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