900,000 per annum. In addition, Mr. Buckminster will be eligible to earn an annual cash incentive award of $2.9 million and annual long-term incentive awards consisting of cash, restricted stock units and stock options with a value of $4.3 million. 144 PPART III ITEMS 10, 11, 12 and 13. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE We expect to file with the SEC in March 2018 (and, in any event, not later than 120 days after the close of our last fiscal year), a definitive proxy statement, pursuant to SEC Regulation 14A in connection with our Annual Meeting of Shareholders to be held May 7, 2018, which involves the election of directors. The following information to be included in such proxy statement is incorporated herein by reference: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) Information included under the caption “Corporate Governance at American Express — Our Board’s Independence” Information included under the caption “Corporate Governance at American Express —Board Committees — Board Committee Responsibilities” Information included under the caption “Proxy Summary and Voting Roadmap – Item 1 Election of Directors For a Term of One Year – Director Attendance” Information included under the caption “Corporate Governance at American Express —Compensation of Directors” Information included under the caption “Stock Ownership Information” Information included under the caption “Corporate Governance at American Express — Item 1 — Election of Directors for a Term of One Year” Information included under the caption “Executive Compensation” Information under the caption “Corporate Governance at American Express — Certain Relationships and Transactions” Information under the caption “Stock Ownership Information — Section 16(a) Beneficial Ownership Reporting Compliance” In addition, the information regarding executive officers called for by Item 401(b) of Regulation S-K may be found under the caption “Executive Officers of the Company” in this Report. We have adopted a set of Corporate Governance Principles, which together with the charters of the six standing committees of the Board of Directors (Audit and Compliance; Compensation and Benefits; Innovation and Technology; Nominating and Governance; Public Responsibility; and Risk), our Code of Conduct (which constitutes our code of ethics) and the Code of Business Conduct for the Members of the Board of Directors, provide the framework for our governance. A complete copy of our Corporate Governance Principles, the charters of each of the Board committees, the Code of Conduct (which applies not only to our Chief Executive Officer, Chief Financial Officer and Controller, but also to all our other employees) and the Code of Business Conduct for the Members of the Board of Directors may be found by clicking on the “Corporate Governance” link found on our Investor Relations website at http://ir.americanexpress.com. We also intend to disclose any amendments to our Code of Conduct, or waivers of our Code of Conduct on behalf of our Chief Executive Officer, Chief Financial Officer or Controller, on our website. You may also access our Investor Relations website through our main website at www.americanexpress.com by clicking on the “About American Express” link, which is located at the bottom of the Company’s homepage. (Information from such sites is not incorporated by reference into this Report.) You may also obtain free copies of these materials by writing to our Corporate Secretary at our headquarters. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information set forth under the heading “Item 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP Fees and Services,” which will appear in our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held May 7, 2018, is incorporated herein by reference. 145 PPART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) 1. Financial Statements: See the “Index to Consolidated Financial Statements” under “Financial Statements and Supplementary Data.” 2. Financial Statement Schedules: All schedules are omitted since the required information is either not applicable, not deemed material, or shown in the Consolidated Financial Statements. 3. Exhibits: The list of exhibits required to be filed as exhibits to this Report is listed on pages E-1 through E-4 hereof under “Exhibit Index.” ITEM 16. FORM 10-K SUMMARY Not applicable. 146 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SSIGNATURES AMERICAN EXPRESS COMPANY /s/ JEFFREY C. CAMPBELL Jeffrey C. Campbell Executive Vice President and Chief Financial Officer February 16, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated. /s/ STEPHEN J. SQUERI Stephen J. Squeri Chairman, Chief Executive Officer and Director /s/ JEFFREY C. CAMPBELL Jeffrey C. Campbell Executive Vice President and Chief Financial Officer /s/ LINDA ZUKAUCKAS Linda Zukauckas Executive Vice President and Corporate Controller (Principal Accounting Officer) /s/ CHARLENE BARSHEFSKY Charlene Barshefsky Director /s/ JOHN J. BRENNAN John J. Brennan Director /s/ URSULA M. BURNS Ursula M. Burns Director /s/ PETER CHERNIN Peter Chernin Director /s/ RALPH DE LA VEGA Ralph de la Vega Director February 16, 2018 147 /s/ ANNE LAUVERGEON Anne Lauvergeon Director /s/ MICHAEL O. LEAVITT Michael O. Leavitt Director /s/ THEODORE J. LEONSIS Theodore J. Leonsis Director /s/ RICHARD C. LEVIN Richard C. Levin Director /s/ SAMUEL J. PALMISANO Samuel J. Palmisano Director /s/ DANIEL L. VASELLA Daniel L. Vasella Director /s/ ROBERT D. WALTER Robert D. Walter Director /s/ RONALD A. WILLIAMS Ronald A. Williams Director AAppendix GUIDE 3 – STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES The accompanying supplemental information should be read in conjunction with the “MD&A”, “Consolidated Financial Statements” and notes thereto. The disclosures presented are excluding amounts associated with Card Member loans and receivables HFS, unless otherwise indicated. Refer to Note 2 to the “Consolidated Financial Statements” for additional information. 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 or results of operations. Distribution of Assets, Liabilities, and Shareholders’ Equity; Interest Rates and Interest Differential The following tables provide a summary of the Company’s consolidated average balances including major categories of interest-earning assets and interest-bearing liabilities along with an analysis of net interest earnings. Consolidated average balances, interest, and average yields are segregated between U.S. and non-U.S. offices. Assets, liabilities, interest income and interest expense are attributed to the United States and outside the United States based on the location of the office recording such items. Years Ended December 31, (Millions, except percentages) AAverage BBalance ((a) Interest Average Average Balance ((a) Yield Income Interest Average Average Balance ((a) Yield Income 2017 22016 22015 Interest Average Income Yield Interest--earning assets Interest-bearing deposits in other banks (b) U.S. Non-U.S. $$ 24,510 $ 1,773 277 177 1.1 % $ 21,282 $ 1.0 1,884 116 11 0.5 % $ 0.6 19,255 $ 2,137 Federal funds sold and securities purchased under agreements to resell Non-U.S. Short-term investment securities U.S. Non-U.S. Card Member loans, including loans HFS (c)(d) U.S. Non-U.S. Other loans (c) U.S. Non-U.S. Taxable investment securities (e) U.S. Non-U.S. Non-taxable investment securities (e) U.S. Other assets (f) Primarily U.S. TTotal interest--earning assets ((g) U.S. Non-U.S. 80 182 1,070 6 1 7 58,853 7,847 6,884 1,038 1,887 148 1,216 547 195 27 24 17 7.5 0.5 0.7 11.7 13.2 10.3 18.2 2.0 3.1 110 170 551 5 — 4 58,900 6,828 6,160 907 1,077 150 721 543 110 28 12 15 4.5 — 0.7 10.5 13.3 10.2 18.7 1.7 2.8 50 16 6 — 3 188 12 393 61,911 7,093 6,258 930 891 154 607 535 93 28 10 14 0.3 % 0.7 3.2 — 0.8 10.1 13.1 10.4 18.2 1.7 2.7 1,510 48 4.9 2,390 104 6.9 3,083 133 6.9 12 1 $ 99,624 $ 8,553 7,441 1,112 88,159 11,465 n.m. 8.6 % $ 94,607 $ 1 84,541 10,066 3 7,475 6,505 970 n.m. 8.0 % $ 96,260 $ 1 85,760 10,500 4 7,545 6,548 997 n.m. 7.9 % n.m. Denotes rates determined to not be meaningful. (a) Averages based on month-end balances. (b) Amounts include (i) average interest-bearing restricted cash balances of $868 million, $358 million and $818 million for 2017, 2016 and 2015, respectively, which are included in other assets on the Consolidated Balance Sheets, and (ii) the associated interest income. (c) Average non-accrual loans were included in the average Card Member loan balances in amounts of $187 million, $173 million and $202 million in U.S. for 2017, 2016 and 2015, respectively. Average other loan balances for U.S. include average non-accrual loans of $3 million, $5 million and $1 million for 2017, 2016 and 2015, respectively. Average non-accrual loans are considered to determine the average yield on loans. (d) Amounts for 2016 and 2015 included average Card Member loans HFS of $5,828 million and $1,143 million, respectively, and the associated interest income. During the first half of 2016, the Company completed the sales of substantially all of its outstanding Card Member loans HFS. Refer to Note 2 to the “Consolidated Financial Statements” for additional information. (e) Average yields for both taxable and non-taxable investment securities have been calculated using amortized cost balances and do not include changes in fair value recorded in other comprehensive loss. Average yield on non-taxable investment securities is calculated on a tax-equivalent basis using the U.S. federal statutory tax rate of 35 percent. Effective January 1, 2018, the U.S. federal statutory tax rate was reduced to 21 percent. (f) Amounts include (i) average equity securities balances, which are included in investment securities on the Consolidated Balance Sheets, and (ii) the associated income. (g) The average yield on total interest-earning assets is adjusted for the impacts of the items mentioned in footnote (e). A-1 YYears Ended December 31, ((Millions, except percentages) NNon--iinterest--eearning assets Cash and due from banks U.S. Non-U.S. Card Member receivables, net, including receivables HFS(b) U.S. Non-U.S. Other receivables, net U.S. Non-U.S. Reserves for Card Member and other loans losses U.S. Non-U.S. Other assets (c) U.S. Non-U.S. TTotal non--iinterest--eearning assets U.S. Non-U.S. TTotal assets U.S. Non-U.S. 22017 AAverage BBalance ((a) 22016 AAverage BBalance ((a) 22015 AAverage BBalance ((a) $$ 22,393 $ 2,653 $ 4489 221,262 227,621 11,722 11,103 ((1,264) ((177) 110,726 33,889 667,764 334,839 332,925 478 22,622 22,102 1,720 1,093 (961) (150) 10,189 3,947 63,693 36,223 27,470 + + 2,501 565 22,126 21,667 1,678 1,032 (1,004) (153) 10,218 3,837 62,467 35,519 26,948 $$ 1167,388 $ 158,300 $ 158,727 1122,998 444,390 120,764 37,536 121,279 37,448 PPercentage of total average assets attributable to non--UU.S. activities 226.5 %% 23.7 % 23.6 % (a) Averages based on month-end balances. (b) Amounts for 2016 and 2015 included average Card Member receivables HFS of $51 million and $10 million, respectively. During the first half of 2016, the Company completed the sale of substantially all of its outstanding Card Member receivables HFS. Refer to Note 2 to the “Consolidated Financial Statements” for additional information. (c) Includes premises and equipment, net of accumulated depreciation and amortization. A-2 YYears Ended Decembber 31, (Millions, except percentages) AAverage BBalance (a) 22017 IInterest EExpennse AAverage RRate AAverage BBalance ((a) 22016 IInterest AAverage EExpense RRate AAverage BBalance ((a) 22015 IInterest AAverage EExpense RRate $$ 442,134 $$ 114,701 2215 117 118 11,188 22,145 551,366 7725 $$ 1112,509 $$ 1109,604 22,905 4471 3301 33 11 33 115 118 11,281 119 22,112 22,071 441 11.1 %% $ 39,975 $ 22.0 11.4 13,450 162 334 258 1 0.8 % $ 36,706 $ 1.9 0.6 10,171 185 283 185 1 55.9 116.7 11.3 00.8 10 74 1,017 2,048 1 4 6 19 10.0 5.4 0.6 0.9 21 87 1,416 2,198 2 4 4 15 1,057 46,521 22.5 22.6 24 931 11.9 %% $ 104,188 $ 1,704 101,125 3,063 1,656 48 1,094 51,623 2.3 2.6 35 1,271 1.6 % $ 103,678 $ 1,623 1,567 56 100,101 3,577 0.8 % 1.8 0.5 9.5 4.6 0.3 0.7 2.1 2.8 1.6 % IInterest--bbearing liabilities Customer deposits U.S. Savings Time Demand Non-U.S. Other time and savings Other demand Short-term borrowings U.S. Non-U.S. Long-term debt and other (b) U.S. Non-U.S. TTotal interest--bbearing liabilities U.S. Non-U.S. NNon--iinterest--bbearing liabilities Travelers Cheques and other prepaid products U.S. Non-U.S. Accounts payable U.S. Non-U.S. Customer Deposits (c) U.S. Non-U.S. Other liabilities 22,501 778 66,788 55,254 3351 3331 U.S. Non-U.S. TTotal liabilities U.S. Non-U.S. TTotal non--iinterest--bbearing liabilities 113,880 44,876 334,059 223,520 110,539 1146,568 1133,124 113,444 220,820 TTotal liabilities and shareholders' equity $$ 1167,388 U.S. Non-U.S. Total shareholders' equity 2,779 86 7,005 4,757 372 311 13,429 4,568 33,307 23,585 9,722 137,495 124,710 12,785 20,805 $ 158,300 3,160 110 7,238 4,589 386 324 13,435 4,313 33,555 24,219 9,336 137,233 124,320 12,913 21,494 $ 158,727 PPercentage of total average liabilities aattributable to non--UU.S. activities IInterest rate spread NNet interest income and net average yield oon interest--eearning assets ((d) 99.2 %% 9.3 % 9.4% 66.7 %% 6.4 % 6.3 % $$ 66,441 66.5 %% $ 5,771 6.2 % $ 5,922 6.2 % (a) (b) Averages based on month-end balances. Interest expense primarily reflects interest on long-term financing and interest incurred on derivative instruments in qualifying hedging relationships on the hedged debt instruments. (c) U.S. non-interest-bearing Customer deposits include average Card Member credit balances of $314 million, $328 million and $326 million for 2017, 2016 and 2015, respectively. Non-U.S. non-interest-bearing Customer deposits include average Card Member credit balances of $318 million, $297 million and $311 million for 2017, 2016 and 2015, respectively. (d) Net average yield on interest-earning assets is defined as net interest income divided by average total interest-earning assets as adjusted for the items mentioned in footnote (e) from the previous table. A-3 CChanges in Net Interest Income − Volume and Rate Analysis (a) The following table presents the amount of changes in interest income and interest expense due to changes in both average volume and average rate. Major categories of interest-earning assets and interest-bearing liabilities have been segregated between U.S. and non-U.S. offices. Average volume/rate changes have been allocated between the average volume and average rate variances on a consistent basis based upon the respective percentage changes in average balances and average rates. Years Ended December 31, (Millions) Interest--earning assets Interest-bearing deposits in other banks U.S. Non-U.S. Federal funds sold and securities purchased under agreements to resell Non-U.S. Short-term investment securities U.S. Non-U.S. Card Member loans, including loans HFS U.S. Non-U.S. Other loans U.S. Non-U.S. Taxable investment securities U.S. Non-U.S. Non-taxable investment securities U.S. Other assets Primarily U.S. CChange in interest income Interest--bearing liabilities Customer deposits U.S. Savings Time Demand Non-U.S. Other time and savings Other demand Short-term borrowings U.S. Non-U.S. Long-term debt and other U.S. Non-U.S. CChange in interest expense CChange in net interest income 2017 Versus 2016 2016 Versus 2015 IIncrease (Decrease) due to change in: Increase (Decrease) due to change in: AAverage Volume Average Rate Net Change Average Volume Average Rate Net Change 5 $ (2) 61 $ (3) $$ 18 $ (1) 143 $ 7 (1) — 4 (5) 135 83 — 9 — (37) — 205 18 24 — 1 (3) 1 1 2 1 (1) 729 (4) 2 (1) 3 2 (19) 9 873 119 19 2 (1) 2 8 (2) 161 $ 6 1 1 3 724 131 85 (1) 12 2 (2) — 1 (304) (35) 19 (1) 2 — (56) (29) 9 1,078 — (346) 137 43 2 — (1) 9 (1) 25 60 — (1) (1) (1) (1) 1 — — 206 12 (2) 1 — 1 — (1) 276 26 13 — — 1 3 5 110 (5) 147 58 $ 114 — 261 612 $ 224 (5) 408 670 $ (108) (9) (36) (310) $ 71 (2) 117 159 $ $ 66 (5) (1) — 1 (98) (23) 17 — 2 1 (29) (1) (70) 51 73 — (1) — 2 4 (37) (11) 81 (151) (a) Refer to footnotes from “Distribution of Assets, Liabilities and Shareholders’ Equity” for additional information. A-4 LLoans and Card Member Receivables Portfolios The following table presents gross loans and Card Member receivables by customer type, segregated between U.S. and non- U.S., based on the domicile of the borrowers. Refer to Notes 3 and 4 to the “Consolidated Financial Statements” for additional information. December 31, ((Millions) Loans (a) (b) UU.S. loans Card Member (c) Other (d) NNon--U.S. loans Card Member (c) Other (d) TTotal loans Card Member receivables (a) (b) UU.S. Card Member receivables Consumer (e) Commercial (f) NNon--U.S. Card Member receivables Consumer (e) Commercial (f) 2017 2016 2015 2014 2013 $$ 64,542 $ 58,242 $ 51,446 $ 62,592 $ 2,554 8,857 133 1,350 7,023 111 1,073 7,127 201 726 7,793 206 $ 76,086 $ 66,726 $ 59,847 $ 71,317 $ 26,754 10,868 10,311 6,114 24,768 9,685 7,772 5,083 23,255 8,961 7,101 4,816 22,468 9,082 7,800 5,501 58,530 411 8,708 210 67,859 21,842 8,480 7,930 5,911 TTotal Card Member receivables $ 54,0477 $ 47,308 $ 44,133 $ 44,851 $ 44,163 (a) As of December 31, 2017, the Company had approximately $273 billion of unused credit available to Card Members as part of established lending product agreements. Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. The Company’s charge card products generally have no preset spending limit, the associated credit limit on charge products is not quantifiable, and therefore is not reflected in unused credit available to Card Members. (b) As of December 31, 2017, the Company’s exposure to any concentration of gross loans and Card Member receivables combined, which exceeds 10 percent of total loans and Card Member receivables is further split between $112 billion for individuals and $18 billion for commercial. Loans and Card Member receivables concentrations are defined as loans and Card Member receivables due from multiple borrowers engaged in similar activities that would cause these borrowers to be impacted similarly to certain economic or other related conditions. Refer to Note 24 to the “Consolidated Financial Statements” for additional information on concentrations. (c) Primarily represents loans to individuals and small businesses. (d) Other loans primarily represent personal and commercial financing products. (e) Represents receivables from individual and small business charge card customers. (f) Represents receivables from corporate charge card clients. A-5 MMaturities and Sensitivities to Changes in Interest Rates The following table presents contractual maturities of loans and Card Member receivables by customer type, and segregated between U.S. and non-U.S. borrowers, and distribution between fixed and floating interest rates for loans due after one year based upon the stated terms of the loan agreements. December 31, ((Millions) 2017 Within 1 year ((a) (b) 1--5 years ((b) (c) After 5 years ((c) Total Loans U.S. loans Card Member Other Non--U.S. loans Card Member Other Total loans Loans due after one year at fixed interest rates Loans due after one year at variable interest rates Total loans Card Member receivables U.S. Card Member receivables Consumer Commercial Non--U.S. Card Member receivables Consumer Commercial $$ $ $$ Total Card Member receivables $ 64,413 978 8,856 91 74,338 26,722 10,868 10,311 6,114 54,015 $ $ $ $ $ $ 129 1,389 — 42 1,560 1,523 37 1,560 32 — — — 32 $ $ $ $ $ $ — 187 1 — 188 61 127 188 — — — — — $ $ $ $ $ $ 64,542 2,554 8,857 133 76,086 1,584 164 1,748 26,754 10,868 10,311 6,114 54,047 (a) Card Member loans have no stated maturity and are therefore included in the due within one year category. However, many of the Company’s Card Members will revolve their balances, which may extend their repayment period beyond one year for balances outstanding as of December 31, 2017. (b) Card Member receivables are immediately due upon receipt of Card Member statements, have no stated interest rate and are included within the due within one year category. Receivables due after one year represent modification programs classified as Troubled Debt Restructurings (TDRs), wherein the terms of a receivable have been modified for Card Members that are experiencing financial difficulties and a long-term concession (more than 12 months) has been granted to the borrower. (c) Card Member and other loans due after one year primarily represent installment loans and TDRs. A-6 RRisk Elements The following table presents the amounts of non-performing loans and Card Member receivables that are either non-accrual, past due, or restructured, segregated between U.S. and non-U.S. borrowers. Past due loans are loans that are contractually past due 90 days or more as to principal or interest payments. Restructured loans and Card Member receivables are those that meet the definition of a TDR. December 31, ((Millions) Loans NNon--accrual loans ((a) U.S. Non-U.S. TTotal non--accrual loans LLoans contractually 90 days past--due and still accruing interest ((b) U.S. Non-U.S. TTotal loans contractually 90 days past--due and still accruing interest RRestructured loans ((c) U.S. Non-U.S. TTotal restructured loans TTotal non--performing loanss Card Member receivables RRestructured Card Member receivables ((c) U.S. TTotall restructured Card Member receivables 20177 22016 2015 22014 2013 $$ $ $$ 203 — 203 273 56 329 367 — 367 899 $ 173 $ 154 $ 241 $ —— 173 208 52 260 —— 154 164 52 216 —— 241 162 58 220 346 —— 346 779 $ 279 —— 279 649 $ 286 —— 286 747 $ $ 294 4 298 174 54 228 351 5 356 882 80 80 $ 55 55 $ 33 33 $ 48 48 $ 50 50 (a) Non-accrual loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest. Amounts presented exclude Card Member loans classified as a TDR. (b) The Company’s policy is generally to accrue interest through the date of write-off (typically 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts presented exclude loans classified as a TDR. (c) In instances where the Card Member is experiencing financial difficulty, the Company may modify, through various programs, Card Member loans and receivables in order to minimize losses and improve collectability, while providing Card Members with temporary or permanent financial relief. The Company has classified Card Member loans and receivables in these modification programs as TDRs and continues to classify Card Member accounts that have exited a modification program as a TDR, with such accounts identified as “Out of Program TDRs.” Such modifications to the loans and receivables primarily include (i) temporary interest rate reductions (possibly as low as zero percent, in which case the loan is characterized as non-accrual in the Company’s TDR disclosures), (ii) placing the Card Member on a fixed payment plan not to exceed 60 months and (iii) suspending delinquency fees until the Card Member exits the modification program. Refer to Note 3 to the “Consolidated Financial Statements” for additional information. A-7 IImpact of Non-performing Loans on Interest Income The following table presents the gross interest income for both non-accrual and restructured loans for 2017 that would have been recognized if such loans had been current in accordance with their original contractual terms and had been outstanding throughout the period or since origination if held for only part of 2017. The table also presents the interest income related to these loans that was actually recognized for the period. These amounts are segregated between U.S. and non-U.S. borrowers. Year Ended December 31, ((Millions) Gross amount of interest income that would have been recorded in accordance with the original contractual terms (a) Interest income actually recognized TTotal interest revenue foregone UU.S. 22017 NNon--U.S. TTotal $$ $$ 64 116 48 $ $ — $ — — $ 64 16 48 (a) The Company determines the original effective interest rate as the interest rate in effect prior to the imposition of any penalty interest rate. Potential Problem Loans and Receivables This disclosure presents outstanding amounts as well as specific reserves for certain loans and receivables where information about possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present repayment terms. At December 31, 2017, the Company did not identify any potential problem loans or receivables within the Card Member loans and receivables portfolio that were not already included in the “Risk Elements” section. A-8 CCross-border Outstandings Cross-border disclosure is based upon the Federal Financial Institutions Examinations Council’s (FFIEC) guidelines governing the determination of cross-border risk. The primary differences between the FFIEC and Guide 3 guidelines for reporting cross-border exposure are: i) the FFIEC methodology includes mark-to-market exposures of derivative assets, which are excluded under Guide 3; and ii) investments in unconsolidated subsidiaries are included under FFIEC but excluded under Guide 3. The following table presents the aggregate amount of cross-border outstandings from borrowers or counterparties for each foreign country that exceeds 1 percent of consolidated total assets for any of the periods reported below. Cross-border outstandings include loans, receivables, interest-bearing deposits with other banks, other interest-bearing investments and other monetary assets that are denominated in either dollars or other non-local currency. The table separately presents the amounts of cross-border outstandings by type of borrower including Governments and official institutions, Banks and other financial institutions, Non-Bank Financial Institutions (NBFIs) and Other. BBanks and GGross TTotal GGovernments other TTotal foreign-- exposure Years Ended December 31, and official financial ccross--border office (net of Cross--border iinstitutions institutions NBFIs Other outstandings liabilities liabilities) commitments 22017 $ — $ 259 $$ — $ 3,594 $ 3,853 $ 504 $$ 3,349 $ 2016 2015 —— — 389 193 — — 2,986 2,786 3,375 2,979 453 419 2,922 2,560 Canada 22017 $ 355 $ 992 $ 40 $ 2,730 $ 4,117 $ 1,032 $ 3,085 $ 2016 2015 1,284 356 1,028 705 35 36 2,408 2,433 4,755 3,530 977 1,383 3,778 2,147 United Kingdom 22017 $ 68 $ 1,286 $ 86 $ 4,568 $ 6,008 $ 3,884 $ 2,124 $ 2016 2015 77 107 2,213 2,068 63 32 3,390 3,422 5,743 5,629 3,222 3,174 2,521 2,455 Mexico 22017 $ 85 $ 97 $ 7 $ 2,229 $ 2,418 $ 556 $ 1,862 $ 2016 2015 106 98 167 61 6 8 1,820 1,890 2,099 2,057 531 552 1,568 1,505 Japan 22017 $ 4 $ 74 $ 177 $ 3,082 $ 3,337 $ 3,106 $ 231 $ 2016 2015 5 4 55 56 130 92 2,504 2,058 2,694 2,210 2,526 2,071 168 139 Other countries (a) 22017 $ 156 $ 142 $ 14 $ 4,255 $ 4,567 $ 591 $ 3,976 $ 2016 2015 137 77 135 96 13 5 3,229 3,177 3,514 3,355 466 503 3,048 2,852 6,635 5,567 5,410 12,174 11,590 11,845 15,578 11,919 12,293 1,125 961 1,053 2,290 87 79 682 562 613 (Millions) Australia (a) Cross-border outstandings between 0.75 percent and 1.0 percent of consolidated total assets are included in Other Countries. For comparability, countries that meet the threshold for any year presented are included for all years. Countries included are France, Italy and the Netherlands. A-9 SSummary of Loan Loss Experience – Analysis of the Allowance for Loan Losses The following table summarizes the changes to the Company’s allowance for Card Member loan losses. The table segregates such changes between U.S. and non-U.S. borrowers. Years Ended December 31, ((Millions, except percentages) 2017 22016 22015 22014 22013 Card Member loans Allowance for loan losses at beginning of year U.S. loans Non-U.S. loans Total allowancee for losses Card Member lending provisions ((a) U.S. loans Non-U.S. loans TTotal Card Member lending provisions Write--offs U.S. loans Non-U.S. loans TTotal write--offs Recoveries U.S. loans Non-U.S. loans TTotal recoveries Net write--offs ((b) Transfer of reserves on HFS loans portfolios U.S. loans Other ((c) U.S. loans Non-U.S. loans Total other Allowance for loan losses at end of year U.S. loans Non-U.S. loans Total allowance for losses $$ $ 1,068 1155 11,223 $ 882 146 1,028 $ 1,036 165 1,201 $ 1,083 178 1,261 11,655 2213 11,868 ((1,572) ((245) ((1,817) 3356 553 4409 ((1,408) —— —— 223 223 1,056 179 1,235 (1,262) (222) (1,484) 325 54 379 (1,105) 1,032 158 1,190 (1,321) (226) (1,547) 359 59 418 (1,129) 944 194 1,138 (1,346) (269) (1,615) 356 72 428 (1,187) —— (224) —— 67 (2) 65 —— (10) (10) (1) (10) (11) 1,274 197 1,471 916 199 1,115 (1,463) (280) (1,743) 368 84 452 (1,291) —— (12) (22) (34) 11,507 1199 1,706 $ 1,068 155 1,223 $ 882 146 1,028 $ 1,036 165 1,201 $ 1,083 178 1,261 $ Principal only net write--offs / average Card Member loans outstanding ((d) (e) Principal, interest and fees net write--offs / average Card Member loans outstanding ((d) (e) 11.8 % 22.1 % 1.6 %% 1.8 %% 1.4 % 1.7 % 1.5 % 1.8 % 1.8 % 2.0 % (a) Refer to Note 4 to the “Consolidated Financial Statements” for a discussion of management’s process for evaluating the allowance for loan losses. (b) Net write-offs include principal, interest and fees balances. (c) Includes foreign currency translation adjustments and other items. The year ended December 31, 2016, included reserves of $67 million associated with $265 million of retained Card Member loans reclassified from HFS to held for investment as a result of retaining certain loans in connection with the respective sales of JetBlue and Costco cobrand card portfolios. The year ended December 31, 2014, included an adjustment related to reserves for card related fraud losses of $(6) million, which was reclassified to Other liabilities. (d) The net write-off rate presented is on a worldwide basis and is based on principal losses only (i.e., excluding interest and fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and fees is also presented. The year ended December 31, 2015, reflected the impact of a change in the timing of charge-offs for Card Member loans in certain modification programs from 180 days past due to 120 days past due, which was fully recognized during the three months ended March 31, 2015. (e) Average Card Member loans outstanding are based on month-end balances. A-10 The following table summarizes the changes to the Company’s allowance for other loan losses. The table segregates such changes between U.S. and non-U.S. borrowers. YYears Ended December 31, ((Millions, except percentages) 22017 22016 22015 22014 22013 OOther loans AAllowance for loan losses at beginning of year U.S. loans Non-U.S. loans TTotal allowance for losses PProvisions for other loan losses ((a) U.S. loans Non-U.S. loans TTotal provisions for other loan losses Write--offs U.S. loans Non-U.S. loans TTotal write--offs Recoveries U.S. loans Non-U.S. loans TTotal recoveries Net write--offs Other (b) Non-U.S. loans Total other Allowance for loan losses at end of year U.S. loans Non-U.S. loans $$ 339 $ 33 442 71 1 72 (37) (3) (40) 5 1 6 (34) — — 78 2 $ 17 3 20 56 1 57 (39) (2) (41) 5 1 6 (35) — — 39 3 $ 8 4 12 21 1 22 (15) (3) (18) 3 1 4 (14) — — 17 3 $ 8 5 13 5 3 8 (7) (7) (14) 2 3 5 (9) — — 8 4 Total allowance for losses $ 80 $ 42 $ 20 $ 12 $ 8 12 20 3 4 7 (7) (13) (20) 4 3 7 (13) (1) (1) 8 5 13 Net write--offs/average other loans outstanding (c) 1.7 % 2.9 % 1.3 % 1.2 % 2.3 % (a) Provisions for other loan losses are determined based on a specific identification methodology and models that analyze specific portfolio statistics. (b) (c) Includes primarily foreign currency translation adjustments. The net write-off rate presented is on a worldwide basis and is based on write-offs of principal, interest and fees. Average other loans outstanding are based on month-end balances. A-11 The following table summarizes the changes to the Company’s allowance for Card Member receivables losses. The table segregates such changes between U.S. and non-U.S. borrowers. YYears Ended December 31, ((Millions, except percentages) 22017 22016 22015 22014 22013 CCard Member receivables AAllowance for losses at beginning of year UU.S. receivables Consumer Commercial TTotal U.S. receivables NNon--UU.S. receivables Consumer Commercial TTotal non--UU.S. receivables TTotal allowance for losses PProvisions forr losses ((a) UU.S. receivables Consumer Commercial TTotal U.S. provisions NNon--U.S. receivables Consumer Commercial TTotal non--U.S. provisions TTotal provisions for losses Write--offs UU.S. receivables Consumer Commercial TTotal U.S. writee-ooffs NNon--U.S. receeivables Consumer Commercial TTotal non--U.S. wwrite-ooffs TTotal write--offs $$ 2266 $ 268 $ 276 $ 216 $ 553 3319 995 553 1148 4467 4413 1114 5527 2201 667 2268 7795 ((633) ((139) ((772) ((227) ((96) ((323) 51 319 93 50 143 462 366 69 435 176 85 261 696 (637) (112) (749) (215) (101) (316) 53 329 93 43 136 465 420 76 496 169 72 241 737 (698) (123) (821) (204) (89) (293) 35 251 98 37 135 386 451 98 549 172 71 243 792 (618) (120) (738) (211) (92) (303) 273 37 310 86 32 118 428 336 53 389 188 71 259 648 (662) (92) (754) (227) (90) (317) $ (1,095) $ (1,065) $ (1,114) $ (1,041) $ (1,071) (a) Refer to Note 4 to the “Consolidated Financial Statements” for a discussion of management’s process for evaluating the allowance for receivable losses. A-12 YYears Ended December 31, ((Millions, except percentages) 22017 22016 22015 22014 22013 CCard Meember receivables RRecoveries UU.S. receivables Consumer Commercial TTotal UU.S. recoveries NNon--UU.S. receivables Consumer Commercial TTotal non--UU.S. recoveries TTotal recoveries NNet write--ooffs ((a) Other (b) UU.S. receivables Consumer Commercial TTotal U.S. other NNon--U.S. receivables Consumer Commercial TTotal non--U.S. other TTotal other Allowance for losses at end of year UU.S. receivables Consumer Commercial TTotal U.S. receivables NNon--U.S. receivables Consumer Commercial TTotal non--U.S. receivables Total allowance for losses $$ 2233 $ 269 $ 271 $ 230 $ 445 2278 556 225 881 3359 ((736) ((2) —— ((2) ((6) 33 ((3) ((5) 2277 773 3350 1119 552 1171 43 312 56 23 79 391 (674) — 22 2 (15) (4) (19) (17) 266 53 319 95 53 148 45 316 57 28 85 401 (713) (1) —— (1) (22) (4) (26) (27) 268 51 319 93 50 143 41 271 58 29 87 358 (683) (3) (1) (4) (24) (2) (26) (30) 276 53 329 93 43 136 $ 521 $ 467 $ 462 $ 465 $ 279 38 317 57 28 85 402 (669) (10) (1) (11) (6) (4) (10) (21) 216 35 251 98 37 135 386 Net write--offs / average Card Member receivables outstanding (c) (d) 11.5 % 1.5 % 1.6 % 1.5 % 1.6 % (a) Net write-offs include principal and fees balances. (b) (c) Includes foreign currency translation adjustments and other adjustments. Additionally, 2015 included the impact of transfer of the HFS receivables portfolio, which was not significant and 2014, included an adjustment related to reserves for card-related fraud losses of $(7) million, which was reclassified to Other liabilities. The net write-off rate presented is on a worldwide basis and is based on write-offs of principal and fees. The year ended December 31, 2015, reflected the impact of a change in the timing of charge-offs for Card Member receivables in certain modification programs from 180 days past due to 120 days past due, which was fully recognized during the three months ended March 31, 2015. (d) Averages Card Member receivables outstanding are based on month-end balances. A-13 AAllocation of Allowance for Losses The following table presents an allocation of the allowance for loans and Card Member receivables and the percentage of allowance for losses on loans and Card Member receivables in each category, to the total allowance, respectively, by customer type. The table segregates allowance for losses on loans and Card Member receivables between U.S. and non-U.S. borrowers. December 31, (Millions, except percentages) 2017 22016 22015 22014 22013 Allowance for losses at end of year applicable to Amount Percentage ((a) Amount PPercentage ((a) Amount PPercentage ((a) Amount PPercentage ((a) Amount PPercentage ((a) Loans UU.S. loans Card Member Other NNon--U.S. loans Card Member Other $ $ 1,507 78 199 2 1,786 85 % $ 1,068 39 4 85 % $ 3 882 17 84 % $ 1,036 8 2 85 % $ 1,083 8 1 11 — 155 3 100 % $ 1,265 146 12 — 3 100 % $ 1,048 14 — 100 % $ 165 4 1,213 14 — 178 5 100 % $ 1,274 Card Member receivables U.S. Card Member Consumer Commercial Non--U.S. Card Member receivables Consumer Commercial $ $ 277 773 1119 552 521 53 % $ 14 266 53 57 % $ 11 268 51 58 % $ 11 276 53 59 % $ 12 216 35 23 10 100 % $ 95 53 467 21 11 100 % $ 93 50 462 20 11 100 % $ 93 43 465 20 9 100 % $ 98 37 386 (a) Percentage of allowance for losses on loans and Card Member receivables in each category to the total allowance. 85 % 1 14 — 100 % 56 % 9 25 10 100 % Time Certificates of Deposit of $100,000 or More The following table presents the amount of time certificates of deposit of $100,000 or more issued by the Company in its U.S. offices, further segregated by time remaining until maturity. (Millions) U.S. time certificates of deposit ($100,000 or more) By remaining maturity as of December 31, 2017 OOver 3 mmoonths bbut within 66 months OOver 6 mmonths bbut within 112 months 33 months or less OOver 112 months TTotal $$ 77 $ 12 $ 26 $ 84 $ 199 As of December 31, 2017, time certificates of deposit and other time deposits in amounts of $100,000 or more issued by non- U.S. offices was $14 million. A-14 The following exhibits are filed as part of this Annual Report. The exhibit numbers preceded by an asterisk (*) indicate exhibits electronically filed herewith. All other exhibit numbers indicate exhibits previously filed and are hereby incorporated herein by reference. Exhibits numbered 10.1 through 10.43 are management contracts or compensatory plans or arrangements. EEXHIBIT INDEX 3.1 3.2 4.1 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 Company’s Amended and Restated Certificate of Incorporation as amended through February 27, 2015 (incorporated by reference to Exhibit 3.1 the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2015). Company’s By-Laws, as amended through September 26, 2016 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated September 26, 2016). The instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request. American Express Company Deferred Compensation Plan for Directors and Advisors, as amended through March 23, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2015). American Express Company 2007 Pay-for-Performance Deferral Program Document (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 20, 2006 (filed November 22, 2006)). Description of amendments to 1994–2006 Pay-for-Performance Deferral Programs (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2006). American Express Company 2006 Pay-for-Performance Deferral Program Guide (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 21, 2005 (filed November 23, 2005)). American Express Company 2005 Pay-for-Performance Deferral Program Guide (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2004). Description of American Express Company Pay-for-Performance Deferral Program (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 22, 2004 (filed January 28, 2005)). Amendment to the Pre-2008 Nonqualified Deferred Compensation Plans of American Express Company (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2008). American Express Company Retirement Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1988). Certificate of Amendment of the American Express Company Retirement Plan for Non-Employee Directors dated March 21, 1996 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1995). American Express Key Executive Life Insurance Plan, as amended (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1991). Amendment to American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994). Amendment to American Express Company Key Executive Life Insurance Plan, effective as of January 22, 2007 (incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2006). E-1 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 Amendment to American Express Company Key Executive Life Insurance Plan, effective as of January 1, 2011 (incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2010). American Express Key Employee Charitable Award Program for Education (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1990). American Express Directors’ Charitable Award Program (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1990). American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1988). Amendment to American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994). American Express Senior Executive Severance Plan, effective January 1, 1994 (as amended and restated through January 1, 2011) (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2010). First Amendment to the American Express Senior Executive Severance Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 2012). Second Amendment to the American Express Senior Executive Severance Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated July 22, 2013 (filed July 25, 2013)). Amendments of (i) the American Express Salary/Bonus Deferral Plan and (ii) the American Express Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.37 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1997). Second Amendment and Restatement of the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (as amended and restated effective as of January 1, 2012) (incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2011). Third Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated March 29, 2012) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2012). Fourth Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated October 24, 2012) (incorporated by reference to Exhibit 10.31 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2012). Fifth Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated May 1, 2013) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended June 30, 2013). Sixth Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated August 16, 2013) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 2013). Seventh Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated September 26, 2013) (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 2013). Eighth Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated December 1, 2013) (incorporated by reference to Exhibit 10.36 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2013). E-2 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 Ninth Amendment to the American Express Retirement Restoration Plan (f/k/a Supplemental Retirement Plan) (dated December 14, 2016) (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2016). American Express Company 2003 Share Equivalent Unit Plan for Directors, as amended and restated, effective January 1, 2015 (incorporated by reference to Exhibit 10.38 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2015). Description of Compensation Payable to Non-Management Directors effective January 1, 2015 (incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2014). American Express Company 2007 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated April 23, 2007 (filed April 27, 2007)). American Express Company 2007 Incentive Compensation Plan Master Agreement (as amended and restated effective January 1, 2011) (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2010). American Express Company 2007 Incentive Compensation Plan Master Agreement (as amended and restated effective January 23, 2012) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated January 23, 2012 (filed January 27, 2012)). Form of nonqualified stock option award agreement for executive officers under the American Express Company 2007 Incentive Compensation Plan (for awards made after January 26, 2016) (incorporated by reference to Exhibit 10.43 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2015). Form of restricted stock unit award agreement for executive officers under the American Express Company 2007 Incentive Compensation Plan (for awards made after January 26, 2016) (incorporated by reference to Exhibit 10.44 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2015). Form of award agreement for executive officers in connection with Portfolio Grant awards under the American Express Company 2007 Incentive Compensation Plan (for awards made after January 29, 2013) (incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2012). American Express Company 2016 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated May 2, 2016). Form of nonqualified stock option award agreement for executive officers under the American Express Company 2016 Incentive Compensation Plan (for awards made after May 2, 2016) (incorporated by reference to Exhibit 10.41 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2016). Form of restricted stock unit award agreement for executive officers under the American Express Company 2016 Incentive Compensation Plan (for awards made after May 2, 2016) (incorporated by reference to Exhibit 10.42 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2016). Form of award agreement for executive officers in connection with Performance Grant awards (a/k/a Executive Annual Incentive Awards) under the American Express Company 2016 Incentive Compensation Plan (for awards made after May 2, 2016) (incorporated by reference to Exhibit 10.43 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2016). Form of award agreement for executive officers in connection with Portfolio Grant awards under the American Express Company 2016 Incentive Compensation Plan (for awards made after May 2, 2016) (incorporated by reference to Exhibit 10.44 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2016). 10.43 Post-Employment Arrangements with Kenneth I. Chenault (see Item 9B. Other Information above). 10.44 Agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc., on behalf of itself and its subsidiaries (incorporated by reference to Exhibit 10.43 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 1994). E-3 10.45 10.46 10.47 Agreement dated July 20, 1995 between the Company and Berkshire Hathaway Inc. and its subsidiaries (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1995). Amendment dated September 8, 2000 to the agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc., on behalf of itself and its subsidiaries (incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated January 22, 2001 (filed January 22, 2001)). Amendment dated January 29, 2018 to the agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc., on behalf of itself and its subsidiaries (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated January 29, 2018 (filed January 30, 2018)). *10.48 Time Sharing Agreement, dated February 13, 2018, by and between American Express Travel Related Services Company, Inc. and Stephen J. Squeri. *12 *21 *23 *31.1 *31.2 *32.1 *32.2 Computation in Support of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Subsidiaries of the Company. Consent of PricewaterhouseCoopers LLP. Certification of Stephen J. Squeri, Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. Certification of Jeffrey C. Campbell, Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. Certification of Stephen J. Squeri, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Jeffrey C. Campbell, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document *101.SCH XBRL Taxonomy Extension Schema Document *101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *101.LAB XBRL Taxonomy Extension Label Linkbase Document *101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *101.DEF XBRL Taxonomy Extension Definition Linkbase Document E-4 THIS PAGE INTENTIONALLY LEFT BLANK AAPPENDIX TO THE CHAIRMAN’S LETTER APPENDIX I RECONCILIATION OF ADJUSTMENTS Adjusted Total Revenues Net of Interest Expense (millions) Total revenues net of interest expense Estimated Costco-related revenues (a) Adjusted Total revenues net of interest expense FX-adjusted Total revenues net of interest expense, excl. Costco (b) 2017 2016 YOY % Change $ 33,471 $ – $ $33,471 $ $ 32,119 (1,193) 30,926 30,996 4 8 8 Earnings per Share (EPS) EPS Tax Act Impacts (c) Adjusted EPS, excl. the tax charge $ 2.97 2.90 $ 5.87 (a) Represents estimated Discount revenue from Costco in the U.S. for spend on American Express cards and from other merchants for spend on the Costco cobrand card as well as Other fees and commissions and Interest income from Costco cobrand Card Members. FX-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 2017 apply to the period(s) against which such results are being compared). This estimate may be refined in the future as additional guidance and interpretations become available. (b) (c) EXECUTIVE OFFICERS BOARD OF DIRECTORS Stephen J. Squeri Chairman and Chief Executive Officer Douglas E. Buckminster Group President, Global Consumer Services Jeffrey C. Campbell Executive Vice President and Chief Financial Officer L. Kevin Cox Chief Human Resources Officer Paul D. Fabara President, Global Services Group Marc D. Gordon Executive Vice President and Chief Information Officer Michael J. O’Neill Executive Vice President, Corporate Affairs and Communications Denise Pickett President, Global Risk, Banking & Compliance and Chief Risk Officer Elizabeth Rutledge Chief Marketing Officer Laureen E. Seeger Executive Vice President and General Counsel Anré Williams Group President, Global Merchant and Network Services Charlene Barshefsky Senior International Partner WilmerHale John J. Brennan Chairman Emeritus and Senior Advisor The Vanguard Group, Inc. Ursula M. Burns Former Chairman Xerox Corporation Peter Chernin Founder and Chief Executive Officer Chernin Entertainment LLC and the Chernin Group LLC Ralph de la Vega Former Vice Chairman, AT&T, Inc. Anne Lauvergeon Chairman and Chief Executive Officer A.L.P. Michael O. Leavitt Founder and Chairman Leavitt Partners, LLC Theodore J. Leonsis Chairman and Chief Executive Officer Monumental Sports & Entertainment, LLC Richard C. Levin Former Chief Executive Officer Coursera Samuel J. Palmisano Former Chairman, President and Chief Executive Officer International Business Machines Corporation (IBM) Stephen J. Squeri Chairman and Chief Executive Officer American Express Company Daniel L. Vasella Honorary Chairman and Former Chairman and Chief Executive Officer Novartis AG 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. Christopher D. Young* Chief Executive Officer McAfee, LLC 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 * Effective March 13, 2018 GENERAL INFORMATION EXECUTIVE OFFICES 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. Information on the Company’s corporate social responsibility programs and a report on the Company’s 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, Inc. 462 South 4th Street, Suite 1600 Louisville, KY 40233-5000 800.463.5911 or 201.680.6578 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 7, 2018, at 9:00 a.m., Eastern Time. A live audio webcast of the meeting will be accessible to the general public through the American Express Investor Relations website at ir.americanexpress.com and an audio replay will be available on the website following the event. A written transcript of the meeting will be available upon written request to the Secretary’s Office. 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 Investor Relations website at 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, Inc. at 1.800.463.5911. STOCK PURCHASE PLAN The CIP Plan, a direct stock purchase plan sponsored and administered by Computershare, Inc., 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, Inc. P.O. Box 505000 Louisville, KY 40233-5000 1.800.463.5911 www.computershare.com/investor SHAREHOLDER AND INVESTOR INQUIRIES Written shareholder inquiries may be sent either to Computershare, Inc. Investor Care Network, P.O. Box 505000, Louisville, KY 40233-5000, or to the Secretary’s Office at the address above. Written inquiries from the investment community should be sent to Investor Relations 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 Serve® American Express World Service & Design® Amex EveryDay® Bluebird® Blue Cash® Blue Cash Everyday® Blue for Business® Centurion® Global Assist® Membership Rewards® OPEN Forum® OPEN Savings® OptBlue® Payback® Platinum Card® Plenti® Plum Card® Relationship Care® Select & Pay Later® SimplyCash® Shop Small® Small Business Saturday® FORWARD-LOOKING STATEMENTS Various forward-looking statements are made in this Annual Report, which generally include the words “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “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 pages 78-80. ©2018 American Express Company. All rights reserved A M E R I C A N E X P R E S S C O M P A N Y A N N U A L R E P O R T 7 American Express Company 200 Vesey Street New York, New York 10285 336355_AEC_CVR_R1.indd 1 3/14/18 6:20 PM 

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