Table of Contents

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

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2017

2020
or

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

For the Transition Period from ____ to ____

Commission file number 1-7657

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

New York13-4922250
New York13-4922250
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
200 Vesey Street, New York, New York10285
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code(212) 640-2000 

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common shares (par value $0.20 per share)AXPNew York Stock Exchange
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 þ      No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ      No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☑
Accelerated filer☐
Non-accelerated filer(Do not check if a smaller reporting company)
☐
Smaller reporting company
☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐      No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
ClassOutstanding at October 18, 201719, 2020
Common Shares (par value $0.20 per share)805,201,951 867,996,250 Shares



Table of Contents

AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Page No.
1
37
2
38
3
39
4
40
5
41
42
6
44
30
1
61
70
61
70
64
71
65
71
66
72
67
73
67
74
68
Exhibit Index75
E-1


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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


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


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

The Company

American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company’s principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (the GBT JV). The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising.

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

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

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


Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The accounting standard establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows. The guidance, as amended, supersedes most of the current revenue recognition requirements, and is effective January 1, 2018.
Upon adoption of the new revenue recognition guidance, the Company will use the full retrospective method, which applies the new standard to each prior reporting period presented. The Company has made significant progress in determining the impact on its Consolidated Financial Statements and underlying operational processes. The most significant changes will be reclassifications from discount revenue to expenses related to Card Member cash-back reward costs and statement credits, as well as corporate incentive payments and net payments to third-party card issuing partners. These reclassifications will have a significant impact on the affected line items of the Consolidated Statements of Income, but will have no impact to net income. There will also be changes to the recognition timing of certain revenues; however, the impact of these changes to net income upon adoption will not be material. Similarly, upon adoption of the new standard, the impact on the Consolidated Balance Sheets and Consolidated Statements of Cash Flows will not be material. The Company is in the process of implementing changes to its accounting policies, business processes, systems and internal controls to support the recognition, measurement and disclosure requirements under the new standard.
In January 2016, the FASB issued new accounting guidance on the recognition and measurement of financial assets and financial liabilities. The guidance, which is effective January 1, 2018, makes targeted changes to current GAAP, specifically to the classification and measurement of equity securities, and to certain disclosure requirements associated with the fair value of financial instruments. In the ordinary course of business, the Company makes investments in non-public companies currently recognized under the cost method of accounting. Under the new guidance, these investments will be prospectively adjusted for observable price changes upon the identification of identical or similar transactions of the same issuer. The Company expects that adopting this guidance will have an immaterial impact on its financial position, results of operations and cash flows, as well as on its accounting policies, business processes, systems and internal controls.
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In February 2016, the FASB issued new accounting guidance on leases. The guidance, which is effective January 1, 2019, with early adoption permitted, requires virtually all leases to be recognized on the Consolidated Balance Sheets. The Company will adopt the standard effective January 1, 2019, using the modified retrospective approach, which requires recording existing operating leases on the Consolidated Balance Sheets upon adoption and in the comparative period. The Company is in the process of upgrading its existing lease administration software for new lease accounting functionality, business processes and internal controls in preparation for the adoption. Specifically, the Company is currently reviewing its lease portfolio and is evaluating and interpreting the requirements under the guidance, including the available accounting policy elections, in order to determine the impacts to the Company’s financial position, results of operations and cash flows upon adoption.
In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial instruments, which is effective January 1, 2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the CECL model will alter the assumptions used in estimating credit losses on Card Member loans and receivables, among other financial instruments (e.g., investments in available-for-sale debt securities), and may result in material increases to the Company’s credit reserves as the new guidance involves earlier recognition of expected losses for the life of the assets.  The Company has established an enterprise-wide, cross-discipline governance structure to implement the new standard. The Company is currently identifying key interpretive issues, and is evaluating existing credit loss forecasting models and processes in relation to the new guidance to determine what modifications may be required.
In August 2017, the FASB issued new accounting guidance providing targeted improvements to the accounting for hedging activities, which is effective January 1, 2019, with early adoption permitted in any interim period or fiscal year before the effective date. The guidance introduces a number of amendments, several of which are optional, that are designed to simplify the application of hedge accounting, improve financial statement transparency and more closely align hedge accounting with an entity’s risk management strategies. The Company is evaluating the impact this guidance will have on its financial position, results of operations and cash flows, as well as the impact the standard will have on its accounting policies, business processes, systems and internal controls.





2.  Business Events

During the fourth quarter of 2015, it was determined the Company would sell the Card Member loans and receivables related to its cobrand partnerships with JetBlue Airways Corporation (JetBlue) and Costco Wholesale Corporation (Costco) in the United States (the HFS portfolios). As a result, the HFS portfolios were presented as held for sale (HFS) on the Consolidated Balance Sheets within Card Member loans and receivables HFS as of December 31, 2015.

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

From the point of classification as HFS through the sale completion dates, the Company continued to recognize discount revenue, interest income, other revenues and expenses related to the HFS portfolios in the respective line items on the Consolidated Statements of Income, with changes in the valuation of the HFS portfolios recognized in Other expenses.

7
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 3.  Loans and Accounts Receivable

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

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

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

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

(Millions) 2017  2016 
U.S. Consumer Services (a)
 $11,192  $12,302 
International Consumer and Network Services  6,512   5,966 
Global Commercial Services  33,810   29,040 
Card Member receivables  51,514   47,308 
Less: Reserve for losses  512   467 
Card Member receivables, net $51,002  $46,841 
Other receivables, net (b)
 $2,701  $3,232 
(a)Includes $7.8 billion and $8.9 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of September 30, 2017 and December 31, 2016, respectively.
(b)Other receivables primarily represent amounts related to (i) Global Network Services partner banks for items such as royalty and franchise fees, (ii) tax-related receivables, (iii) certain merchants for billed discount revenue, and (iv) loyalty coalition partners for points issued, as well as program participation and servicing fees. Other receivables are presented net of reserves for losses of $32 million and $45 million as of September 30, 2017 and December 31, 2016, respectively.
8
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Card Member Loans and Card Member Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of September 30, 2017 and December 31, 2016:

2017 (Millions)
 Current  30-59 Days Past Due  60-89 Days Past Due  90+ Days Past Due  Total 
Card Member Loans:               
  U.S. Consumer Services $48,707  $183  $128  $308  $49,326 
  International Consumer and Network Services  7,698   39   27   59   7,823 
  Global Commercial Services                    
      Global Small Business Services  10,556   36   24   59   10,675 
      Global Corporate Payments(a)
 (b)  (b)  (b)   ―   54 
Card Member Receivables:                    
  U.S. Consumer Services  11,055   51   26   60   11,192 
  International Consumer and Network Services  6,424   28   18   42   6,512 
  Global Commercial Services                    
      Global Small Business Services $15,651  $75  $50  $102  $15,878 
      Global Corporate Payments(a)
 (b)  (b)  (b)  $153  $17,932 
                     
2016 (Millions)
 Current  30-59 Days Past Due  60-89 Days Past Due  90+ Days Past Due  Total 
Card Member Loans:                    
  U.S. Consumer Services $48,216  $156  $119  $267  $48,758 
  International Consumer and Network Services  6,863   32   24   52   6,971 
  Global Commercial Services                    
      Global Small Business Services  9,378   34   23   49   9,484 
      Global Corporate Payments(a)
 (b)  (b)  (b)   ―   52 
Card Member Receivables:                    
  U.S. Consumer Services  12,158   45   30   69   12,302 
  International Consumer and Network Services  5,888   22   15   41   5,966 
  Global Commercial Services                    
      Global Small Business Services $14,047  $77  $47  $102  $14,273 
      Global Corporate Payments(a)
 (b)  (b)  (b)  $135  $14,767 
(a)For Global Corporate Payments (GCP) Card Member loans and receivables in Global Commercial Services (GCS), delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member loan and receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. See also (b).
(b)Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances.

9
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the nine months ended September 30:
   2017 2016 
   Net Write-Off Rate   Net Write-Off Rate   
   
Principal Only(a)
 
Principal, Interest & Fees(a)
 30+ Days Past Due as a % of Total 
Principal Only(a)
 
Principal, Interest & Fees(a)
 30+ Days Past Due as a % of Total 
Card Member Loans:             
 U.S. Consumer Services 1.7%2.0%1.3%1.5%1.8%1.1%
 International Consumer and Network Services 2.1%2.6%1.6%2.0%2.5%1.7%
 Global Small Business Services 1.6%1.9%1.1%1.4%1.7%1.1%
Card Member Receivables:             
 U.S. Consumer Services 1.3%1.5%1.2%1.4%1.6%1.4%
 International Consumer and Network Services 2.1%2.2%1.4%2.1%2.3%1.5%
 Global Small Business Services 1.6%1.8%1.4%1.6%1.8%1.5%
               
       2017 2016 
       Net Loss Ratio as a % of Charge Volume 90+ Days Past Billing as a % of Receivables Net Loss Ratio as a % of Charge Volume 90+ Days Past Billing as a % of Receivables 
Card Member Receivables:         
  Global Corporate Payments0.10%0.9%0.09%0.8%
(a)The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented.

Impaired Card Member Loans and Receivables
Impaired Card Member loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. In certain cases, these Card Member loans and receivables are included in one of the Company’s various Troubled Debt Restructuring (TDR) modification programs.

10
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following tables provide additional information with respect to the Company’s impaired Card Member loans and receivables. Impaired Card Member receivables are not significant for International Consumer and Network Services (ICNS) as of September 30, 2017 and December 31, 2016; therefore, this segment’s receivables are not included in the following tables.
  As of September 30, 2017 
                      
        
Accounts Classified as a TDR(c)
          
2017 (Millions)
 
Over 90 days Past Due & Accruing Interest(a)
  
Non-Accruals(b)
  
In Program(d)
  
Out of Program(e)
  Total Impaired Balance  Unpaid Principal Balance  Allowance for TDRs 
Card Member Loans:                     
U.S. Consumer Services $206  $158  $162  $131  $657  $593  $48 
International Consumer and Network Services  59   ―   ―   ―   59   58   ― 
Global Commercial Services  37   32   28   26   123   113   9 
Card Member Receivables:                            
U.S. Consumer Services  ―   ―   12   9   21   21   4 
Global Commercial Services  ―   ―   31   16   47   47   8 
Total $302  $190  $233  $182  $907  $832  $69 

  As of December 31, 2016 
                      
        
Accounts Classified as a TDR(c)
          
2016 (Millions)
 
Over 90 days Past Due & Accruing Interest(a)
  
Non-Accruals(b)
  
In Program(d)
  
Out of Program(e)
  Total Impaired Balance  Unpaid Principal Balance  Allowance for TDRs 
Card Member Loans:                     
U.S. Consumer Services $178  $139  $165  $129  $611  $558  $51 
International Consumer and Network Services  52   ―   ―   ―   52   51   ― 
Global Commercial Services  30   30   26   26   112   103   9 
Card Member Receivables:                            
U.S. Consumer Services  ―   ―   11   6   17   17   7 
Global Commercial Services  ―   ―   28   10   38   38   21 
Total $260  $169  $230  $171  $830  $767  $88 
(a)The Company’s policy is generally to accrue interest through the date of write-off (typically 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts presented exclude Card Member loans classified as a TDR.
(b)Non-accrual loans not in modification programs primarily include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest. Amounts presented exclude Card Member loans classified as a TDR.
(c)Accounts classified as a TDR include $15 million and $20 million that are over 90 days past due and accruing interest and $6 million and $11 million that are non-accruals as of September 30, 2017 and December 31, 2016, respectively.
(d)In Program TDRs include Card Member accounts that are currently enrolled in a modification program.
(e)Out of Program TDRs include $139 million and $132 million of Card Member accounts that have successfully completed a modification program and $43 million and $39 million of Card Member accounts that were not in compliance with the terms of the modification programs as of September 30, 2017 and December 31, 2016, respectively.

11
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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


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

  Three Months Ended  Nine Months Ended 
  September 30, 2017  September 30, 2017 
  
Number of Accounts (in thousands)
 
Outstanding Balances
($ in millions)(a)
  
Average Interest Rate Reduction
(% Points)
  
Average Payment Term Extension (# of Months)
  
Number of Accounts (in thousands)
 
Outstanding Balances
($ in millions)(a)
  
Average Interest Rate Reduction (% Points)
  
Average Payment Term Extension (# of Months)
 
Troubled Debt Restructurings:                        
Card Member Loans  8  $57   9  (b)   23  $160   10  (b) 
Card Member Receivables  1   18  (c)   31   4   64  (c)   27 
Total  9  $75           27  $224         
                                 
  Three Months Ended  Nine Months Ended 
  September 30, 2016  September 30, 2016 
  
Number of Accounts (in thousands)
 
Outstanding Balances
($ in millions)(a)
  
Average Interest Rate Reduction
(% Points)
  
Average Payment Term Extension (# of Months)
  
Number of Accounts (in thousands)
 
Outstanding Balances
($ in millions)(a)
  
Average Interest Rate Reduction (% Points)
  
Average Payment Term Extension (# of Months)
 
Troubled Debt Restructurings:                                
Card Member Loans  8  $56   9  (b)   23  $163   10  (b) 
Card Member Receivables  2   29  (c)   19   7   94  (c)   17 
Total  10  $85           30  $257         
(a)Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables.
(b)For Card Member loans, there have been no payment term extensions.
(c)The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.

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



14
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.  Reserves for Losses

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

Changes in Card Member Loans Reserve for Losses

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

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

Card Member Loans Evaluated Individually and Collectively for Impairment
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of September 30, 2017 and December 31, 2016:
(Millions) 2017  2016 
Card Member loans evaluated individually for impairment(a)
 $347  $346 
Related reserves (a)
 $57  $60 
Card Member loans evaluated collectively for impairment(b)
 $67,531  $64,919 
Related reserves (b)
 $1,445  $1,163 
(a)Represents loans modified as a TDR and related reserves.
(b)Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are specific to individual pools of loans, and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment.
15
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes in Card Member Receivables Reserve for Losses
The following table presents changes in the Card Member receivables reserve for losses for the nine months ended September 30:

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

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


5.  Investment Securities

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

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

  2017  2016 
     Gross  Gross  Estimated     Gross  Gross  Estimated 
     Unrealized  Unrealized  Fair     Unrealized  Unrealized  Fair 
Description of Securities (Millions)
 Cost  Gains  Losses  Value  Cost  Gains  Losses  Value 
State and municipal obligations $1,412  $17  $(2) $1,427  $2,019  $28  $(11) $2,036 
U.S. Government agency obligations  12   ―   ―   12   12   ―   ―   12 
U.S. Government treasury obligations  1,115   8   (5)  1,118   465   3   (8)  460 
Corporate debt securities  28   ―   ―   28   19   ―   ―   19 
Mortgage-backed securities (a)
  74   2   ―   76   92   3   ―   95 
Equity securities  1   ―   ―   1   1   ―   ―   1 
Foreign government bonds and obligations  539   1   ―   540   486   1   (1)  486 
Other (b)
  50   ―   (2)  48   50   ―   (2)  48 
Total $3,231  $28  $(9) $3,250  $3,144  $35  $(22) $3,157 
(a)Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
(b)Other comprises investments in various mutual funds.
16
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information about the Company’s investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017 and December 31, 2016:
  2017  2016 
  Less than 12 months  12 months or more  Less than 12 months  12 months or more 
     Gross     Gross     Gross     Gross 
Description of Securities (Millions)
 Estimated Fair Value  Unrealized Losses  Estimated Fair Value  Unrealized Losses  Estimated Fair Value  Unrealized Losses  Estimated Fair Value  Unrealized Losses 
State and municipal obligations $101  $(2) $―  $―  $153  $(11) $―  $― 
U.S. Government treasury obligations  366   (5)  ―   ―   298   (8)  ―   ― 
Other  ―   ―   32   (2)  ―   ―   32   (2)
Total $467  $(7) $32  $(2) $451  $(19) $32  $(2)

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

  Less than 12 months  12 months or more  Total 
Ratio of Fair Value to       Gross        Gross        Gross 
Amortized Cost Number of  Estimated  Unrealized  Number of  Estimated  Unrealized  Number of  Estimated  Unrealized 
(Dollars in millions) Securities  Fair Value  Losses  Securities  Fair Value  Losses  Securities  Fair Value  Losses 
2017:                           
90%–100%  22  $467  $(7)  6  $32  $(2)  28  $499  $(9)
Total as of September 30, 2017  22  $467  $(7)  6  $32  $(2)  28  $499  $(9)
                                     
2016:                                    
90%–100%  33  $411  $(13)  6  $32  $(2)  39  $443  $(15)
Less than 90%  4   40   (6)  ―   ―   ―   4   40   (6)
Total as of December 31, 2016  37  $451  $(19)  6  $32  $(2)  43  $483  $(21)

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

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

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

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

The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.
17
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.  Asset Securitizations

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

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

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

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

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

Under the respective terms of the Lending Trust and the Charge Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each Trust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of debt securities. During the nine months ended September 30, 2017 and the year ended December 31, 2016, no such triggering events occurred.
18
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.  Customer Deposits

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

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

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

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

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

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

19
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.  Contingencies

In the ordinary course of business, the Company and its subsidiaries are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings). The Company discloses its material legal proceedings under Part II, Item 1. “Legal Proceedings” in this Quarterly Report on Form 10-Q and Part I, Item 3. “Legal Proceedings” in the Annual Report.


In addition to the matters disclosed under “Legal Proceedings,” the Company is being challenged in a number of countries regarding its application of value-added taxes (VAT) to certain of its international transactions, which are in various stages of audit, or are being contested in legal actions (collectively, VAT matters). While the Company believes it has complied with all applicable tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that the Company owes additional VAT. In certain jurisdictions where the Company is contesting the assessments, it was required to pay the VAT assessments prior to contesting.

The Company’s legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members. These legal proceedings involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, application of tax laws, antitrust and consumer 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.

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.

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9.   Derivatives and Hedging Activities

The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest 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.

In relation to the Company’s credit risk, under the terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on its assessment of the credit risk of the Company’s derivative counterparties as of September 30, 2017 and December 31, 2016, no credit risk adjustment to the derivative portfolio was required.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 2017 and December 31, 2016:

  Other Assets Fair Value  Other Liabilities Fair Value 
(Millions) 2017  2016  2017  2016 
Derivatives designated as hedging instruments:            
Fair value hedges - Interest rate contracts(a)
 $26  $111  $15  $69 
Net investment hedges - Foreign exchange contracts  41   347   210   35 
Total derivatives designated as hedging instruments  67   458   225   104 
Derivatives not designated as hedging instruments:                
Foreign exchange contracts, including certain embedded derivatives(b)
  168   308   102   176 
Total derivatives, gross  235   766   327   280 
Less: Cash collateral netting(c)(d)
  (17)  (54)  (8)  (68)
Derivative asset and derivative liability netting(e)
  (92)  (157)  (92)  (157)
Total derivatives, net(f)
 $126  $555  $227  $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. Accordingly, the amounts disclosed for 2017 related to centrally cleared derivatives are based on gross assets of $11 million and liabilities of $87 million net of variation margin of $11 million and $79 million, respectively. 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 September 30, 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 $152 million and $169 million as of September 30, 2017 and December 31, 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.
(f)The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and net derivative liabilities are presented within Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets.
A majority of the Company’s derivative assets and liabilities as of September 30, 2017 and December 31, 2016 are subject to master netting agreements with its derivative counterparties. The Company has no derivative amounts subject to enforceable master netting arrangements that are not offset on the Consolidated Balance Sheets.
Fair Value Hedges
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 $20.7 billion and $17.7 billion of fixed-rate debt obligations designated in fair value hedging relationships as of September 30, 2017 and December 31, 2016, respectively.
21
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the gains (losses) recognized in Other expenses associated with the Company’s fair value hedges for the three and nine months ended September 30:

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(Millions)2017 2016 2017 2016 
Interest rate derivative contracts $(31) $(123) $(100) $103 
Hedged items  39   134   64   (90)
Net hedge ineffectiveness $8  $11  $(36) $13 

The Company also recognized a net reduction in interest expense on long-term debt of $24 million and $55 million for the three months ended September 30, 2017 and 2016, respectively, and $105 million and $173 million for the nine months ended September 30, 2017 and 2016, respectively, primarily related to the net settlements (interest accruals) on the Company’s interest rate derivatives designated as fair value hedges.

Net Investment Hedges

The effective portion of the gain or loss on net investment hedges, net of taxes, recorded in AOCI as part of the cumulative translation adjustment, were losses of $184 million and $18 million for the three months ended September 30, 2017 and 2016, respectively, and a loss of $515 million and a gain of $25 million for the nine months ended September 30, 2017 and 2016, respectively, with any ineffective portion recognized in Other expenses during the period. The net hedge ineffectiveness recognized was nil for both the three and nine months ended September 30, 2017 and 2016. Other amounts related to foreign exchange contracts reclassified from AOCI into Other expenses included a loss of $18 million and nil for the three months ended September 30, 2017 and 2016, respectively, and a loss of $18 million and a gain of $5 million for the nine months ended September 30, 2017 and 2016, respectively.

Derivatives Not Designated as Hedges

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 net losses of $15 million and $4 million for the three months ended September 30, 2017 and 2016, respectively, and net losses of $36 million and $12 million for the nine months ended September 30, 2017 and 2016, respectively, and are recognized in Other expenses.
The changes in the fair value of an embedded derivative resulted in gains of $1 million for both the three months ended September 30, 2017 and 2016, and a loss of $1 million and a gain of $7 million for the nine months ended September 30, 2017 and 2016, respectively, which are recognized in Card Member services and other expense.



10. Fair Values


Financial Assets and Financial Liabilities Carried at Fair Value

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s fair value hierarchy, as of September 30, 2017 and December 31, 2016:

  2017  2016 
(Millions) Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
Assets:                        
Investment securities:(a)
                        
Equity securities and other $49  $1  $48  $―  $49  $1  $48  $― 
Debt securities  3,201   1,118   2,083   ―   3,108   460   2,648   ― 
Derivatives(a)
  235   ―   235   ―   765   ―   765   ― 
Total Assets  3,485   1,119   2,366   ―   3,922   461   3,461   ― 
Liabilities:                                
Derivatives(a)
  327   ―   327   ―   280   ―   280   ― 
Total Liabilities $327  $―  $327  $―  $280  $―  $280  $― 
(a)Refer to Note 5 for the fair values of investment securities and to Note 9 for the fair values of derivative assets and liabilities, on a further disaggregated basis.

22
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial 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 September 30, 2017 and December 31, 2016. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of September 30, 2017 and December 31, 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.
  Carrying  Corresponding Fair Value Amount 
2017 (Billions)
 Value  Total  Level 1  Level 2  Level 3 
Financial Assets:               
Financial assets for which carrying values equal or approximate fair value               
Cash and cash equivalents(a)
 $26  $26  $24  $2  $― 
Other financial assets(b)
  56   56   ―   56   ― 
Financial assets carried at other than fair value                    
Loans, net(c)
  69   69   ―   ―   69 
                     
Financial Liabilities:                    
Financial liabilities for which carrying values equal or approximate fair value  69   69   ―   69   ― 
Financial liabilities carried at other than fair value                    
Certificates of deposit(d)
  18   18   ―   18   ― 
Long-term debt(c)
 $49  $50  $―  $50  $― 
                     
  Carrying  Corresponding Fair Value Amount 
2016 (Billions)
 Value  Total  Level 1  Level 2  Level 3 
Financial Assets:                    
Financial assets for which carrying values equal or approximate fair value                    
Cash and cash equivalents(a)
 $25  $25  $22  $3  $― 
Other financial assets(b)
  51   51   ―   51   ― 
Financial assets carried at other than fair value                    
Loans, net(c)
  65   66   ―   ―   66 
                     
Financial Liabilities:                    
Financial liabilities for which carrying values equal or approximate fair value  67   67   ―   67   ― 
Financial liabilities carried at other than fair value                    
Certificates of deposit(d)
  12   12   ―   12   ― 
Long-term debt(c)
 $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 $7.8 billion and $8.8 billion held by a consolidated VIE as of September 30, 2017 and December 31, 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 $24.1 billion and $26.0 billion as of September 30, 2017 and December 31, 2016, respectively, and the fair values of long-term debt were $15.1 billion and $15.2 billion as of September 30, 2017 and December 31, 2016, respectively.
(d)Presented as a component of customer deposits on the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements
The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the nine months ended September 30, 2017 and during the year ended December 31, 2016, the Company did not have any material assets that were measured at fair value due to impairment.
23
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Guarantees

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

As of September 30, 2017, the maximum potential undiscounted future payments and related liability resulting from these arrangements were $1 billion and $54 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.




12. Changes In Accumulated Other Comprehensive Income

AOCI 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 and nine months ended September 30, 2017 and 2016 were as follows:

Three Months Ended September 30, 2017 (Millions), net of tax
Net Unrealized Gains (Losses) on Investment Securities Foreign Currency Translation Adjustments Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains Accumulated Other Comprehensive (Loss) Income 
Balances as of June 30, 2017 $13  $(1,913) $(528) $(2,428)
Net unrealized losses  (2)  ―   ―   (2)
Decrease due to amounts reclassified into earnings  ―   (1)  ―   (1)
Net translation gain of investments in foreign operations  ―   292   ―   292 
Net losses related to hedges of investments in foreign operations  ―   (184)  ―   (184)
Pension and other postretirement benefit  ―   ―   7   7 
Net change in accumulated other comprehensive loss  (2)  107   7   112 
Balances as of September 30, 2017 $11  $(1,806) $(521) $(2,316)
                 
Nine Months Ended September 30, 2017 (Millions), net of tax
Net Unrealized Gains (Losses) on Investment Securities Foreign Currency Translation Adjustments Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains Accumulated Other Comprehensive (Loss) Income 
Balances as of December 31, 2016 $7  $(2,262) $(529) $(2,784)
Net unrealized gains  4   ―   ―   4 
Decrease due to amounts reclassified into earnings  ―   (1)  ―   (1)
Net translation gain of investments in foreign operations(a)
  ―   972   ―   972 
Net losses related to hedges of investments in foreign operations  ―   (515)  ―   (515)
Pension and other postretirement benefit  ―   ―   8   8 
Net change in accumulated other comprehensive loss  4   456   8   468 
Balances as of September 30, 2017 $11  $(1,806) $(521) $(2,316)

(a)    Includes $289 million of recognized tax benefits (Refer to Note 14).



24
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended September 30, 2016 (Millions), net of tax
Net Unrealized Gains (Losses) on Investment Securities Foreign Currency Translation Adjustments Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains Accumulated Other Comprehensive (Loss) Income 
Balances as of June 30, 2016 $65  $(2,170) $(516) $(2,621)
Net unrealized losses  (14)  ―   ―   (14)
Decrease due to amounts reclassified into earnings  (1)  ―   ―   (1)
Net translation gain of investments in foreign operations  ―   29   ―   29 
Net losses related to hedges of investments in foreign operations  ―   (18)  ―   (18)
Pension and other postretirement benefit  ―   ―   7   7 
Net change in accumulated other comprehensive loss  (15)  11   7   3 
Balances as of September 30, 2016 $50  $(2,159) $(509) $(2,618)
                 
Nine Months Ended September 30, 2016 (Millions), net of tax
Net Unrealized Gains (Losses) on Investment Securities Foreign Currency Translation Adjustments Net Unrealized Pension and Other Postretirement Benefit (Losses) Gains Accumulated Other Comprehensive (Loss) Income 
Balances as of December 31, 2015 $58  $(2,044) $(548) $(2,534)
Net unrealized losses  (5)  ―   ―   (5)
Decrease due to amounts reclassified into earnings  (3)  ―   ―   (3)
Net translation loss of investments in foreign operations  ―   (140)  ―   (140)
Net gains related to hedges of investments in foreign operations  ―   25   ―   25 
Pension and other postretirement benefit  ―   ―   39   39 
Net change in accumulated other comprehensive loss  (8)  (115)  39   (84)
Balances as of September 30, 2016 $50  $(2,159) $(509) $(2,618)

The following table shows the tax impact for the three and nine months ended September 30 for the changes in each component of AOCI presented above:

 Tax (benefit) expense 
  Three Months Ended September 30, 
Nine Months Ended
September 30,
 
(Millions)2017 2016 2017 2016 
Investment securities $(1) $(9) $2  $(7)
Foreign currency translation adjustments(a)
  (25)  (6)  (204)  30 
Net investment hedges  (99)  (18)  (306)  7 
Pension and other postretirement benefits  (2)  7   (10)  36 
Total tax impact $(127) $(26) $(518) $66 

(a)    Includes $289 million of tax benefits recognized in the nine months ended September 30, 2017 (Refer to Note 14).


25
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the effects of reclassifications out of AOCI and into the Consolidated Statements of Income:

   Gains (losses) recognized in earnings 
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
   Amount  Amount 
Description (Millions)
Income Statement Line Item2017 2016 2017 2016 
Available-for-sale securities             
Reclassifications for previously unrealized net gains on investment securitiesOther non-interest revenues $―  $1  $―  $5 
Related income tax expenseIncome tax provision  ―   ―   ―   (2)
Reclassification to net income related to available-for-sale securities   ―   1   ―   3 
Foreign currency translation adjustments                 
Reclassification of realized losses on translation adjustments and related net investments hedgesOther expenses  (6)  ―   (6)  ― 
Related income tax benefitIncome tax provision  7   ―   7   ― 
Reclassification to net income related to  foreign currency translation adjustments   1   ―   1   ― 
Total  $1  $1  $1  $3 



13.  Non-Interest Revenue and Expense Detail

The following is a detail of Other fees and commissions:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Millions) 2017  2016  2017  2016 
Delinquency fees $221  $183  $653  $575 
Foreign currency conversion fee revenue  219   207   630   610 
Loyalty coalition-related fees  116   106   332   304 
Travel commissions and fees  93   89   267   256 
Other(a)
  118   109   350   331 
Total Other fees and commissions $767  $694  $2,232  $2,076 
(a)Other primarily includes service fees and fees related to Membership Rewards programs.
The following is a detail of Other revenues:
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
(Millions)2017 2016 2017 2016 
Global Network Services partner revenues $150  $156  $456  $498 
Other(a)
  286   327   828   1,016 
Total Other revenues $436  $483  $1,284  $1,514 
(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, revenues related to the GBT JV transition services agreement, Prepaid card and Travelers Cheque-related revenues, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.
26
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a detail of Other expenses:

 Three Months Ended Nine Months Ended 
 September 30, September 30, 
(Millions)2017 2016 2017 2016 
Occupancy and equipment $568  $429  $1,527  $1,332 
Professional services  501   630   1,534   1,862 
Gain on sale of HFS portfolios(a)
  ―   ―   ―   (1,218)
Other(b)
  429   439   1,220   1,412 
Total Other expenses $1,498  $1,498  $4,281  $3,388 
(a)Refer to Note 2 for additional information.
(b)Other expense primarily includes general operating expenses, Card and merchant-related fraud losses, communication expenses, certain loyalty coalition-related expenses, foreign currency-related gains and losses and insurance costs. In addition, for the nine months ended September 30, 2016, Other expenses includes the valuation allowance adjustment associated with loans and receivables HFS.


14.  Income Taxes

The effective tax rate was 25.8 percent and 34.2 percent for the three months ended September 30, 2017 and 2016, respectively, and 29.7 percent and 33.9 percent for the nine months ended September 30, 2017 and 2016, respectively. The changes in tax rates in both periods primarily reflected the realization of certain foreign tax credits and the geographic mix of business, and additionally in the nine month period, the resolution of certain prior years’ tax items.

The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. 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 Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $307 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 $307 million of unrecognized tax benefits, approximately $257 million relates to amounts that, if recognized, would impact the effective tax rate in a future period. During the nine months ended September 30, 2017, the Company’s unrecognized tax benefits decreased by $253 million. The decrease was primarily due to the resolution with the IRS of an uncertain tax position in January 2017, which resulted in the recognition of $289 million in shareholders’ equity, specifically within AOCI.


AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15.  Earnings Per Common Share (EPS)

The computations of basic and diluted EPS were as follows:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Millions, except per share amounts) 2017  2016  2017  2016 
Numerator:            
Basic and diluted:            
Net income $1,356  $1,142  $3,933  $4,583 
Preferred dividends  (21)  (21)  (61)  (61)
Net income available to common shareholders  1,335   1,121   3,872   4,522 
Earnings allocated to participating share awards(a)
  (11)  (9)  (32)  (37)
Net income attributable to common shareholders $1,324  $1,112  $3,840  $4,485 
Denominator: (a)
                
Basic: Weighted-average common stock  878   920   889   940 
Add: Weighted-average stock options (b)
  3   3   3   3 
Diluted  881   923   892   943 
Basic EPS $1.51  $1.21  $4.32  $4.77 
Diluted EPS $1.50  $1.20  $4.30  $4.76 
(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 0.5 million and 3.2 million of options for the three months ended September 30, 2017 and 2016, respectively, and 0.8 million and 2.2 million of options for the nine months ended September 30, 2017 and 2016, respectively, because inclusion of the options would have been anti-dilutive.

28
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

16.  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 Global Merchant Services (GMS). Corporate functions and certain other businesses and operations are included in Corporate & Other.

The following table presents certain selected financial information for the Company’s reportable operating segments and Corporate & Other:

                   
Three Months Ended September 30, 2017
(Millions, except where indicated)
 USCS  ICNS  GCS  GMS  
Corporate & Other(a)
  Consolidated 
Non-interest revenues $1,976  $1,277  $2,360  $1,088  $60  $6,761 
Interest income  1,509   271   351   ―   111   2,242 
Interest expense  202   65   144   (65)  221   567 
Total revenues net of interest expense  3,283   1,483   2,567   1,153   (50)  8,436 
Net income (loss) $475  $286  $529  $368  $(302) $1,356 
Total assets (billions)
 $88  $39  $53  $27  $(38) $169 
Total equity (billions)
 $7  $3  $7  $3  $1  $21 
                         
                         
Nine Months Ended September 30, 2017
(Millions, except where indicated)
 USCS  ICNS  GCS  GMS  
Corporate & Other(a)
  Consolidated 
Non-interest revenues $5,832  $3,719  $6,999  $3,191  $186  $19,927 
Interest income  4,186   752   1,004   1   294   6,237 
Interest expense  519   178   382   (188)  641   1,532 
Total revenues net of interest expense  9,499   4,293   7,621   3,380   (161)  24,632 
Net income (loss) $1,384  $713  $1,447  $1,161  $(772) $3,933 
Total assets (billions)
 $88  $39  $53  $27  $(38) $169 
Total equity (billions)
 $7  $3  $7  $3  $1  $21 
                         
                         
Three Months Ended September 30, 2016
(Millions, except where indicated)
 USCS  ICNS  GCS  GMS  
Corporate & Other(a)
  Consolidated 
Non-interest revenues $1,849  $1,205  $2,240  $1,044  $102  $6,440 
Interest income  1,178   231   282   ―   73   1,764 
Interest expense  125   55   98   (60)  212   430 
Total revenues net of interest expense  2,902   1,381   2,424   1,104   (37)  7,774 
Net income (loss) $401  $155  $466  $359  $(239) $1,142 
Total assets (billions)
 $79  $34  $47  $23  $(30) $153 
Total equity (billions)
 $8  $3  $7  $2  $1  $21 
                         
                         
Nine Months Ended September 30, 2016
(Millions, except where indicated)
 USCS  ICNS  GCS  GMS  
Corporate & Other(a)
  Consolidated 
Non-interest revenues $5,947  $3,587  $6,710  $3,172  $318  $19,734 
Interest income  3,847   692   913   1   201   5,654 
Interest expense  404   167   297   (180)  603   1,291 
Total revenues net of interest expense  9,390   4,112   7,326   3,353   (84)  24,097 
Net income (loss) $2,162  $571  $1,527  $1,089  $(766) $4,583 
Total assets (billions)
 $79  $34  $47  $23  $(30) $153 
Total equity (billions)
 $8  $3  $7  $2  $1  $21 
(a)Corporate & Other includes adjustments and eliminations for intersegment activity.
29
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Introduction
When we use the terms “American Express,” “the Company,” “we,” “our” or “us,” we meanrefer to American Express Company and its subsidiaries on a consolidated basis, unless we statestated or the context implies otherwise. The use of the term “partner” or “partnering” in this report 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 any third parties. Refer to the “MD&A― Glossary of Selected Terminology” for the definitions of other key terms used in this report.


Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
Business Introduction
We are a global servicesglobally integrated payments 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. We providethat provides our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are chargecredit and credit paymentcharge card products, along with travel and travel-relatedlifestyle related services, offered to consumers and businesses around the world. Our range of products and services includes:


•     ChargeCredit card, creditcharge card and other payment and financing products
•     Network services
•     Merchant acquisition and processing, servicing and settlement, marketing 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-relatedTravel and lifestyle services
•     Stored-value/prepaid products


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 mobile and online applications, affiliate marketing, customer referral programs, third-party vendors and business partners, direct mail, telephone, in-house sales 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).

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 ACH)Automated Clearing House (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, business models and customer relationships to create payment or financing solutions.

The following types of revenue are generated from our various products and services:

•Discount revenue, our largest revenue source, primarily represents fees generally charged tothe amount we earn on transactions occurring at merchants that have entered into a card acceptance agreement with us, or a Global Network Services (GNS) partner or other third-party merchant acquirer, for accepting our cards as payment for goods or services sold;
facilitating transactions between the merchants and Card Members;
•Interest on loans, principally represents interest income earned on outstanding balances;
•Net card fees, represent revenue earned from annual card membership fees, which variesvary based on the type of card and the number of cards for each account;
•Other fees and commissions, primarily represent Card Member delinquency fees, foreign currency conversion fees charged to Card Members, Card Member delinquency fees, loyalty coalition-related fees, service fees earned from merchants, travel commissions and fees, service fees and fees related to our Membership Rewards program;program fees; and
•Other revenue, primarily represents revenues arising from contracts with partners of our Global Network Services (GNS)GNS business (including commissions and signing fees)fees less issuer rate payments), cross-border Card Member spending, insurance premiums earned from Card Members, ancillary merchant-related fees, revenues related to the GBT JV transition services agreement, prepaid card and Travelers Cheque-related revenue and earnings from equity method investments (including the GBT JV).
, insurance premiums earned from Card Members, and prepaid card and Travelers Cheque-related revenue.




Forward-Looking Statements and Non-GAAP Measures
Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the “Cautionary Note Regarding Forward-Looking Statements” section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-Q constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.
1

Table of Contents

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

Business Environment
Businesses and economies around the globe continue to be significantly affected by the COVID-19 pandemic. There continues to be a high degree of uncertainty in terms of the direction of the pandemic and its impact on the economy, how governments will react to changes in the environment, including possible future stimulus programs (or the failure to implement such programs), and developments in political and social conditions.
Our results for the third quarter reflect significant progress against our current priorities of accelerating revenue growth, optimizing investments and resetting the cost base. DuringThroughout the quarter, revenueour colleague base has continued to successfully operate in a mostly remote working environment. To support our customers and earnings performance was strong across our business segments andmerchants, we continued to invest in newoffer financial and other assistance, add product benefits to reflect today’s environment, and provide the high level of customer service they expect and rely on. We continued to see lower voluntary attrition rates on our proprietary products and benefits, maintaining high levels of new card acquisitions and expanding our merchant network.as compared to the last year. In addition, our strong balance sheet position allowedCard Members are recognizing our commitment to service excellence, ranking us to continue to return a significant amount of capital to shareholders through share repurchases and dividends.

Our worldwide billed business increased 8 percent over the prior year, reflecting growth across our diverse customer segments and geographies. Our U.S. and international proprietary card issuing businesses saw a modest acceleration in billings growthnumber one in the current quarter.J.D. Power U.S. Credit Card Satisfaction Study for the tenth time. We also continued to see strong performance from middle marketwork with our strategic partners on initiatives to support our communities and launched our largest ever Shop Small campaign, which included a commitment of over $200 million to help support small merchants.
Reflective of the broader economy and spending trends in our customer segments, our billed business customers, whilefor the quarter was down 19 percent (20 percent on an FX adjusted basis) as compared to the prior year.1 Since mid-April, we have seen steady improvement in our overall billed business. Proprietary billed business, which accounted for 86 percent of our total billings in the third quarter and drives most of our financial results, showed different recovery trends for non-T&E and T&E spend. Non-T&E spend, which has historically accounted for a large and global commercial customersportion of our billed business, recovered to pre-pandemic levels, growing 1 percent as compared to the prior year. T&E spend continued to grow atbe down 69 percent year-over-year, though we saw a more modest pace.  Billedimprovement during the quarter primarily driven by proprietary consumer T&E spend. To the extent we continue to see significant year-over-year declines in billed business, growth for Global Network Services slowed slightly from last quarter as a result of the impact of the evolving regulatory environment in Europe and Australia.

our future results will be materially impacted.
Revenues net of interest expense grewdecreased 20 percent as compared to the prior year, which was an improvement from year-over-year decline in the second quarter, consistent with the trend in billings. Discount revenue, our largest revenue line, decreased 24 percent, which was a larger contraction than the decline in billed business for the quarter due to a decrease in the average discount rate. The average discount rate decrease was driven by a shift in spend mix to non-T&E categories, although the erosion in the third quarter was less than the second quarter due to the modest improvement in T&E spend. We continued to see decreases in Other fees and commissions and Other revenues, primarily due to declines in travel-related revenues. Card fee revenues continued to show strong year-over-year growth, in billed businessas such revenues are slower to react to economic shifts since they are recognized over a twelve-month period and an increase inCard Member retention remained high; however, net card fee growth has decelerated as we slowed new card acquisitions over the last two quarters while managing through the peak of uncertainty during this crisis. Net interest income.  Our net interest yield increasedincome declined by 15 percent year-over-year, primarily related to a shift in mix towards non-cobrand lending products that generally attract more revolving loan balances, adriven by lower percentage of totalaverage loans at introductoryand lower benchmark interest rates, specific pricing actions and a benefit from increases in benchmark interest rates. We expect thepartially offset by higher net interest yield to stabilize over time and, as a result, we expect the growth in net interest income to moderate.yield.

Card Member loan and receivables growth was strong year-over-year, as we continue to expand our relationships with existing customers and acquire new Card Members. Provisions for losses increased asAs a result of higherthe spend-centric nature of our business model, Card Member loans and receivables expected increases in delinquenciesdeclined 17 percent and net write-off rates, and a small reserve build related28 percent year-over-year, respectively, due to recent hurricanes. The increases in the delinquency and net write-off rates werelower billed business volumes. Provisions for credit losses decreased, primarily due to a modest reserve release and lower net write-offs. The reserve release reflected improved credit performance and lower loan volumes, partially offset by a more cautious view of the seasoningglobal macroeconomic outlook due to continuing high levels of recent loan vintages anduncertainty regarding the pace of a shiftrecovery in mix towards non-cobrand lending products,the economy.
1The 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 period apply to the corresponding prior year period against which have higher write-off rates. We expect, as a resultsuch results are being compared).


2



SpendingThe balance in our longer-term financial relief programs, which are reported as troubled debt restructurings, grew to approximately $3.1 billion of loans and receivables as of September 30, 2020. See Note 2 to the “Consolidated Financial Statements” for further information on troubled debt restructurings. In addition, as of September 30, 2020, we had $1.2 billion of delinquent loans and receivables, including relevant financial relief program balances, which represented a sequential improvement in delinquencies compared to the second quarter. Our short-term Customer Pandemic Relief programs are no longer widely available, with negligible balances remaining in the programs as of September 30, 2020.
Card Member engagement (the aggregate of rewards, Card Member services and business development expenses are generally correlated to billings or are variable based on usage and were lower this quarter due to the decline in billing volumes and lower usage of travel-related benefits. During the quarter, we remained focused on controlling operating expenses, while increasing marketing and promotion expenses) increased year-over-year and primarily reflected the recentinvestments in initiatives to support our customers, such as enhancements that we made to rewards on our U.S. Platinum products, continued strong growth in our Delta cobrand portfolio and higher levels of engagement invalue propositions for many of our premium services. Marketingcard products and promotion expenses decreased, asour largest ever Shop Small campaign. Looking ahead, we realized efficiencies in our marketing spend. Year-over-year operating expenses were flat. In the third quarter of 2017, we incurred impairment and other charges relatedare beginning to our US loyalty coalition and US prepaid businesses. Excluding these charges and a restructuring charge in the prior year, adjusted operating expenses decreased year-over-year, reflecting progress against our cost reduction initiatives.

Our effective tax rateplace greater emphasis on selectively investing for the long term, including through marketing and operating expenses.
Throughout the year, our liquidity levels remained high, and we also continued to display a strong capital position with capital ratios that are well above our targets and regulatory requirements. These robust capital and liquidity levels provide us with significant flexibility to maintain the strength of our balance sheet through this uncertain period. We also intend to maintain our quarterly dividend for the fourth quarter was 26 percent, down from 34 percent a year ago, primarily duein line with prior quarters, subject to the realization of certain foreign tax credits in the current year and a continuing shift in the geographic mix of earnings. Going forward, we estimate our ongoing tax rate will be approximately 32%, although the effective tax rate in any given period can be further impactedapproval by discrete tax items as we saw in the current quarter.

Our third quarter results continue to reflect the diverse sources of growth across our business segments and geographies.  The momentum seen in our results throughout 2017 reflects the investments we have made in a variety of growth opportunities over the last several years. Although we have 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.

On October 18, 2017, we announced that the Board of Directors appointed Stephen J. Squeri Chief Executive OfficerDirectors.
Although the external environment remains uncertain in the near term, we are confident in how we are managing the company for the long term. The investments we are making set a foundation to rebuild our growth momentum and return to pre-pandemic levels of American Express Companyearnings and elected him Chairman of the Board, each effective February 1, 2018.  Mr. Squeri succeeds Kenneth I. Chenault, who will retire as Chairman and Chief Executive Officer on that date. Mr. Squeri joined American Express in 1985 and in his current role serves as Vice Chairman. See Part II, Item 5. “Other Information” for further detail.

financial performance.
See “Certain legislative, regulatoryLegislative, Regulatory and other developments” in “Other Matters”Other Developments” and "Risk Factors" for information on legislativeadditional impacts of the COVID-19 pandemic and regulatory changesrelated containment efforts as well as other matters that could have a material adverse effect on our results of operations and financial condition.

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32



CRITICAL ACCOUNTING ESTIMATES
Please see the "Critical Accounting Estimates" section of our Annual Report on Form 10-K for the year ended December 31, 2019 for a full description of all of our critical accounting estimates. The critical accounting estimate related to Reserves for Card Member Credit Losses presented below has been updated to reflect the adoption of the Current Expected Credit Loss (CECL) methodology.
Reserves for Card Member Credit Losses
Reserves for Card Member credit losses represent our best estimate of the expected credit losses in our outstanding portfolio of Card Member loans and receivables as of the balance sheet date. The CECL methodology, which became effective January 1, 2020, requires us to estimate lifetime expected credit losses by incorporating historical loss experience and current and future economic conditions over a reasonable and supportable period (R&S Period) beyond the balance sheet date.

In estimating expected credit losses, we use a combination of statistically based models and analysis of the results produced by these models. These quantitative and qualitative components entail a significant amount of judgment. The primary areas of judgment used in measuring the quantitative components of our reserves relate to the determination of the appropriate R&S Period, the modeling of the probability of and exposure at default, and the methodology to incorporate current and future economic conditions. We use these models and assumptions, combined with historical loss experience, to calculate the reserve rates that are applied to the outstanding loan or receivable balances to produce our reserves for expected credit losses. Beyond the R&S Period, we estimate expected credit losses using our historical loss experience. The qualitative component is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, we consider certain external and internal factors, including emerging portfolio characteristics and trends, which consequentially may increase or decrease the reserves for credit losses on Card Member loans and receivables.

The R&S Period, which is approximately 3 years, represents the maximum time-period beyond the balance sheet date over which we can reasonably estimate expected credit losses, using all available portfolio information, current economic conditions and forecasts of future economic conditions. Card Member loan products do not have a contractual term and balances can revolve if minimum required payments are made, causing some balances to remain outstanding beyond the R&S Period. Card Member receivable products are contractually required to be paid in full; therefore, we have assumed the balances will be either paid or written-off within the R&S Period.

Within the R&S Period, our models use past loss experience and current and future economic conditions to estimate the probability of default, exposure at default and expected recoveries to estimate net losses at default. A significant area of judgment relates to how we apply future Card Member payments to the reporting period balances when determining the exposure at default. The nature of revolving loan products inherently includes a relationship between future payments and spend behavior, which creates complexity in the application of how future payments are either partially or entirely attributable to the existing balance at the end of the reporting period. Using historical customer behavior and other factors, we have assumed that future payments are first allocated to interest and fees associated with the reporting period balance and future spend. We then allocate a portion of the payment to the estimated higher minimum payment amount due because of any future spend. Any remaining portion of the future payment would then be allocated to the remaining balance.

CECL requires that the R&S Period include an assumption about current and future economic conditions. We incorporate multiple macroeconomic scenarios obtained from an independent third party. The estimated credit losses calculated from each macroeconomic scenario are reviewed by management and are weighted to reflect management's judgment about uncertainty around the scenarios. These macroeconomic scenarios contain certain variables, including unemployment rates and real gross domestic product (GDP), that are significant to our models.

4


Macroeconomic Sensitivity
To demonstrate the sensitivity of estimated credit losses to the macroeconomic scenarios, we compared our modeled estimate under a baseline scenario to our modeled estimate under a pessimistic downside scenario. For every 10 percentage points change in weighting from the baseline scenario to the pessimistic downside scenario, the estimated credit losses increased by approximately $240 million.
The modeled estimates under these scenarios were influenced by the duration, severity and timing of changes in economic variables within each scenario and these macroeconomic scenarios, under different conditions or using different assumptions, could result in significantly different estimated credit losses. It is difficult to estimate how potential changes in specific factors might affect the estimated credit losses, and current results may not be indicative of the potential future impact of macroeconomic forecast changes.
In addition, this sensitivity analysis relates only to the modeled credit loss estimates under two scenarios without considering management’s judgment on the relative weighting for those and other scenarios, including the weight that has been placed on downside scenarios at the balance sheet date, or any potential changes in other adjustments to the quantitative calculation or the impact of management judgment for qualitative factors, which may have a positive or negative effect on the results. Thus, the results of this sensitivity analysis are hypothetical and are not intended to estimate or reflect our expectations of any changes in the overall reserves for credit losses due to changes in the macroeconomic environment.
The following table reflects the range of key variables in the macroeconomic scenarios utilized for the computation of Reserves for credit losses:
September 30, 2020June 30, 2020
U.S. Unemployment Rate
Third quarter of 202010% - 11%8% - 10%
Fourth quarter of 202010% - 12%9% - 11%
Fourth quarter of 20218% - 13%9% - 11%
U.S. GDP Growth (Contraction) (a)
Third quarter of 202023% - 8%16% - 10%
Fourth quarter of 20203% - (6%)0.6% - (4%)
Fourth quarter of 20216% - 3%8% - 7%
(a)Real GDP quarter over quarter percentage change seasonally adjusted to annualized rates.
Refer to the "Business Environment" and Table 3 in MD&A and Note 1 and Note 3 to the "Consolidated Financial Statements" for a further description of the impact of CECL, both at implementation and for the three and nine months ended September 30, 2020.
The process of estimating these reserves requires a high degree of judgment. To the extent our expected credit loss models are not indicative of future performance, actual losses could differ significantly from our judgments and expectations, resulting in either higher or lower future provisions for credit losses in any period.
5


Results of Operations
Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms and related information appearing within this section.
The discussions in both the “Consolidated Results of Operations” and “Business Segment Results of Operations” provide commentary on the variances for the three and nine months ended September 30, 2020 compared to the same periods in the prior year, as presented in the accompanying tables. These discussions should be read in conjunction with the discussion under “Business Environment,” which contains further information on the COVID-19 pandemic and the related impacts on our results.
As a result of the adoption of CECL on January 1, 2020, there is a lack of comparability in both the reserves and provisions for credit losses for the periods presented. Results for reporting periods beginning after January 1, 2020 are presented using the CECL methodology, while comparative information continues to be reported in accordance with the incurred loss methodology in effect for prior periods. Refer to Note 3 to the "Consolidated Financial Statements" for further information.
Consolidated Results of Operations
Table 1: Summary of Financial Performance
Three Months Ended
September 30,
Change
2020 vs. 2019
Nine Months Ended
September 30,
Change
2020 vs. 2019
(Millions, except percentages and per share amounts)2020201920202019
Total revenues net of interest expense$8,751$10,989$(2,238)(20)%$26,736$32,191$(5,455)(17)%
Provisions for credit losses665879(214)(24)%4,8412,5492,292 90 
Expenses6,7227,844(1,122)(14)19,45723,199(3,742)(16)
Pretax income1,3642,266(902)(40)2,4386,443(4,005)(62)
Income tax provision291511(220)(43)7411,377(636)(46)
Net income1,0731,755(682)(39)1,6975,066(3,369)(67)
Earnings per common share — diluted (a)
$1.30$2.08$(0.78)(38)%$2.01$5.95$(3.94)(66)%
Return on average equity (b)
15.3 %31.5 %15.3 %31.5 %
Effective tax rate21.3 %22.6 %30.4 %21.4 %
(a)Represents net income, less (i) earnings allocated to participating share awards of $7 million and $11 million for the three months ended September 30, 2020 and 2019, respectively, and $10 million and $35 million for the nine months ended September 30, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $16 million and $21 million for the three months ended September 30, 2020 and 2019, respectively, and $65 million and $61 million for the nine months ended September 30, 2020 and 2019, respectively.
(b)Return on average equity (ROE) is computed by dividing (i) one-year period of net income ($3.4 billion and $7.1 billion for September 30, 2020 and 2019, respectively) by (ii) one-year average of total shareholders’ equity ($22.2 billion and $22.5 billion for September 30, 2020 and 2019, respectively).
6


Table 2: Total Revenues Net of Interest Expense Summary
Three Months Ended
September 30,
Change
2020 vs. 2019
Nine Months Ended
September 30,
Change
2020 vs. 2019
(Millions, except percentages)2020201920202019
Discount revenue$4,999 $6,566 $(1,567)(24)%$14,852 $19,338 $(4,486)(23)%
Net card fees1,191 1,033 158 15 3,442 2,965 477 16 
Other fees and commissions478 825 (347)(42)1,647 2,465 (818)(33)
Other209 362 (153)(42)707 1,087 (380)(35)
Total non-interest revenues6,877 8,786 (1,909)(22)20,648 25,855 (5,207)(20)
Total interest income2,324 3,080 (756)(25)7,796 8,999 (1,203)(13)
Total interest expense450 877 (427)(49)1,708 2,663 (955)(36)
Net interest income1,874 2,203 (329)(15)6,088 6,336 (248)(4)
Total revenues net of interest expense$8,751 $10,989 $(2,238)(20)%$26,736 $32,191 $(5,455)(17)%
Total Revenues Net of Interest Expense
Discount revenue decreased for both the three and nine month periods, primarily due to a decrease in worldwide billed business of 19 percent (20 percent on an FX-adjusted basis) and 20 percent (19 percent on an FX-adjusted basis), respectively.2 U.S. billed business decreased 17 percent and 18 percent for the three and nine months, respectively, and non-U.S. billed business decreased 24 percent for both these periods, due to the continued impacts of the COVID-19 pandemic.
Additional billed business highlights for the three month period:
•Worldwide non-T&E billed business increased 1 percent as compared to the prior year, primarily driven by growth in online and card-not-present spending, while T&E billed business continued to experience a significant decline with a decrease of 69 percent as compared to the prior year.
•Proprietary consumer and commercial billed business decreased by 17 percent and 23 percent, respectively, as compared to the prior year.
◦U.S. consumer billed business decreased 16 percent and non-U.S. consumer billed business decreased 21 percent, as compared to the prior year.
◦Small and mid-sized enterprises (SME) billed business decreased 13 percent, while large and global corporate decreased 54 percent, each as compared to the prior year.
See Tables 5, 6 and 7 for more details on billed business performance.
The decrease in discount revenue for both the three and nine month periods was also driven by decreases in the average discount rate primarily due to a shift in spend mix to non-T&E categories. The average discount rate was 2.27 percent and 2.39 percent for the three months ended September 30, 2020 and 2019, respectively, and 2.29 percent and 2.38 percent for the nine months ended September 30, 2020 and 2019, respectively.
Net card fees increased for both the three and nine month periods, primarily driven by increases in our premium card product portfolios. Card fees, which are recognized over a twelve-month period, are slower to react to economic shifts.
Other fees and commissions decreased for both the three and nine month periods, primarily due to the impacts of travel restrictions related to the COVID-19 pandemic, which resulted in lower foreign exchange conversion revenue related to decreased cross-border Card Member spending and lower travel commissions and fees from our consumer travel business, as well as a decline in late fees due to lower delinquencies.
Other revenues decreased for both the three and nine month periods, primarily driven by a net loss in the current year, as compared to net income in the prior year from the GBT JV and lower revenue earned on cross-border Card Member spending due to the impacts of the COVID-19 pandemic, including travel restrictions.
Interest income decreased for both the three and nine month periods, primarily driven by lower average Card Member loan volumes and a reduction in benchmark interest rates.

2Refer to footnote 1 on page 2 for details regarding foreign currency adjusted information.
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Interest expense decreased for both the three and nine month periods, primarily driven by lower interest rates paid on deposits and outstanding debt.
Table 3: Provisions for Credit Losses Summary
Three Months Ended
September 30,
Change
2020 vs. 2019
Nine Months Ended
September 30,
Change
2020 vs. 2019
(Millions, except percentages)2020201920202019
Card Member receivables
Net write-offs$219 $231 $(12)(5)%$776 $657 $119 18%
Reserve (release) build (a)
(102)7 (109)#293 58 235 #
Total117 238 (121)(51)1,069 715 354 50
Card Member loans
Net write-offs523 538 (15)(3)1,750 1,644 106 6 
Reserve build (a)
48 66 (18)(27)1,666 88 1,578 #
Total571 604 (33)(5)3,416 1,732 1,684 97 
Other
Net write-offs - Other loans (b)
27 25 2 880 74 6 8 
Net write-offs - Other receivables (c)
12 10 2 20 20 15 5 33 
Reserve (release) build - Other loans (a)(b)
(53)7 (60)#198 16 182 #
Reserve (release) build - Other receivables (a)(c)
(9)(5)(4)80 58 (3)61 #
Total(23)37 (60)#356 102 254 #
Total provisions for credit losses$665 $879 $(214)(24)%$4,841 $2,549 $2,292 90 %
# Denotes a variance greater than 100 percent
(a)Refer to the “Glossary of Selected Terminology” for a definition of reserve build (release).
(b)Relates to Other loans of $3.5 billion and $4.8 billion, less reserves of $370 million and $152 million, as of September 30, 2020 and December 31, 2019, respectively; and $4.5 billion and $3.8 billion, less reserves of $140 million and $124 million, as of September 30, 2019 and December 31, 2018, respectively.
(c)Relates to Other receivables included in Other assets on the Consolidated Balance Sheets of $2.6 billion and $3.1 billion, less reserves of $85 million and $27 million as of September 30, 2020 and December 31, 2019, respectively; and $2.9 billion and $2.9 billion, less reserves of $22 million and $25 million, as of September 30, 2019 and December 31, 2018, respectively.
Provisions for Credit Losses
Card Member receivables provision for credit losses decreased for the three month period, primarily due to a reserve release in the current year, versus a reserve build in the prior year, driven by improved credit performance.
Card Member loans provision for credit losses decreased for the three month period, primarily due to a lower reserve build and lower net write-offs. The lower reserve build was driven by improved credit performance, partially offset by further deterioration of the global macroeconomic outlook in the current year and greater weight placed on the downside scenario given continued high levels of uncertainty regarding the pace of recovery.
Other loans provision for credit losses decreased for the three month period, primarily due to a reserve release due to lower balances of non-card loans.
Total provisions for credit losses increased in the nine month period, primarily driven by higher reserve builds reflecting the deterioration of the global macroeconomic outlook in the current year, including unemployment and GDP, and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables.

8


Table 4: Expenses Summary
Three Months Ended
September 30,
Change
2020 vs. 2019
Nine Months Ended
September 30,
Change
2020 vs. 2019
(Millions, except percentages)2020201920202019
Marketing and business development$1,822 $1,821 $1 — %$4,889 $5,172 $(283)(5)%
Card Member rewards2,004 2,614 (610)(23)5,745 7,717 (1,972)(26)
Card Member services259 558 (299)(54)923 1,671 (748)(45)
Total marketing, business development, and Card Member rewards and services4,085 4,993 (908)(18)11,557 14,560 (3,003)(21)
Salaries and employee benefits1,408 1,499 (91)(6)4,152 4,288 (136)(3)
Other, net1,229 1,352 (123)(9)3,748 4,351 (603)(14)
Total expenses$6,722 $7,844 $(1,122)(14)%$19,457 $23,199 $(3,742)(16)%
Expenses
In January 2020, we re-launched our Delta cobrand products following the renewal extending our cobrand relationship with Delta Air Lines on March 31, 2019. The contract renewal included new pricing terms, some of which became effective upon contract signing and others that were tied to the product re-launch. These pricing changes, as well as changes in the expense classification of certain benefits associated with the re-launch, resulted in offsetting increases to Marketing and business development and decreases to both Card Member rewards and Card Member services expenses, as compared to the prior year.
Marketing and business development expense was relatively flat for the three month period and decreased for the nine month period. Both periods reflected decreases due to a reduction in proactive marketing for Card Member acquisitions as well as decreases in corporate client incentives and network partner payments due to lower billed business. The decreases in the three month period were offset, and the decreases in the nine month period were partially offset, by incremental investments in enhancements to our Card Member value proposition, as well as expenses related to our Shop Small campaign and the Delta changes described above.
Card Member rewards expense decreased for both the three and nine month periods. Membership Rewards and cash back rewards decreased $375 million and $1,329 million and cobrand rewards decreased $235 million and $643 million for the three and nine month periods, respectively. These decreases were primarily driven by lower billed business as a result of the impacts of the COVID-19 pandemic. In addition, changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the COVID-19 pandemic contributed to a decrease in the Membership Rewards weighted average cost per reward point and expense in both periods. Cobrand rewards expense also reflected the impact of the discontinuation of certain cobrand benefits, as well as the Delta changes described above.
The Membership Rewards URR for current program participants was 96 percent (rounded up) at both September 30, 2020 and 2019.
Card Member services expense decreased for both the three and nine month periods, primarily due to lower usage of travel-related benefits as a result of the impacts of the COVID-19 pandemic, as well as the Delta changes described above.
Salaries and employee benefits expense decreased for both the three and nine month periods. The decrease in the three month period was primarily driven by lower incentive compensation expenses, partially offset by higher deferred compensation expenses. The decrease in the nine month period was primarily driven by lower incentive and deferred compensation expenses, partially offset by increased payroll costs due to higher year-over-year headcount.
Other expenses decreased for both the three and nine month periods, primarily driven by lower professional services expense, lower employee-related operating costs and lower fraud expense. Additionally, the decrease in the nine month period reflected a prior year litigation-related charge and a higher gain in the current year related to our strategic investments portfolio.
9


Income Taxes
The effective tax rate was 21.3 percent and 22.6 percent for the three months ended September 30, 2020 and 2019, respectively, and 30.4 percent and 21.4 percent for the nine months ended September 30, 2020 and 2019, respectively. The decline in the effective tax rate for the three month period primarily reflected changes in the level and geographic mix of pretax income. The increase in the effective tax rate for the nine month period primarily reflected the impact of discrete tax charges in the current period related to the realizability of certain foreign deferred tax assets.
Table 5: Selected Card-Related Statistical Information
As of or for the
Three Months Ended
September 30,
Change
2020
vs.
2019
As of or for the
Nine Months Ended
September 30,
Change
2020
vs.
2019
2020201920202019
Billed business: (billions)
U.S.$170.9$206.2(17)%$503.0$610.9(18)%
Outside the U.S.77.8102.0(24)230.1304.7(24)
Total$248.7$308.2(19)$733.1$915.6(20)
Proprietary$213.6$266.2(20)$631.0$788.9(20)
GNS35.142.0(17)102.1126.7(19)
Total$248.7$308.2(19)$733.1$915.6(20)
Cards-in-force: (millions)
U.S.53.654.3(1)53.654.3(1)
Outside the U.S.57.960.2(4)57.960.2(4)
Total111.5114.5(3)111.5114.5(3)
Proprietary68.869.9(2)68.869.9(2)
GNS42.744.6(4)42.744.6(4)
Total111.5114.5(3)111.5114.5(3)
Basic cards-in-force: (millions)
U.S.42.042.7(2)42.042.7(2)
Outside the U.S.48.850.3(3)48.850.3(3)
Total90.893.0(2)90.893.0(2)
Average proprietary basic Card Member spending: (dollars)
U.S.$4,486$5,366(16)$13,110$15,889(17)
Outside the U.S.2,9894,027(26)8,77612,023(27)
Worldwide Average$4,041$4,964(19)$11,814$14,737(20)
Average discount rate2.27 %2.39 % 2.29 %2.38 % 
Average fee per card (dollars)(a)
$69$5917 %$66$5716 %
(a)Average fee per card is computed based on proprietary net card fees divided by average proprietary total cards-in-force.
10


Table 6: Billed Business-Related Statistical Information
Three Months Ended
September 30, 2020
Year over Year Percentage
Increase (Decrease)
Year over Year Percentage Increase (Decrease) Assuming No Changes in FX Rates (a)
Worldwide
Proprietary
Proprietary consumer(17)%(18)%
Proprietary commercial(23)(23)
Total Proprietary(20)(20)
GNS(17)(16)
Worldwide Total(19)(20)
T&E-related volume (12% of Worldwide Total) (b)
(69)(69)
Non-T&E-related volume (88% of Worldwide Total) (b)
1 1 
Airline-related volume (1% of Worldwide Total) (b)
(92)(92)
U.S.
Proprietary
Proprietary consumer(16)
Proprietary commercial(19)
Total Proprietary(17)
U.S. Total(17)
T&E-related volume (11% of U.S. Total) (b)
(66)
Non-T&E-related volume (89% of U.S. Total) (b)
2 
Airline-related volume (1% of U.S. Total) (b)
(90)
Outside the U.S.
Proprietary
Proprietary consumer(21)(23)
Proprietary commercial(37)(37)
Total Proprietary(27)(29)
Outside the U.S. Total(24)(24)
Japan, Asia Pacific & Australia(15)(17)
Latin America & Canada(37)(31)
Europe, the Middle East & Africa(30)(32)
(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 period apply to the corresponding prior year period against which such results are being compared).
(b)Based on billed business from merchants we acquire or merchants acquired by third parties on our behalf (e.g., OptBlue merchants).
11


Table 7: Billed Business-Related Statistical Information
Nine Months Ended
September 30, 2020
Year over Year Percentage
Increase (Decrease)
Year over Year Percentage Increase (Decrease) Assuming No Changes in FX Rates (a)
Worldwide
Proprietary
Proprietary consumer(19)%(18)%
Proprietary commercial(22)(21)
Total Proprietary(20)(20)
GNS(19)(17)
Worldwide Total(20)(19)
T&E-related volume (16% of Worldwide Total) (b)
(59)(59)
Non-T&E-related volume (84% of Worldwide Total) (b)
(3)(3)
Airline-related volume (3% of Worldwide Total) (b)
(74)(74)
U.S.
Proprietary
Proprietary consumer(17)
Proprietary commercial(19)
Total Proprietary(18)
U.S. Total(18)
T&E-related volume (14% of U.S. Total) (b)
(56)
Non-T&E-related volume (86% of U.S. Total) (b)
(3)
Airline-related volume (2% of U.S. Total) (b)
(72)
Outside the U.S.
Proprietary
Proprietary consumer(23)(22)
Proprietary commercial(32)(31)
Total Proprietary(27)(25)
Outside the U.S. Total(24)(23)
Japan, Asia Pacific & Australia(18)(16)
Latin America & Canada(33)(26)
Europe, the Middle East & Africa(31)(30)
(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 period apply to the corresponding prior year period against which such results are being compared).
(b)Based on billed business from merchants we acquire or merchants acquired by third parties on our behalf (e.g., OptBlue merchants).

12


Table 8: Selected Credit-Related Statistical Information
As of or for the
Three Months Ended
September 30,
Change
2020
vs.
2019
As of or for the
Nine Months Ended
September 30,
Change
2020
vs.
2019
(Millions, except percentages and where indicated)2020201920202019
Worldwide Card Member loans: (a)
Card Member loans: (billions)
U.S.$61.4$73.2(16)%$61.4$73.2(16)
Outside the U.S.8.210.5(22)8.210.5(22)
Total$69.6$83.7(17)$69.6$83.7(17)
Credit loss reserves:
Beginning balance (b)
$5,628$2,168#$4,027$2,13489 
Provisions - principal, interest and fees$571$604(5)3,4161,73297 
Net write-offs — principal less recoveries$(432)$(447)(3)(1,449)(1,367)6 
Net write-offs — interest and fees less recoveries$(91)$(91)— (301)(277)9 
Other (c)
$12$(2)#(5)10#
Ending balance$5,688$2,232#$5,688$2,232#
% of loans8.2 %2.7 %8.2 %2.7 %
% of past due679 %176 %679 %176 %
Average loans (billions)
$69.9$83.3(16)$75.4 $81.9 (8)
Net write-off rate — principal only (d)
2.5 %2.1 %2.6 %2.2 %
Net write-off rate — principal, interest and fees (d)
3.0 2.6 3.1 2.7 
30+ days past due as a % of total1.2 %1.5 %1.2 %1.5 %
Worldwide Card Member receivables: (a)
Card Member receivables: (billions)
U.S.$29.2$39.0(25)$29.2$39.0(25)
Outside the U.S.11.617.6(34)11.6$17.6(34)
Total$40.8$56.6(28)$40.8$56.6(28)
Credit loss reserves:
Beginning balance (b)
$519$616(16)$126$573(78)
Provisions - principal and fees$117$238(51)1,06971550 
Net write-offs - principal and fees less recoveries$(219)$(231)(5)(776)(657)18 
Other (c)
$5$(8)#3(16)#
Ending balance$422$615(31)%$422$615(31)%
% of receivables1.0 %1.1 %1.0 %1.1 %
Net write-off rate — principal and fees (d)(e)
2.2 %1.6 %2.3 %1.6 %
# Denotes a variance greater than 100 percent
(a)Refer to Table 3 for Other loans and Other receivables.
(b)Includes an increase of $1,643 million and decrease of $493 million to the beginning reserve balances for Card Member loans and receivables, respectively, as of January 1, 2020, related to the adoption of the CECL methodology. Refer to Note 3 to the "Consolidated Financial Statements" for further information.
(c)Other includes foreign currency translation adjustments.
(d)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, as our practice is to include uncollectible interest and/or fees as part of our total provision for credit losses, a net write-off rate including principal, interest and/or fees is also presented.
(e)Refer to Tables 11 and 14 for Net write-off rate - principal only and 30+ days past due metrics for Global Consumer Services Group (GCSG) and Global Small Business Services (GSBS) receivables, respectively. A net write-off rate based on principal losses only for Global Corporate Payments (GCP), which reflects global, large and middle market corporate accounts, is not available due to system constraints.
13


Table 9: Net Interest Yield on Average Card Member Loans
Effective for the first quarter of 2020, we made certain enhancements to our methodology related to the allocation of certain funding costs primarily related to our Card Member loan and Card Member receivable portfolios. These enhancements resulted in a change to the interest expense not attributable to our Card Member loan portfolio and therefore also on our Net Interest Yield on Average Card Member loans. Prior period amounts have been revised to conform to the current period presentation.
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Millions, except percentages and where indicated)2020201920202019
Net interest income$1,874$2,203$6,088$6,336
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
2964611,0411,412
Interest income not attributable to our Card Member loan portfolio (b)
(137)(308)(557)(955)
Adjusted net interest income (c)
$2,033$2,356$6,572$6,793
Average Card Member loans (billions)
$69.9$83.3$75.4$81.9
Net interest income divided by average Card Member loans (c)
10.7 %10.6 %10.8 %10.3 %
Net interest yield on average Card Member loans (c)
11.6 %11.2 %11.6 %11.1 %
(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 the fixed income investment portfolios.
(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.
14


Business Segment Results of Operations
Effective for the first quarter of 2020, we made certain enhancements to our transfer pricing methodology related to the sharing of revenues among our card issuing, network and merchant businesses, and our methodology related to the allocation of certain funding costs primarily related to our Card Member loan and Card Member receivable portfolios. These enhancements resulted in certain changes to Non-interest revenues and Interest expense within Total revenues net of interest expense and Operating expenses within Total expenses across our reportable operating segments.
The enhancements related to the allocation of certain funding costs also resulted in a change to our Net interest income divided by Average Card Member loans metric and Net Interest Yield on Average Card Member loans, a non-GAAP measure, within our reportable operating segments.
For all of the above referenced changes, prior period amounts have been revised to conform to the current period presentation.
Global Consumer Services Group
Table 10: GCSG Selected Income Statement Data
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(Millions, except percentages)202020192020 vs. 2019202020192020 vs. 2019
Revenues
Non-interest revenues$3,517$4,226$(709)(17)%$10,343$12,331$(1,988)(16)%
Interest income1,9162,402(486)(20)6,2986,971(673)(10)
Interest expense242437(195)(45)8421,318(476)(36)
Net interest income1,6741,965(291)(15)5,4565,653(197)(3)
Total revenues net of  interest expense5,1916,191(1,000)(16)15,79917,984(2,185)(12)
Provisions for credit losses412653(241)(37)3,1081,8551,253 68
Total revenues net of interest expense after provisions for credit losses4,7795,538(759)(14)12,69116,129(3,438)(21)
Expenses
Marketing, business development, and Card Member rewards and services2,5043,042(538)(18)6,9298,898(1,969)(22)
Salaries and employee benefits and other operating expenses1,1771,233(56)(5)3,6063,649(43)(1)
Total expenses3,6814,275(594)(14)10,53512,547(2,012)(16)
Pretax segment income1,0981,263(165)(13)2,1563,582(1,426)(40)
Income tax provision243272(29)(11)573756(183)(24)
Segment income$855$991$(136)(14)%$1,583$2,826$(1,243)(44)%
Effective tax rate22.1 %21.5 %26.6 %21.1 %

GCSG primarily issues a wide range of proprietary consumer cards globally. GCSG also provides services to consumers, including travel and lifestyle services and non-card financing products, and manages certain international joint ventures and our partnership agreements in China.
Non-interest revenues decreased for both the three and nine month periods, primarily driven by lower discount revenue and other fees and commissions, partially offset by higher net card fees.
Discount revenue decreased 20 percent and 21 percent for the three and nine month periods, respectively, reflecting decreases in proprietary consumer billed business of 17 percent and 19 percent for the three and nine month periods, respectively.
See Tables 5, 6, 7 and 11 for more details on billed business performance.
15


Other fees and commissions decreased 48 percent and 39 percent for the three and nine month periods, respectively, primarily due to the impacts of travel restrictions related to the COVID-19 pandemic, which resulted in lower travel commissions and fees from our consumer travel business and lower foreign exchange conversion revenue related to decreased cross-border spending, as well as a decline in late fees due to lower delinquencies.
Net card fees increased 16 percent and 17 percent for the three and nine month periods, respectively, driven by year-over-year increases in the average fee per card of our premium card products.
Net interest income decreased for the three and nine month periods, primarily due to lower average Card Member loan volumes and a reduction in benchmark interest rates, partially offset by lower cost of funds.
Card Member loans and receivables provisions for credit losses decreased for the three month period, primarily driven by slightly lower net-write offs and a reserve release in the current year, versus a reserve build in the prior year, due to improved credit performance, partially offset by further deterioration of the global macroeconomic outlook in the current year and greater weight placed on the downside scenario given the continued high levels of uncertainty regarding the pace of recovery.
Other loans provision for credit losses decreased for the three month period primarily due to lower balances of non-card loans.
Total provisions for credit losses increased for the nine month period, primarily driven by higher reserve builds reflecting the deterioration of the global macroeconomic outlook in the current year, including unemployment and GDP, and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables.
Marketing, business development, and Card Member rewards and services expenses decreased for both the three and nine month periods as a result of the impacts of the COVID-19 pandemic. The decreases in Card Member rewards expense were primarily driven by decreases in billed business. Additionally, the nine month period also included changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the COVID-19 pandemic. The decreases in Card Member services expense were primarily driven by lower usage of travel-related benefits. Those decreases were partially offset by increases in Marketing and business development expense for both the three and nine month periods, primarily due to incremental investments in enhancements to our Card Member value proposition, as well as expenses related to our Shop Small campaign, partially offset by a reduction in proactive marketing for Card Member acquisitions.





16


Table 11: GCSG Selected Statistical Information
As of or for the
Three Months Ended
September 30,
Change
2020
vs.
2019
As of or for the
Nine Months Ended
September 30,
Change
2020
vs.
2019
(Millions, except percentages and where indicated)2020201920202019
Proprietary billed business: (billions)
U.S.$83.9$99.9(16)%$242.9$292.9(17)%
Outside the U.S.30.238.3(21)86.4112.2(23)
Total$114.1$138.2(17)$329.3$405.1(19)
Proprietary cards-in-force:
U.S.37.537.7(1)37.537.7(1)
Outside the U.S.16.817.4(3)16.817.4(3)
Total54.355.1(1)54.355.1(1)
Proprietary basic cards-in-force:
U.S.26.526.8(1)26.526.8(1)
Outside the U.S.11.712.0(3)11.712.0(3)
Total38.238.8(2)38.238.8(2)
Average proprietary basic Card Member spending: (dollars)
U.S.$3,162$3,719(15)$9,080$10,861(16)
Outside the U.S.$2,555$3,189(20)$7,209$9,425(24)
Average$2,975$3,555(16)$8,501$10,421(18)
Total segment assets (billions)
$81.3$99.4(18)$81.3$99.4(18)
Card Member loans:
Total loans (billions)
U.S.$49.8$59.7(17)$49.8$59.7(17)
Outside the U.S.7.710.1(24)7.710.1(24)
Total$57.5$69.8(18)$57.5$69.8(18)
Average loans (billions)
U.S.$50.0$59.7(16)$53.8$59.0(9)
Outside the U.S.7.810.0(22)8.69.8(12)
Total$57.8$69.7(17)%$62.4$68.8(9)%
U.S.
Net write-off rate - principal only (a)
2.4 %2.2 %2.6 %2.3 %
Net write-off rate - principal, interest and fees (a)
2.9 2.6 3.1 2.8 
30+ days past due as a % of total1.1 1.5 1.1 1.5 
   Outside the U.S.
Net write-off rate - principal only (a)
3.3 2.4 3.2 2.4 
Net write-off rate - principal, interest and fees (a)
4.1 3.0 4.0 2.9 
30+ days past due as a % of total1.8 1.7 1.8 1.7 
Total
Net write-off rate – principal only (a)
2.5 2.2 2.7 2.3 
Net write-off rate – principal, interest and fees (a)
3.1 2.7 3.2 2.8 
30+ days past due as a % of total1.2 %1.6 %1.2 %1.6 %


17



As of or for the
Three Months Ended
September 30,
Change
2020
vs.
2019
As of or for the
Nine Months Ended
September 30,
Change
2020
vs.
2019
(Millions, except percentages and where indicated)2020201920202019
Card Member receivables: (billions)
U.S.$10.3$12.9(20)%$10.3$12.9(20)%
Outside the U.S.5.87.8(26)5.87.8(26)
Total receivables$16.1$20.7(22)%$16.1$20.7(22)%
U.S.
Net write-off rate – principal only (a)
1.0 %1.3 %1.6 %1.3 %
Net write-off rate – principal and fees (a)
1.1 1.4 1.7 1.5 
30+ days past due as a % of total0.6 1.3 0.6 1.3 
Outside the U.S.
Net write-off rate – principal only (a)
2.8 2.4 2.9 2.3 
Net write-off rate – principal and fees (a)
3.1 2.6 3.1 2.4 
30+ days past due as a % of total1.2 1.4 1.2 1.4 
Total
Net write-off rate – principal only (a)
1.7 1.7 2.0 1.7 
Net write-off rate – principal and fees (a)
1.8 1.9 2.2 1.8 
30+ days past due as a % of total0.8 %1.4 %0.8 %1.4 %
(a)Refer to Table 8 footnote (d).
18


Table 12: GCSG Net Interest Yield on Average Card Member Loans
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Millions, except percentages and where indicated)2020201920202019
U.S.
Net interest income$1,470$1,707$4,732$4,910
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
8167224203
Interest income not attributable to our Card Member loan portfolio (b)
(42)(55)(156)(161)
Adjusted net interest income (c)
$1,509$1,719$4,800$4,952
Average Card Member loans (billions)
$50.0$59.7$53.8$59.0
Net interest income divided by average Card Member loans (c)
11.8 %11.4 %11.7 %11.1 %
Net interest yield on average Card Member loans (c)
12.0 %11.4 %11.9 %11.2 %
Outside the U.S.
Net interest income$203$258$723$743
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
34226963
Interest income not attributable to our Card Member loan portfolio (b)
(2)(4)(9)(10)
Adjusted net interest income (c)
$235$276$783$796
Average Card Member loans (billions)
$7.8$10.0$8.6$9.8
Net interest income divided by average Card Member loans (c)
10.4 %10.3 %11.2 %10.1 %
Net interest yield on average Card Member loans (c)
11.9 %11.0 %12.2 %10.8 %
Total
Net interest income$1,674$1,965$5,456$5,653
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
11589292266
Interest income not attributable to our Card Member loan portfolio (b)
(45)(59)(165)(171)
Adjusted net interest income (c)
$1,744$1,995$5,583$5,748
Average Card Member loans (billions)
$57.8$69.7$62.4$68.8
Net interest income divided by average Card Member loans (c)
11.6 %11.3 %11.7 %11.0 %
Net interest yield on average Card Member loans (c)
12.0 %11.4 %12.0 %11.2 %
(a)Refer to Table 9 footnote (a).
(b)Refer to Table 9 footnote (b).
(c)Refer to Table 9 footnote (c).
19


Global Commercial Services
Table 13: GCS Selected Income Statement Data
Three Months Ended
September 30,
Change
2020 vs. 2019
Nine Months Ended
September 30,
Change
2020 vs. 2019
(Millions, except percentages)2020201920202019
Revenues
Non-interest revenues$2,327$3,070$(743)(24)%$7,129$9,055$(1,926)(21)%
Interest income351485(134)(28)1,2521,407(155)(11)
Interest expense139262(123)(47)493787(294)(37)
Net interest income212223(11)(5)759620139 22 
Total revenues net of interest expense2,5393,293(754)(23)7,8889,675(1,787)(18)
Provisions for credit losses25022228 131,657682975 #
Total revenues net of interest expense after provisions for credit losses2,2893,071(782)(25)6,2318,993(2,762)(31)
Expenses
Marketing, business development, and Card Member rewards and services1,2211,562(341)(22)3,6534,596(943)(21)
Salaries and employee benefits and other operating expenses796796— — 2,3092,342(33)(1)
Total expenses2,0172,358(341)(14)5,9626,938(976)(14)
Pretax segment income272713(441)(62)2692,055(1,786)(87)
Income tax provision52145(93)(64)71414(343)(83)
Segment income$220$568$(348)(61)%$198$1,641$(1,443)(88)%
Effective tax rate19.1 %20.3 %26.4 %20.1 %
# Denotes a variance greater than 100 percent
GCS primarily 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.
Non-interest revenues decreased for both the three and nine month periods, primarily driven by lower discount revenue and other fees and commissions.
Discount revenue decreased 26 percent and 23 percent for the three and nine month periods, respectively, reflecting decreases in commercial billed business of 23 percent and 22 percent, respectively.
See Tables 5, 6, 7 and 14 for more details on billed business performance.
Other fees and commissions decreased 47 percent and 29 percent for the three and nine month periods, respectively, primarily due to the impacts of travel restrictions related to the COVID-19 pandemic, which resulted in lower foreign exchange conversion revenue related to decreased cross-border spending, as well as a decline in late fees due to lower delinquencies.
Net interest income decreased for the three month period and increased for the nine month period. The three month period decreased, primarily due to a reduction in benchmark interest rates and lower average Card Member loans, partially offset by lower cost of funds. The increase in the nine month period was primarily driven by the lower cost of funds, partially offset by a reduction in benchmark interest rates.
Card Member receivables provision for credit losses decreased for the three month period, driven by a higher reserve release due to improved credit performance, partially offset by slightly higher net write-offs.
Card Member loans provision for credit losses increased for the three month period, driven by slightly higher net write-offs and a higher reserve build, reflecting the further deterioration of the global macroeconomic outlook in the current year and greater weight placed on the downside scenario given the continued high levels of uncertainty regarding pace of recovery.
Other loans provision for credit losses decreased for the three month period, primarily due to lower balances of non-card loans.
20


Total provisions for credit losses increased in the nine month period, primarily driven by higher reserve builds, reflecting the deterioration of the global macroeconomic outlook in the current year, including unemployment and GDP, and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables.
Marketing, business development, and Card Member rewards and services expenses decreased for both the three and nine month periods as a result of the impacts of the COVID-19 pandemic. The decreases in Card Member rewards expense were primarily driven by decreases in billed business. Additionally, the nine month period also included changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the COVID-19 pandemic. The decreases in Marketing and business development expense were primarily due to a decrease in corporate client incentives and a reduction in proactive marketing for Card Member acquisitions, partially offset by incremental investments in enhancements to our Card Member value proposition.






21


Table 14: GCS Selected Statistical Information
As of or for the
Three Months Ended
September 30,
Change 2020 vs 2019
As of or for the
Nine Months Ended
September 30,
Change 2020 vs 2019
(Millions, except percentages and where indicated)2020201920202019
Proprietary billed business (billions)
$98.5$127.3(23)%$297.4$380.3(22)%
Proprietary cards-in-force14.514.8(2)14.514.8(2)
Average Card Member spending (dollars)
$6,776$8,627(21)$20,268$25,947(22)
Total segment assets (billions)
$39.9$53.7(26)$39.9$53.7(26)
GSBS Card Member loans:
Total loans (billions)
$12.0$13.8(13)$12.0$13.8(13)
Average loans (billions)
$12.1$13.6(11)$13.0$13.1(1)
Net write-off rate - principal only (a)
2.2 %1.8 %2.1 %1.8 %
Net write-off rate - principal, interest and fees (a)
2.5 %2.1 %2.4 %2.1 %
30+ days past due as a % of total1.1 %1.3 %1.1 %1.3 %
Calculation of Net Interest Yield on Average Card Member Loans:
Net interest income$212$223$759$620
Exclude:
Interest expense not attributable to our Card Member loan portfolio (b)
111195375588
Interest income not attributable to our Card Member loan portfolio (c)
(34)(56)(145)(163)
Adjusted net interest income (d)
$289$362$989$1,045
Average Card Member loans (billions)
$12.1$13.6$13.1$13.1
Net interest income divided by average Card Member loans (d)
7.0 %6.6 %7.7 %6.3 %
Net interest yield on average Card Member loans (d)
9.5 %10.5 %10.1 %10.6 %
Card Member receivables:
Total receivables (billions)
$24.7$35.9(31)$24.735.9(31)
Net write-off rate - principal and fees (a)(e)
2.5 %1.5 %2.4 %1.4 %
GCP Card Member receivables:
Total receivables (billions)
$10.4$18.5(44)$10.4$18.5(44)
90+ days past billing as a % of total (e)
0.6 %0.7 %0.6 %0.7 %
Net write-off rate - principal and fees (a) (e)
2.4 %0.9 %2.2 %0.8 %
GSBS Card Member receivables:
Total receivables (billions)
$14.3$17.4(18)%$14.3$17.4(18)%
Net write-off rate - principal only (a)
2.3 %1.9 %2.3 %1.9 %
Net write-off rate - principal and fees (a)
2.5 %2.1 %2.6 %2.1 %
30+ days past due as a % of total1.0 %1.7 %1.0 %1.7 %
(a)Refer to Table 8 footnote (d).
(b)Refer to Table 9 footnote (a).
(c)Refer to Table 9 footnote (b).
(d)Refer to Table 9 footnote (c).
(e)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. GCP delinquency data for periods other than 90+ days past billing and the net write-off rate based on principal losses only are not available due to system constraints.
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Global Merchant and Network Services
Table 15: GMNS Selected Income Statement and Other Data
Three Months Ended
September 30,
Change
2020 vs. 2019
Nine Months Ended
September 30,
Change
2020 vs. 2019
(Millions, except percentages and where indicated)2020201920202019
Revenues
Non-interest revenues$1,111$1,471$(360)(24)%$3,376$4,398$(1,022)(23)%
Interest income46(2)(33)1422(8)(36)
Interest expense(18)(74)56 (76)(60)(241)181 (75)
Net interest income2280(58)(73)74263(189)(72)
Total revenues net of interest expense1,1331,551(418)(27)3,4504,661(1,211)(26)
Provisions for credit losses24(2)(50)751164 #
Total revenues net of interest expense after provisions for credit losses1,1311,547(416)(27)3,3754,650(1,275)(27)
Expenses
Marketing, business development, and Card Member rewards and services340365(25)(7)9131,005(92)(9)
Salaries and employee benefits and other operating expenses440480(40)(8)1,3571,429(72)(5)
Total expenses780845(65)(8)2,2702,434(164)(7)
Pretax segment income351702(351)(50)1,1052,216(1,111)(50)
Income tax provision88179(91)(51)359558(199)(36)
Segment income$263$523$(260)(50)$746$1,658$(912)(55)
Effective tax rate25.1 %25.5 %32.5 %25.2 %
Total segment assets (billions)
$12.3$17.2(28)%$12.3$17.2(28)%
# Denotes a variance greater than 100 percent
GMNS operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging our global integrated network. GMNS manages our partnership relationships with third-party card issuers, merchant acquirers and a prepaid reloadable and gift card program manager, licensing the American Express brand and extending the reach of the global network. GMNS also manages loyalty coalition businesses in certain countries.
Non-interest revenues decreased for both the three and nine month periods, primarily driven by lower discount revenue due to lower worldwide billed business and a decline in the average discount rate, primarily due to a shift in spend mix to non-T&E categories, as well as decreases in other fees and commissions, due to lower foreign exchange conversion revenue related to decreased cross-border spending as a result of the impacts of the COVID-19 pandemic. For a detailed discussion on billed business and the average discount rate, please refer to the “Consolidated Results of Operations.”
Net interest income decreased for both the three and nine month periods, reflecting a lower interest expense credit relating to internal transfer pricing, which results in a net benefit for GMNS due to its merchant payables.
Marketing, business development, and Card Member rewards and services expenses decreased for both the three and nine month periods, primarily driven by lower Marketing and business development expense, which reflected decreased network partner payments due to lower spend volumes as a result of the impacts of the COVID-19 pandemic, as well as a reduction in proactive marketing for Card Member acquisitions, partially offset by incremental investments in enhancements to our Card Member value proposition, specifically related to our Shop Small campaign.





23


Corporate & Other
Corporate functions and certain other businesses are included in Corporate & Other.
Corporate & Other net loss was $265 million for the three months ended September 30, 2020, compared to $327 million in the same period a year ago, and $830 million for the nine months ended September 30, 2020, compared to $1,059 million in the same period a year ago. The decrease in net loss for the three month period was primarily driven by lower incentive compensation, partially offset by a net loss in the current year as compared to net income in the prior year, related to the GBT JV. The decrease in net loss for the nine month period was driven by a prior year litigation-related charge and lower incentive compensation in the current year, partially offset by a net loss in the current year as compared to a net income in the prior year, related to the GBT JV.
CONSOLIDATED 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 in the event we are unable to continue to raise new funds under our traditional funding programs during a substantial weakening in economic conditions.
We are closely monitoring the rapidly changing macroeconomic environment and actively managing our balance sheet to reflect evolving circumstances. Our objective is to remain financially strong against a backdrop of a highly uncertain operating environment and outlook.
Capital
Our principal objective is to maintain a strong and flexible capital profile, and finance such capital in a cost efficient manner. We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements while considering expectations from all stakeholders (including rating agencies), specifically within a 10 to 11 percent target range for American Express' Common Equity Tier 1 risk-based capital ratio.
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 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 table presents our regulatory risk-based capital and leverage ratios and those of our significant bank subsidiary, American Express National Bank (AENB), as of September 30, 2020.







24


Table 16: Regulatory Risk-Based Capital and Leverage Ratios
Basel III MinimumRatios as of September 30, 2020
Risk-Based Capital
Common Equity Tier 17.0%
American Express Company13.9%
American Express National Bank16.1
Tier 18.5
American Express Company15.1
American Express National Bank16.1
Total10.5
American Express Company16.7
American Express National Bank18.3
Tier 1 Leverage4.0%
American Express Company10.8
American Express National Bank10.1%

Table 17: Regulatory Risk-Based Capital Components and Risk Weighted Assets
American Express Company
Consolidated Results of Operations

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

Effective December 1, 2015, we transferred the Card Member loans and receivables related to our cobrand partnerships with Costco Wholesale Corporation (Costco) and JetBlue Airways Corporation (JetBlue) (collectively, the HFS portfolios) to Card Member loans and receivables held for sale (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 do 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) reflect 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 are no longer included in our Consolidated Results of Operations. Specifically, these impacts include: 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 2017 and 2016 in the first half of the year.Billions)
The discussions in both the Consolidated Results of Operations and Business Segment Results provide commentary on the variances for the three and nine month periods ended
September 30, 2017 compared2020
Risk-Based Capital
Common Equity Tier 1$18.3
Tier 1 Capital19.9
Tier 2 Capital2.2
Total Capital22.1
Risk-Weighted Assets131.9
Average Total Assets to same periods incalculate the prior year, as presented in the accompanying tables.

Table 1: Summary of Financial Performance

  Three Months Ended        Nine Months Ended       
  September 30,  Change  September 30,  Change 
(Millions, except percentages and per share amounts) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Total revenues net of interest expense $8,436  $7,774  $662   9% $24,632  $24,097  $535   2%
Provisions for losses  769   504   265   53   1,926   1,401   525   37 
Expenses  5,840   5,535   305   6   17,113   15,761   1,352   9 
Net income  1,356   1,142   214   19   3,933   4,583   (650)  (14)
Earnings per common share - diluted(a)
 $1.50  $1.20  $0.30   25% $4.30  $4.76  $(0.46)  (10)%
Return on average equity(b)
  22.7%  26.1%          22.7%  26.1%        
(a)Tier 1 Leverage Ratio$185.3Earnings per common share — diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $11 million and $9 million for the three months ended September 30, 2017 and 2016, respectively, and $32 million and $37 million for the nine months ended September 30, 2017 and 2016, respectively, and (ii) dividends on preferred shares of $21 million for both the three months ended September 30, 2017 and 2016, and $61 million for both the nine months ended September 30, 2017 and 2016.
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, foreign currency translation adjustments and net unrealized pension and other postretirement benefit/losses, all net of tax. CET1 is also adjusted for the CECL interim final rule discussed below.
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. 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.


25


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) and $480 million of eligible subordinated notes, adjusted for capital held by insurance subsidiaries. The $480 million of eligible subordinated notes reflect a 20 percent, or $120 million, reduction of Tier 2 capital credit for the $600 million subordinated debt issued in December 2014.
Tier 1 Leverage Ratio — Calculated by dividing Tier 1 capital by our average total consolidated assets for the most recent quarter.
In December 2018, federal banking regulators issued a final rule that provides an optional three-year phase-in period for the adverse regulatory capital effects of adopting the CECL methodology pursuant to new accounting guidance for the recognition of credit losses on certain financial instruments, effective January 1, 2020. In March 2020, the federal banking regulators issued an interim final rule that provides banking organizations with an alternative option to temporarily delay for two years the estimated impact of the adoption of the CECL methodology on regulatory capital, followed by the three-year phase-in period. The cumulative amount that is not recognized in regulatory capital will be phased in at 25 percent per year beginning January 1, 2022. In the first quarter of 2020, we elected to adopt the March 2020 interim final rule. As of September 30, 2020, our reported regulatory capital excluded the $0.9 billion impact to retained earnings upon the adoption of the CECL methodology and 25 percent of the impact of the $2.2 billion increase in reserves for credit losses from January 1, 2020 to September 30, 2020.
On March 4, 2020, the Federal Reserve issued a final rule to replace the 2.5 percent capital conservation buffer with a dynamic stress capital buffer (SCB), which has a floor of 2.5 percent. Under the rule, the stress capital buffer equals (i) the difference between a banking organization’s starting and minimum projected Common Equity Tier 1 capital ratios under the supervisory severely adverse stress testing scenario, plus (ii) one year of planned common stock dividends as a percentage of risk-weighted assets. On August 10, the Federal Reserve announced our SCB requirement of 2.5 percent, and resulting Common Equity Tier 1 capital requirement of 7.0 percent. Failure to maintain minimum regulatory capital levels at American Express or AENB could affect our status as a financial holding company and cause the regulatory agencies with oversight of American Express or AENB to take actions that could limit our business operations.
In light of the COVID-19 pandemic and its impact on the economy, the Federal Reserve is requiring all banking organizations participating in Comprehensive Capital Analysis and Review (CCAR), including us, to resubmit capital plans by November 2, 2020 to reflect changes in financial markets and the macroeconomic outlook.
Share Repurchases and Dividends
We return capital to common shareholders through dividends and share repurchases. The share repurchases reduce common shares outstanding and generally more than offset the issuance of new shares as part of employee compensation plans.
During the three and nine months ended September 30, 2020, we returned $0.3 billion and $1.9 billion, respectively, to our shareholders in the form of common stock dividends of $0.3 billion and $1.0 billion, respectively, and share repurchases of nil and $0.9 billion, respectively.
In addition, during the three and nine months ended September 30, 2020, we paid $16 million and $65 million, respectively, in dividends on non-cumulative perpetual preferred shares outstanding.
Our decisions on capital distributions will depend on various factors, including: our capital levels and regulatory capital requirements; actual and forecasted business results; economic and market conditions; revisions to, or revocation of, the Federal Reserve’s authorization of our capital plan; and the CCAR process.
Due to the uncertain business environment, we have suspended share repurchases since March 2020 to maintain financial strength. Since then, the Federal Reserve has announced that it is prohibiting share repurchases in the third and fourth quarters for all banking organizations participating in CCAR and will allow them to pay common stock dividends provided (a) they do not increase the amount of the dividend and (b) they do not exceed the average of a firm's net income for the four preceding calendar quarters.
26


Funding 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.
We meet our funding needs through a variety of sources, including direct and third-party distributed deposits and debt instruments, such as senior unsecured debt, asset securitizations, borrowings through secured borrowing facilities and a committed bank credit facility. While we seek to diversify our funding sources by maintaining scale and relevance in unsecured debt, asset securitizations and deposits, we currently expect that direct deposits, such as the Personal Savings program, will become a larger proportion of our funding over time.
Given the significant reductions in our business volumes and changes in growth outlook, we do not currently expect to have meaningful unsecured or secured term debt issuances for the remainder of 2020.
Summary of Consolidated Debt
We had the following consolidated debt and customer deposits outstanding as of September 30, 2020 and December 31, 2019:
Table 18: Summary of Consolidated Debt and Customer Deposits
(Billions)September 30, 2020December 31, 2019
Short-term borrowings$1.7 $6.4 
Long-term debt44.8 57.8 
Total debt46.5 64.2 
Customer deposits85.5 73.3 
Total debt and customer deposits$132.0 $137.5 
We may redeem from time to time certain debt securities within 31 days prior to the original contractual maturity dates in accordance with the optional redemption provisions of those debt securities.
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) and Fitch Ratings (Fitch). 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 19: Unsecured Debt Ratings
(b)Return on average equity (ROE) is computed by dividing (i) one-year period net income ($4.8 billion and $5.5 billion for September 30, 2017 and 2016, respectively) by (ii) one-year average total shareholders’ equity ($21.0 billion for both September 30, 2017 and 2016).

Table 2: Total Revenue Net of Interest Expense Summary
  Three Months Ended     Nine Months Ended    
  September 30,  Change  September 30,  Change 
(Millions, except percentages) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Discount revenue $4,772  $4,516  $256   6% $14,106  $13,983  $123   1%
Net card fees  786   747   39   5   2,305   2,161   144   7 
Other fees and commissions  767   694   73   11   2,232   2,076   156   8 
Other  436   483   (47)  (10)  1,284   1,514   (230)  (15)
Total non-interest revenues  6,761   6,440   321   5   19,927   19,734   193   1 
Total interest income  2,242   1,764   478   27   6,237   5,654   583   10 
Total interest expense  567   430   137   32   1,532   1,291   241   19 
Net interest income  1,675   1,334   341   26   4,705   4,363   342   8 
Total revenues net of interest expense $8,436  $7,774  $662   9% $24,632  $24,097  $535   2%

Total Revenues Net of Interest Expense
Discount revenue increased for both the three and nine month periods, primarily due to growth in billed business of 8 percent and 3 percent for the three and nine month periods, respectively, partially offset by a decrease in the average discount rate and increases in contra-discount revenues. The increase in contra-discount revenue was primarily due to higher corporate client incentives and cobrand partner payments, both driven by higher volumes. U.S. billed business increased 7 percent and decreased 1 percent for the three and nine month periods respectively. Non-U.S. billed business increased 10 percent and 11 percent for the three and nine month periods, respectively. See Tables 5, 6 and 7 for more details on billed business performance.

The decreases in the average discount rate for both the three and nine month periods primarily reflected changes in industry and geographic mix, rate pressure from merchant negotiations, including those resulting from the recent regulatory changes affecting competitor pricing in certain international markets, and the continued growth of the OptBlue program. We expect the average discount rate will likely 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 for both the three and nine month periods, primarily driven by growth in the Platinum and Delta portfolios as well as growth in certain key international markets.
Other fees and commissions increased for both the three and nine month periods, primarily driven by an increase in delinquency fees due to a change in certain U.S. charge card portfolios’ late fee assessment date.
Other revenues decreased for both the three and nine month periods, primarily driven by revenues related to our Loyalty Edge business in the prior year, and additionally in the nine month period, a contractual payment from a GNS partner in the prior year.
Interest income increased for both the three and nine month periods, primarily driven by growth in average Card Member loans and higher yields in the current year. The increase in yields was primarily driven by a mix shift towards non-cobrand lending products, where Card Members tend to revolve more of their loan balances, as well as a lower percentage of loans at introductory rates, specific pricing actions, and a benefit from increases in benchmark interest rates.
Interest expense increased for both the three and nine month periods, primarily driven by marginally higher interest rates and higher average long-term debt.

Table 3: Provisions for Losses Summary

  Three Months Ended    Nine Months Ended   
  September 30, Change  September 30, Change 
(Millions, except percentages) 2017  2016 2017 vs. 2016  2017  2016 2017 vs. 2016 
Charge card $214  $174  $40   23% $590  $496  $94   19%
Card Member loans  531   319   212   66   1,272   831   441   53 
Other  24   11   13   #   64   74   (10)  (14)
Total provisions for losses(a)
 $769  $504  $265   53% $1,926  $1,401  $525   37%
# Denotes a variance greater than 100 percent.
(a)Beginning December 1, 2015 through to the sale completion dates, does not reflect the HFS portfolios.

Provisions for Losses
Charge card provision for losses increased for both the three and nine month periods, primarily driven by growth in receivables due to charge volume and higher net write-offs.
Card Member loans provision for losses increased for both the three and nine month periods, primarily driven by strong loan growth, as well as increases in delinquencies and net write-off rates, primarily due to the seasoning of recent loan vintages and a shift in mix towards non-cobrand lending products, which have higher write-off rates.
Other provision for losses increased for the three month period and decreased for the nine month period. The increase in the three month period was primarily due to growth in the non-card lending portfolio, which was more than offset in the nine month period by improving credit performance in the commercial financing portfolio.
Table 4: Expenses Summary
  Three Months Ended     Nine Months Ended    
  September 30,  Change  September 30,  Change 
(Millions, except percentages) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Marketing and promotion $814  $930  $(116)  (12)% $2,344  $2,445  $(101)  (4)%
Card Member rewards  1,900   1,566   334   21   5,633   5,035   598   12 
Card Member services and other  363   278   85   31   1,033   841   192   23 
Total marketing, promotion, rewards, Card Member services and other  3,077   2,774   303   11   9,010   8,321   689   8 
Salaries and employee benefits  1,265   1,263   2   ―   3,822   4,052   (230)  (6)
Other, net(a)
  1,498   1,498   ―   ―   4,281   3,388   893   26 
Total expenses $5,840  $5,535  $305   6% $17,113  $15,761  $1,352   9%
(a)Beginning December 1, 2015 through to the portfolio sale completion dates, includes the valuation allowance adjustment associated with the HFS portfolios.
Expenses
Marketing and promotion expenses decreased for both the three and nine month periods, primarily due to lower spending on growth initiatives.
Card Member rewards expenses increased for both the three and nine month periods, primarily driven by increases in Membership Rewards expense of $202 million and cobrand rewards expense of $132 million for the three month period and an increase in Membership Rewards expense of $674 million partially offset by a decrease in cobrand rewards expense of $75 million for the nine month period. The increases in Membership Rewards expense were primarily driven by enhancements to U.S. Consumer and Small Business Platinum rewards and higher spending volumes. The increase in cobrand rewards expense in the three month period reflected growth in spending volumes across cobrand card products, which was more than offset in the nine month period by the impact of Costco-related expenses in the prior year.
The Membership Rewards Ultimate Redemption Rate (URR) for current program participants was 95 percent (rounded down) at both September 30, 2017 and 2016.
Card Member services and other expenses increased for both the three and nine month periods, primarily driven by higher usage of travel-related benefits and the enhanced Platinum card benefits.
Salaries and employee benefits expenses were flat for the three month period and decreased for the nine month period. The decrease in the nine month period reflected higher restructuring charges in the prior year and benefits from our cost reduction initiatives in the current year.
Other expenses were flat for the three month period and increased for the nine month period. The three month period results were primarily driven by lower technology-related costs in the current year and Loyalty Edge-related costs included in the prior year, offset by current-year charges related to our U.S. loyalty coalition and prepaid businesses. The increase in the nine month period was primarily driven by the prior-year gains on the sale of the HFS portfolios, partially offset by the previously mentioned lower technology-related costs in the current year and Loyalty Edge-related costs in the prior year.
Income Taxes
The effective tax rate decreased for both the three and nine month periods, primarily reflecting the realization of certain foreign tax credits and the geographic mix of business, and additionally in the nine month period, the resolution of certain prior years’ tax items.
Table 5: Selected Card-Related Statistical Information
  As of or for the  Change  As of or for the  Change 
  Three Months Ended  2017  Nine Months Ended  2017 
  September 30,  vs.  September 30,  vs. 
  2017  2016  2016  2017  2016  2016 
Card billed business: (billions)
                  
United States $176.4  $164.6   7% $519.4  $526.0   (1)%
Outside the United States  95.5   86.6   10   274.4   248.3   11 
        Worldwide $271.9  $251.2   8  $793.8  $774.3   3 
Proprietary $225.3  $206.4   9  $658.0  $645.2   2 
Global Network Services  46.6   44.8   4   135.8   129.1   5 
        Worldwide $271.9  $251.2   8  $793.8  $774.3   3 
Total cards-in-force: (millions)
                        
United States  49.5   47.1   5   49.5   47.1   5 
Outside the United States  63.4   61.7   3   63.4   61.7   3 
        Worldwide  112.9   108.8   4   112.9   108.8   4 
Proprietary  63.9   60.7   5   63.9   60.7   5 
Global Network Services  49.0   48.1   2   49.0   48.1   2 
        Worldwide  112.9   108.8   4   112.9   108.8   4 
Basic cards-in-force: (millions)
                        
United States  39.0   37.0   5   39.0   37.0   5 
Outside the United States  52.7   51.1   3   52.7   51.1   3 
        Worldwide  91.7   88.1   4   91.7   88.1   4 
Average basic Card Member spending: (dollars)(a)
                        
United States $5,018  $4,937   2  $15,009  $13,732   9 
Outside the United States  3,598   3,264   10   10,351   9,667   7 
        Worldwide Average  4,596   4,433   4   13,620   12,628   8 
Card Member loans: (billions)
                        
United States  59.9   53.9   11   59.9   53.9   11 
Outside the United States  8.0   6.7   19   8.0   6.7   19 
        Worldwide $67.9  $60.6   12  $67.9  $60.6   12 
Average discount rate  2.42%  2.47%      2.44%  2.45%    
Average fee per card (dollars)(a)
 $49  $49   ―% $49  $43   14%
(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.

Table 6: Billed Business Growth
  Three Months Ended 
  September 30, 2017 
    Percentage Increase 
  Percentage  (Decrease) Assuming 
  Increase No Changes in 
  (Decrease) 
FX Rates(a)
 
Worldwide(b)
     
Total billed business 8%8%
Proprietary billed business 9 9 
GNS billed business(c)
 4 4 
Airline-related volume (8% of worldwide billed business) 5 3 
United States(b)
     
Billed business 7   
Proprietary consumer card billed business(d)
 7   
Proprietary small business and corporate services billed business(e)
 9   
T&E-related volume (25% of U.S. billed business) 3   
Non-T&E-related volume (75% of U.S. billed business) 8   
Airline-related volume (7% of U.S. billed business) 2   
Outside the United States(b)
     
Billed business 10 9 
     Japan, Asia Pacific & Australia (JAPA) billed business 8 9 
     Latin America & Canada (LACC) billed business 10 8 
     Europe, the Middle East & Africa (EMEA) billed business 13 10 
Proprietary consumer card billed business(c)
 15 13 
Proprietary small business and corporate services billed business(e)
 14%11%
(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 period 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.

Table 7: Billed Business Growth
  Nine Months Ended 
  September 30, 2017 
    Percentage Increase 
  Percentage  (Decrease) Assuming 
  Increase No Changes in 
  (Decrease) 
FX Rates(a)
 
Worldwide(b)
     
Total billed business 3%3%
Proprietary billed business 2 2 
GNS billed business(c)
 5 5 
Airline-related volume (8% of worldwide billed business) 2 2 
United States(b)
     
Billed business (1)   
Proprietary consumer card billed business(d)
 (6)   
Proprietary small business and corporate services billed business(e)
 5   
T&E-related volume (26% of U.S. billed business) (2)   
Non-T&E-related volume (74% of U.S. billed business) (1)   
Airline-related volume (7% of U.S. billed business) (1)   
Outside the United States(b)
     
Billed business 11 11 
     Japan, Asia Pacific & Australia billed business 12 12 
     Latin America & Canada billed business 10 9 
     Europe, the Middle East & Africa billed business 9 11 
Proprietary consumer card billed business(c)
 11 12 
Proprietary small business and corporate services billed business(e)
 12%12%
(a)Refer to Note (a) in Table 6.
(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.


Table 8: Selected Credit-Related Statistical Information
  As of or for the  Change  As of or for the  Change 
  Three Months Ended  2017  Nine Months Ended  2017 
  September 30,  vs.  September 30,  vs. 
(Millions, except percentages and where indicated) 2017  2016  2016  2017  2016  2016 
Worldwide Card Member loans: (a)
                  
Total loans (billions)
 $67.9  $60.6   12  $67.9  $60.6   12 
Loss reserves:                        
Beginning balance $1,320  $1,091   21  $1,223  $1,028   19 
Provisions (b)
  531   319   66   1,272   831   53 
Net write-offs — principal only (c)
  (299)  (250)  20   (856)  (687)  25 
Net write-offs — interest and fees (c)
  (57)  (48)  19   (163)  (128)  27 
Other  (d)
  7   2   #   26   70   (63)
Ending balance $1,502  $1,114   35  $1,502  $1,114   35 
Ending reserves — principal $1,427  $1,050   36  $1,427  $1,050   36 
Ending reserves — interest and fees $75  $64   17  $75  $64   17 
% of loans  2.2%  1.8%      2.2%  1.8%    
% of past due  174%  160%      174%  160%    
Average loans (billions)(a)
 $67.1  $60.3   11% $65.4  $58.9   11%
Net write-off rate — principal only (e)
  1.8%  1.7%      1.7%  1.6%    
Net write-off rate — principal, interest and fees (e)
  2.1   2.0       2.1   1.8     
30+ days past due as a % of total (e)
  1.3%  1.1%      1.3%  1.1%    
                         
Worldwide Card Member receivables: (a)
                        
Total receivables (billions)
 $51.5  $45.3   14% $51.5  $45.3   14%
Loss reserves:                        
Beginning balance $475  $423   12  $467  $462   1 
Provisions (b)
  214   174   23   590   496   19 
Net write-offs (c)
  (175)  (159)  10   (548)  (518)  6 
Other  (2)  (1)  #   3   (3)  # 
Ending balance $512  $437   17  $512  $437   17 
% of receivables  1.0%  1.0%      1.0%  1.0%    
Net write-off rate — principal only (e)
  1.5   1.4       1.6   1.6     
Net write-off rate — principal and fees  (e)
  1.7   1.6       1.8   1.8     
30+ days past due as a % of total  (e)
  1.3   1.4       1.3   1.4     
Net loss ratio as a % of charge volume — GCP  0.09   0.11       0.10   0.09     
90+ days past billing as a % of total — GCP  0.9%  0.8%      0.9%  0.8%    
# Denotes a variance greater than 100 percent.
(a)Beginning December 1, 2015 through to the sale completion dates, does 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)The nine months ended September 30, 2016 includes 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 our 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.


Table 9: Net Interest Yield on Card Member Loans
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Millions, except percentages and where indicated) 2017  2016  2017  2016 
Net interest income $1,675  $1,334  $4,705  $4,363 
Exclude:                
Interest expense not attributable to our Card Member loan portfolio  315   261   869   746 
Interest income not attributable to our Card Member loan portfolio  (174)  (104)  (459)  (309)
Adjusted net interest income (a)
 $1,816  $1,491  $5,115  $4,800 
Average loans (billions)(b)
 $67.1  $60.3  $65.4  $66.6 
Net interest income divided by average loans  10.0%  8.8%  9.6%  8.7%
Net interest yield on Card Member loans (a)
  10.7%  9.8%  10.5%  9.6%
(a)Adjusted net interest income and net interest yield on Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for definitions of these terms. We believe adjusted net interest income is useful to investors because it is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
(b)Beginning December 1, 2015 through to the sale completion dates, for the purposes of the calculation of net interest yield on Card Member loans, average loans included the HFS loan portfolios.
Business Segment Results

U.S. Consumer Services


Table 10: USCS Selected Income Statement Data

  Three Months Ended     Nine Months Ended    
  September 30,  Change  September 30,  Change 
(Millions, except percentages) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Revenues                        
Non-interest revenues $1,976  $1,849  $127   7% $5,832  $5,947   (115)  (2)%
Interest income  1,509   1,178   331   28   4,186   3,847   339   9 
Interest expense  202   125   77   62   519   404   115   28 
Net interest income  1,307   1,053   254   24   3,667   3,443   224   7 
Total revenues net of interest expense  3,283   2,902   381   13   9,499   9,390   109   1 
Provisions for losses  459   275   184   67   1,098   702   396   56 
Total revenues net of interest expense after provisions for losses  2,824   2,627   197   7   8,401   8,688   (287)  (3)
Expenses                                
Marketing, promotion, rewards, Card Member services and other  1,440   1,274   166   13   4,206   3,991   215   5 
Salaries and employee benefits and other operating expenses  684   738   (54)  (7)  2,126   1,297   829   64 
Total expenses  2,124   2,012   112   6   6,332   5,288   1,044   20 
Pretax segment income  700   615   85   14   2,069   3,400   (1,331)  (39)
Income tax provision  225   214   11   5   685   1,238   (553)  (45)
Segment income $475  $401  $74   18% $1,384  $2,162   (778)  (36)%
Effective tax rate  32.1%  34.8%          33.1%  36.4%        

USCS issues a wide range of proprietary consumer cards and provides services to consumers in the United States, including consumer travel services.
Non-interest revenues increased for the three month period and decreased for the nine month period, primarily driven by discount revenue, which increased $74 million for the three month period, reflecting an increase in billed business of 6 percent, and decreased $251 million for the nine month period, reflecting a decrease in billed business of 6 percent. The decreases in both discount revenue and billed business in the nine month period were driven by Costco-related volumes included in the prior year. Net card fees and other fees and commissions increased in both periods driven primarily by growth in the Platinum and Delta portfolios and higher delinquency fees, respectively.
Net interest income increased for both the three and nine month periods, 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.
Provisions for losses increased for both the three and nine month periods, primarily driven by Card Member loans provision, which increased $168 million and $345 million in the three and nine month periods, respectively, 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 towards non-cobrand lending products, which have higher write-off rates.
Marketing, promotion, rewards, Card Member services and other expenses increased for both the three and nine month periods, reflecting higher Card Member rewards and Card Member services and other expenses in both periods, partially offset by lower marketing and promotion expenses in both periods. Card Member rewards expense increased $168 million and $123 million for the three and nine month periods, respectively, primarily driven by enhancements to Platinum rewards and increased spending volumes, partially offset in the nine month period by Costco-related expenses in the prior year. Card Member services and other expenses increased $48 million and $104 million for the three and nine month periods, respectively, driven by higher usage of travel-related benefits and enhanced Platinum card benefits. Marketing and promotion expenses decreased $50 million and $12 million for the three and nine month periods, respectively, due to lower spending on growth initiatives.
Salaries and employee benefits and other operating expenses decreased for the three month period and increased for the nine month period. The decrease in the three month period was 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 these impacts were more than offset in the nine month period by the prior-year gain on the sale of the Costco HFS portfolio.
The effective tax rate was lower for both the three and nine month periods, primarily reflecting the level of pretax income in relation to recurring permanent tax benefits.


Table 11: USCS Selected Statistical Information

  As of or for the  Change  As of or for the  Change 
  Three Months Ended  2017  Nine Months Ended  2017 
  September 30,  vs.  September 30,  vs. 
(Millions, except percentages and where indicated) 2017  2016  2016  2017  2016  2016 
Card billed business (billions)
 $83.7  $78.6   6% $246.0  $261.0   (6)%
Total cards-in-force  34.4   32.3   7   34.4   32.3   7 
Basic cards-in-force  24.6   22.9   7   24.6   22.9   7 
Average basic Card Member spending (dollars)
 $3,433  $3,452   (1) $10,271  $9,878   4 
Total segment assets (billions)
 $87.7  $79.4   10  $87.7  $79.4   10 
Segment capital (billions)
 $7.1  $7.5   (5) $7.1  $7.5   (5)
Return on average segment capital (a)
  24.2%  37.4%      24.2%  37.4%    
Card Member loans: (b)
                        
Total loans (billions)
 $49.3  $44.9   10  $49.3  $44.9   10 
Average loans (billions)
 $49.0  $44.8   9  $48.1  $43.7   10 
Net write-off rate – principal only (c)
  1.8%  1.6%      1.7%  1.5%    
Net write-off rate – principal, interest and fees (c)
  2.1%  1.9%      2.0%  1.8%    
30+ days past due loans as a % of total  1.3%  1.1%      1.3%  1.1%    
Calculation of Net Interest Yield on Card Member loans:                        
Net interest income $1,307  $1,053      $3,667  $3,443     
Exclude:                        
Interest expense not attributable to our Card Member loan portfolio  33   20       84   59     
Interest income not attributable to our Card Member loan portfolio  (29)  (6)      (70)  (16)    
Adjusted net interest income (d)
 $1,311  $1,067      $3,681  $3,486     
                         
Average loans (billions)(e)
 $49.0  $44.8      $48.1  $50.1     
                         
Net interest income divided by average loans  10.7%  9.4%      10.2%  9.2%    
Net interest yield on Card Member loans(d)
  10.6%  9.5%      10.2%  9.3%    
Card Member receivables: (b)
                        
Total receivables (billions)
 $11.2  $10.1   11% $11.2  $10.1   11%
Net write-off rate – principal only (c)
  1.2%  1.1%      1.3%  1.4%    
Net write-off rate – principal and fees (c)
  1.3%  1.3%      1.5%  1.6%    
30+ days past due as a % of total  1.2%  1.4%      1.2%  1.4%    
(a)Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.7 billion and $2.7 billion for the twelve months ended September 30, 2017 and 2016, respectively) by (ii) one-year average segment capital ($7.2 billion for both the twelve months ended September 30, 2017 and 2016).
(b)Refer to Table 8 footnote (a).
(c)Refer to Table 8 footnote (e).
(d)Adjusted net interest income and net interest yield on 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 is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
(e)Refer to Table 9 footnote (b).

International Consumer and Network Services


Table 12: ICNS Selected Income Statement Data

  Three Months Ended     Nine Months Ended    
  September 30,  Change  September 30,  Change 
(Millions, except percentages) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Revenues                        
Non-interest revenues $1,277  $1,205  $72   6% $3,719  $3,587  $132   4%
Interest income  271   231   40   17   752   692   60   9 
Interest expense  65   55   10   18   178   167   11   7 
Net interest income  206   176   30   17   574   525   49   9 
Total revenues net of interest expense  1,483   1,381   102   7   4,293   4,112   181   4 
Provisions for losses  106   84   22   26   256   233   23   10 
Total revenues net of interest expense after provisions for losses  1,377   1,297   80   6   4,037   3,879   158   4 
Expenses                                
Marketing, promotion, rewards, Card Member services and other  587   554   33   6   1,653   1,535   118   8 
Salaries and employee benefits and other operating expenses  483   535   (52)  (10)  1,510   1,608   (98)  (6)
Total expenses  1,070   1,089   (19)  (2)  3,163   3,143   20   1 
Pretax segment income  307   208   99   48   874   736   138   19 
Income tax provision  21   53   (32)  (60)  161   165   (4)  (2)
Segment income $286  $155  $131   85% $713  $571  $142   25%
Effective tax rate  6.8%  25.5%          18.4%  22.4%        

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
Credit AgencyAmerican Express brand and extending the reach of the global network. It also provides travel services to consumers outside the United States.
Non-interest revenues increased for both the three and nine month periods, primarily driven by higher discount revenue in both periods, due to an increase in proprietary billed business, as well as higher net card fees, partially offset in the nine month period by a prior-year contractual payment from a GNS partner. Total billed business increased, for both the three and nine months, reflecting higher cards-in-force and average spend per card. Refer to Tables 6, 7 and 13 for additional information on billed business.
Net interest income increased for both the three and nine month periods, primarily driven by higher average loan balances and higher yields.
Provisions for losses increased for both the three and nine month periods due to strong growth in both Card Member receivables and loans, as well as an increase in net write-off rates.
Marketing, promotion, rewards, Card Member services and other expenses increased for both the three and nine month periods, 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 expenses decreased for both the three and nine month periods, primarily driven by lower salaries and employee benefits costs, including restructuring charges in the prior year, partially offset in the nine month period by higher technology and other servicing-related costs.
The effective tax rates decreased for both the three and nine month periods, primarily reflecting the allocated share of tax benefits related to the realization of certain foreign tax credits and the geographic mix of business, and additionally in the nine month period, the allocated share of tax benefits related to the resolution of certain prior years’ tax items. In addition, the effective tax rate in all periods reflected 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.


Table 13: ICNS Selected Statistical Information

  As of or for the  Change  As of or for the  Change 
  Three Months Ended  2017  Nine Months Ended  2017 
  September 30,  vs.  September 30,  vs. 
(Millions, except percentages and where indicated) 2017  2016  2016  2017  2016  2016 
Card billed business (billions)
                  
Proprietary $30.5  $26.6   15% $86.0  $77.8   11%
GNS  46.6   44.8   4   135.8   129.1   5 
  Total $77.1  $71.4   8  $221.8  $206.9   7 
Total cards-in-force                        
Proprietary  15.6   14.8   5   15.6   14.8   5 
GNS  49.0   48.1   2   49.0   48.1   2 
  Total  64.6   62.9   3   64.6   62.9   3 
Proprietary basic cards-in-force  10.8   10.3   5   10.8   10.3   5 
Average proprietary basic Card Member spending (dollars)
 $2,840  $2,596   9  $8,111  $7,665   6 
Total segment assets (billions)
 $38.9  $34.4   13  $38.9  $34.4   13 
Segment capital (billions)
 $2.9  $2.7   7  $2.9  $2.7   7 
Return on average segment capital (a)
  29.5%  26.4%      29.5%  26.4%    
Card Member loans: (b)
                        
Total loans (billions)
 $7.8  $6.7   16  $7.8  $6.7   16 
Average loans (billions)
 $7.5  $6.7   12  $7.2  $6.8   6%
Net write-off rate – principal only  (c)
  2.2%  2.1%      2.1%  2.0%    
Net write-off rate – principal, interest and fees (c)
  2.7%  2.6%      2.6%  2.5%    
30+ days past due loans as a % of total  1.6%  1.7%      1.6%  1.7%    
Calculation of Net Interest Yield on Card Member loans:                        
Net interest income $206  $176      $574  $525     
Exclude:                        
Interest expense not attributable to our Card Member loan portfolio  17   12       41   33     
Interest income not attributable to our Card Member loan portfolio  (4)  ―       (10)  (7)    
Adjusted net interest income (d)
 $219  $188      $605  $551     
                         
Average loans (billions)
 $7.5  $6.7      $7.2  $6.8     
                         
Net interest income divided by average loans  11.0%  10.5%      10.6%  10.4%    
Net interest yield on Card Member loans (d)
  11.6%  11.2%      11.2%  10.9%    
Card Member receivables: (b)
                        
Total receivables (billions)
 $6.5  $5.6   16% $6.5  $5.6   16%
Net write-off rate – principal only (c)
  2.2%  2.0%      2.1%  2.1%    
Net write-off rate – principal and fees(c)
  2.4%  2.2%      2.2%  2.3%    
30+ days past due as a % of total  1.4%  1.5%      1.4%  1.5%    
(a)Return on average segment capital is calculated by dividing (i) one-year period segment income ($797 million and $711 million for the twelve months ended September 30, 2017 and 2016, respectively) by (ii) one-year average segment capital ($2.7 billion for both the twelve months ended September 30, 2017 and 2016).EntityShort-Term RatingsLong-Term RatingsOutlook
(b)Refer to Table 8 footnote (a).
FitchAll rated entitiesF1ANegative
(c)
Moody’sRefer to Table 8 footnote (e).
(d)Adjusted net interest income and net interest yield on 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 is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.

Global Commercial Services


Table 14: GCS Selected Income Statement Data

  Three Months Ended     Nine Months Ended    
  September 30,  Change  September 30,  Change 
(Millions, except percentages) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Revenues                        
Non-interest revenues $2,360  $2,240  $120   5% $6,999  $6,710  $289   4%
Interest income  351   282   69   24   1,004   913   91   10 
Interest expense  144   98   46   47   382   297   85   29 
Net interest income  207   184   23   13   622   616   6   1 
Total revenues net of interest expense  2,567   2,424   143   6   7,621   7,326   295   4 
Provisions for losses  194   134   60   45   556   433   123   28 
Total revenues net of interest expense after provisions for losses  2,373   2,290   83   4   7,065   6,893   172   2 
Expenses                                
Marketing, promotion, rewards, Card Member services and other  905   808   97   12   2,792   2,415   377   16 
Salaries and employee benefits and other operating expenses  696   753   (57)  (8)  2,098   2,078   20   1 
Total expenses  1,601   1,561   40   3   4,890   4,493   397   9 
Pretax segment income  772   729   43   6   2,175   2,400   (225)  (9)
Income tax provision  243   263   (20)  (8)  728   873   (145)  (17)
Segment income $529  $466  $63   14% $1,447  $1,527  $(80)  (5)%
Effective tax rate  31.5%  36.1%          33.5%  36.4%        

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.
Non-interest revenues increased for both the three and nine month periods, primarily driven by higher discount revenue due to increases in billed business, partially offset by increased contra-discount revenue driven by higher client incentives. The increase in non-interest revenues, in both periods, 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 for both the three and nine month periods, 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.
Provisions for losses increased for both the three and nine month periods 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 in the nine month period by improving credit performance in the commercial financing portfolio.
Marketing, promotion, rewards, Card Member services and other expenses increased for both the three and nine month periods, driven by higher Card Member rewards expenses, which increased $120 million and $366 million for the three and nine month periods, respectively, partially offset by declines in marketing and promotion expenses in the same respective periods. The higher Card Member rewards expenses were primarily driven by enhancements to Platinum rewards and higher spending volumes, partially offset in the nine month period by Costco-related expenses in the prior year.


Salaries and employee benefits and other operating expenses decreased for the three month period and was relatively flat for the nine month period, 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 offset in the nine month period by the prior-year gain on the sale of the Costco HFS portfolio.
The effective tax rate was lower for both the three and nine months, primarily reflecting the geographic mix of business.

Table 15: GCS Selected Statistical Information

  As of or for the  Change  As of or for the  Change 
  Three Months Ended  2017  Nine Months Ended  2017 
  September 30,  vs.  September 30,  vs. 
(Millions, except percentages and where indicated) 2017  2016  2016  2017  2016  2016 
Card billed business (billions)
 $109.7  $100.1   10% $321.5  $302.8   6%
Total cards-in-force  13.9   13.6   2   13.9   13.6   2 
Basic cards-in-force  13.9   13.6   2   13.9   13.6   2 
Average basic Card Member spending (dollars)
 $7,907  $7,386   7  $23,364  $20,857   12 
Total segment assets (billions)
 $52.7  $46.8   13  $52.7  $46.8   13 
Segment capital (billions)
 $7.3  $7.3   ―  $7.3  $7.3   ― 
Return on average segment capital (a)
  25.3%  28.0%      25.3%  28.0%    
Card Member loans (billions)
 $10.7  $9.1   18  $10.7  $9.1   18 
Card Member receivables (billions)
 $33.8  $29.6   14  $33.8  $29.6   14 
Card Member loans: (b)
                        
Total loans - GSBS (billions)
 $10.7  $9.0   19  $10.7  $9.0   19 
Average loans - GSBS (billions)
 $10.5  $8.8   19  $10.1  $8.4   20 
Net write-off rate (principal only) - GSBS (c)
  1.6%  1.5%      1.6%  1.4%    
Net write-off rate (principal, interest and fees) - GSBS (c)
  1.9%  1.8%      1.9%  1.7%    
30+ days past due as a % of total - GSBS  1.1%  1.1%      1.1%  1.1%    
Calculation of Net Interest Yield on Card Member loans:                        
Net interest income $207  $184      $622  $616     
Exclude:                        
Interest expense not attributable to our Card  Member loan portfolio  108   79       290   231     
Interest income not attributable to our Card  Member loan portfolio  (29)  (28)      (83)  (85)    
Adjusted net interest income(d)
 $286  $235      $829  $762     
                         
Average loans (billions)(e)
 $10.5  $8.8      $10.1  $9.8     
                         
Net interest income divided by average loans  7.9%  8.3%      8.2%  8.4%    
Net interest yield on Card Member loans (d)
  10.8%  10.6%      10.9%  10.4%    
Card Member receivables: (b)
                        
Total receivables - GCP (billions)
 $17.9  $15.8   13  $17.9  $15.8   13 
90+ days past billing as a % of total - GCP (f)
  0.9%  0.8%      0.9%  0.8%    
Net loss ratio (as a % of charge volume) - GCP  0.09%  0.11%      0.10%  0.09%    
Total receivables - GSBS (billions)
 $15.9  $13.8   15% $15.9  $13.8   15%
Net write-off rate (principal only) - GSBS (c)
  1.5%  1.3%      1.6%  1.6%    
Net write-off rate (principal and fees) - GSBS (c)
  1.7%  1.5%      1.8%  1.8%    
30+ days past due as a % of total - GSBS  1.4%  1.5%      1.4%  1.5%    
(a)Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.8 billion and $2.0 billion for the twelve months ended September 30, 2017 and 2016, respectively) by (ii) one-year average segment capital ($7.2 billion for both the twelve months ended September 30, 2017 and 2016).
(b)Refer to Table 8 footnote (a).
(c)Refer to Table 8 footnote (e).
(d)Adjusted net interest income and net interest yield on 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 is a component of net interest yield on Card Member loans, which provides a measure of profitability of our Card Member loan portfolio.
(e)Refer to Table 9 footnote (b).
(f)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.

Global Merchant Services


Table 16: GMS Selected Income Statement Data

  Three Months Ended     Nine Months Ended    
  September 30,  Change  September 30,  Change 
(Millions, except percentages) 2017  2016  2017 vs. 2016  2017  2016  2017 vs. 2016 
Revenues                        
Non-interest revenues $1,088  $1,044  $44   4% $3,191  $3,172  $19   1%
Interest income  ―   ―   ―   ―   1   1   ―   ― 
Interest expense  (65)  (60)  (5)  8   (188)  (180)  (8)  4 
Net interest income  65   60   5   8   189   181   8   4 
Total revenues net of interest expense  1,153   1,104   49   4   3,380   3,353   27   1 
Provisions for losses  8   8   ―   ―   11   21   (10)  (48)
Total revenues net of interest expense after provisions for losses  1,145   1,096   49   4   3,369   3,332   37   1 
Expenses                                
Marketing, promotion, rewards, Card Member services and other  48   55   (7)  (13)  117   171   (54)  (32)
Salaries and employee benefits and other operating expenses  580   470   110   23   1,488   1,422   66   5 
Total expenses  628   525   103   20   1,605   1,593   12   1 
Pretax segment income  517   571   (54)  (9)  1,764   1,739   25   1 
Income tax provision  149   212   (63)  (30)  603   650   (47)  (7)
Segment income $368  $359  $9   3% $1,161  $1,089  $72   7%
Effective tax rate  28.8%  37.1%          34.2%  37.4%        

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 closed-loop network. GMS also operates loyalty coalition businesses in certain countries around the world.


Non-interest revenues increased for the three month period and were relatively flat for the nine month period, primarily driven by discount revenue, which increased and was relatively flat for the same respective periods. The discount revenue increase in the three month period was driven by billed business growth and an increase in loyalty coalition revenues, both of which were offset in the nine month period by Costco-related revenues in the prior year.
Marketing, promotion, rewards, Card Member services and other expenses decreased for both the three and nine month periods, reflecting lower levels of spending on growth initiatives.
Salaries and employee benefits and other operating expenses increased for both the three and nine month periods, primarily driven by charges related to the U.S. loyalty coalition business in the current quarter, partially offset by a benefit from a change in the liability related to non-delivery of goods and services by merchants and growth of the OptBlue program, which does not entail merchant acquirer payments.
The effective tax rate decreased for both the three and nine month periods, primarily reflecting the allocated share of tax benefits related to the realization of certain foreign tax credits and the geographic mix of business.

Table 17: GMS Selected Statistical Information

  As of or for the  Change  As of or for the  Change 
  Three Months Ended  2017  Nine Months Ended  2017 
  September 30,  vs.  September 30,  vs. 
(Millions, except percentages and where indicated) 2017  2016  2016  2017  2016  2016 
Loyalty Coalition revenue $116  $106   9% $332  $304   9%
Average discount rate  2.42%  2.47%      2.44%  2.45%    
Total segment assets (billions)
 $26.7  $23.2   15% $26.7  $23.2   15%
Segment capital (billions)
 $2.6  $2.3   13% $2.6  $2.3   13%
Return on average segment capital (a)
  59.3%  59.9%      59.3%  59.9%    
(a)Return on average segment capital is calculated by dividing (i) one-year period segment income ($1.5 billion for both the twelve months ended September 30, 2017 and 2016) by (ii) one-year average segment capital ($2.6 billion and $2.4 billion for the twelve months ended September 30, 2017 and 2016, respectively).

Corporate & Other

Corporate functions and certain other businesses, including our Prepaid Services business and other operations, are included in Corporate & Other.
Corporate & Other net expense increased to $302 million for the three month period, compared to $239 million in the same period a year ago and increased to $772 million for the nine month period compared to $766 million in the same period a year ago. The increase in the three month period was driven in part by charges related to the U.S. prepaid business, which were partially offset in the nine month period  by prior-year restructuring charges.
Results for both 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.



CONSOLIDATED 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.

Transitional Basel III
The following table presents our regulatory risk-based capital ratios and leverage ratios and those of our significant bank subsidiaries, American Express CenturionTravel Related Services Company, Inc.
N/AA2Negative
Moody'sAmerican Express Credit CorporationPrime-1A2Negative
Moody'sAmerican Express National Bank (Centurion Bank)Prime-1A3Negative
Moody'sAmerican Express CompanyN/AA3Negative
S&PAmerican Express Travel Related Services Company, Inc.N/AA-Stable
S&PAmerican Express Credit Corporation and American Express National Bank FSB (AmericanA-2A-Stable
S&PAmerican Express Bank), as of September 30, 2017.

Table 18: Regulatory Risk-Based Capital and Leverage Ratios

Basel IIIRatios as of
StandardsSeptember 30,
2017(a)
2017
Risk-Based Capital
Common Equity Tier 15.8%
   American Express Company11.9%
   American Express Centurion Bank16.6
   American Express Bank, FSB13.3
Tier 17.3
   American Express Company13.0
   American Express Centurion Bank16.6
   American Express Bank, FSB13.3
Total9.3
   American Express Company14.7
   American Express Centurion Bank17.9
   American Express Bank, FSB14.6
Tier 1 Leverage4.0
   American Express Company10.9
   American Express Centurion Bank15.9
   American Express Bank, FSB11.8
Supplementary Leverage Ratio(b)
3.0%
   American Express Company9.3
   American Express Centurion Bank12.3
   American Express Bank, FSB9.7%
(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.CompanyA-2BBB+Stable
(b)The minimum supplementary leverage ratio (SLR) requirement of 3 percent is effective January 1, 2018.
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) to total funding, should reduce the impact that credit rating downgrades would have on our funding capacity and costs.
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Liquidity Management
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 in amounts sufficient to meet our expected future financial obligations and business requirements for liquidity for a period of at least twelve months in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions.
Our liquidity management strategy includes a number of elements, including, but not limited to:
•Maintaining diversified funding sources (refer to the “Funding Strategy” section for more details);
•Maintaining unencumbered liquid assets and off-balance sheet liquidity sources;
•Projecting cash inflows and outflows under a variety of economic and market scenarios;
•Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements; and
•Incorporating liquidity risk management as appropriate into our capital adequacy framework.
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, as well as additional stress scenarios required under our liquidity risk policy.
We believe that we currently maintain sufficient liquidity to meet all internal and regulatory liquidity requirements. As of September 30, 2020, we had Cash and cash equivalents of $33.0 billion. The increase of $9.1 billion from $23.9 billion as of December 31, 2019 was primarily driven by the decline in the balances of our Card Member loans and receivables.
The net interest expense to maintain these liquidity resources depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment yields. As the amount of our liquidity resources has increased, the level of future net interest expense to maintain these resources is expected to be significant, as the investment income is less than the cost of funding.
Securitized Borrowing Capacity
As of September 30, 2020, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2022, 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). As the balance of Card Member receivables in the Charge Trust fluctuates over time in line with business volumes, our capacity to draw on the Charge Trust facility may be reduced when volumes decline. We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 15, 2022, 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 working capital needs, as well as to further enhance our contingent funding resources. As of September 30, 2020, no amounts were drawn on the Charge Trust facility or the Lending Trust facility.
Federal Reserve Discount Window
As an insured depository institution, AENB may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying collateral that it 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 $61.7 billion as of September 30, 2020 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.
Committed Bank Credit Facility
In addition to the secured borrowing facilities described above, we maintained a committed syndicated bank credit facility as of September 30, 2020 of $3.5 billion, with a maturity date of October 15, 2022. As of September 30, 2020, no amounts were drawn on this facility.
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Unused Credit Outstanding and Certain Contractual Obligations
As of September 30, 2020, we had approximately $313 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. Our charge card products generally have no pre-set spending limit and therefore are not reflected in unused credit available to Card Members.
We provide Card Member protection that covers losses associated with purchased goods and services. See Note 7 to the Consolidated Financial Statements for further information.
Cash Flows
The following table summarizes our cash flow activity for the nine months ended September 30:
Table 20: Cash Flows
(Billions)20202019
Total cash provided by (used in):
Operating activities$2.1 $10.4 
Investing activities17.2 (11.3)
Financing activities(8.4)(1.9)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash0.3 0.3 
Net increase (decrease) in cash, cash equivalents and restricted cash$11.2 $(2.5)
Cash Flows from Operating Activities
Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions for credit losses, depreciation and amortization, deferred taxes and stock-based compensation and (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.
The decrease in net cash provided by operating activities over the periods of comparison was primarily driven by the significant decline in billed business, resulting in lower accounts payable and other liabilities, and purchases of loyalty program points from certain of our cobrand partners, which resulted in an increase in Other assets. These points are held as prepaid assets until they are used for rewards, promotions and incentives.
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 provided by investing activities over the periods of comparison was primarily driven by a decline in the balances outstanding from Card Member loans and receivables as Card Members continued to pay down outstanding balances, combined with a significant decline in Card Member spending during the period due to the continued impacts of the COVID-19 pandemic and the resulting containment measures, partially offset by a net increase in the investment securities portfolio.
Cash Flows from Financing Activities
Our cash flows from financing activities primarily include changes in customer deposits, long-term debt and short-term borrowings, as well as dividend payments and share repurchases.
The increase in net cash used in financing activities over the periods of comparison was primarily driven by higher net repayment of debt, partially offset by higher growth in customer deposits and the suspension of the share repurchase program.
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OTHER MATTERS
Certain Legislative, Regulatory and Other Developments
Supervision & Regulation
We are subject to extensive government regulation and supervision in jurisdictions around the world, and the costs of compliance are substantial. In recent years, the financial services industry has been subject to rigorous scrutiny, high regulatory expectations, an increasing range of regulations, and a stringent and unpredictable enforcement environment.
Governmental authorities have focused, and we believe will continue to focus, considerable attention on reviewing compliance by financial services firms with laws and regulations, and as a result, we continually work to evolve and improve our risk management framework, governance structures, practices and procedures. Reviews to assess compliance with laws and regulations by governmental authorities, as well as our own internal reviews, have resulted in, and are likely to continue to result in, changes to our products, practices and procedures, restitution to our customers and increased costs related to regulatory oversight, supervision and examination. We have also been subject to regulatory actions and may continue to be the subject of such actions, including governmental inquiries, investigations, enforcement proceedings and the imposition of fines or civil money penalties, in the event of noncompliance or alleged noncompliance with laws or regulations. 
Please see the “Supervision and Regulation” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K) for further information.
Government Responses to COVID-19 Pandemic
In response to the COVID-19 pandemic, authorities around the world have implemented numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. In addition to these measures, which have substantially curtailed household and business activity, fiscal and monetary policy measures have been deployed for the stated purpose of attempting to mitigate the adverse effects on the economy. In the United States, this has included the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and a number of emergency lending and liquidity facilities established by the Federal Reserve.
Among other things, the CARES Act created a new loan guarantee program in which we participated called the Paycheck Protection Program, designed to provide small businesses with support to cover payroll and certain other expenses. The CARES Act also provides financial institutions with the option to temporarily suspend (i) certain requirements under U.S. GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be treated as troubled debt restructurings and (ii) any determination that a loan modified as a result of the COVID-19 pandemic is a troubled debt restructuring (including impairment for accounting purposes).
There have also been various governmental actions taken or proposed to provide forms of relief, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees.
Governmental actions taken in response to the COVID-19 pandemic have not always been coordinated or consistent across jurisdictions but, in general, have been expanding in scope and intensity. The efficacy and ultimate effect of these actions is not known. We continue to monitor federal, state and international regulatory developments in relation to the COVID-19 pandemic and their potential impact on our operations.
Payments 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.

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The European Union, Australia and other jurisdictions have focused on interchange fees (that is, the fee paid by the bankcard merchant acquirer to the card issuer in payment networks like Visa and Mastercard), as well as the rules, contract terms and practices governing merchant card acceptance. Regulation and other governmental actions relating to pricing or practices could affect all networks directly or indirectly, as well as adversely impact consumers and merchants. Among other things, regulation of bankcard fees has negatively impacted, and may continue to negatively impact, the discount revenue we earn, 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 also extend to certain aspects of our business, such as network and cobrand arrangements or the terms of card acceptance for merchants. There is uncertainty as to when or how interchange fee caps and other provisions of the EU payments legislation might apply when we work with cobrand partners and agents in the EU. Given differing interpretations by regulators and participants in cobrand arrangements, we are subject to regulatory action, penalties and the possibility we will not be able to maintain our existing cobrand and agent relationships in the EU.
Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to localize aspects of their operations, such as processing infrastructure and data storage, which could increase our costs and diminish the value of our closed loop. The development and enforcement of payment system regulatory regimes generally continue to grow and may adversely affect our ability to compete effectively and maintain and extend our global network.
For more information on payments regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2019 Form 10-K.
Surcharging
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 challenged in litigation brought by merchant groups and some such laws have been overturned. 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 our business. 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.
For more information on the potential impacts of surcharging and other actions that could impair the Card Member experience, please see the “Risk Factors” section of the 2019 Form 10-K.
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.
For more information on consumer financial products regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2019 Form 10-K.
Community Reinvestment Act
AENB is subject to the Community Reinvestment Act of 1977 (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. In May 2020, the Office of the Comptroller of the Currency issued a final rule intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; and (iii) change the methods for CRA measurement, data collection, recordkeeping and reporting. The final rule retains the current community development test for limited purpose banks, such as AENB. It will also require banks to designate additional deposit-based assessment areas. AENB must comply with the final rule by January 1, 2023.
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China
During the third quarter of 2020, our joint venture with Lianlian DigiTech Co., Ltd, a Chinese fintech services company, began processing transactions pursuant to a network clearing license in mainland China. There can be no assurance that we will be able to successfully compete in China with domestic payment card networks and alternative payment providers.
Antitrust Litigation
The U.S. Department of Justice and certain states’ attorneys general brought an action against us in 2010 alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from engaging in various actions to discriminate against our card products violate the U.S. antitrust laws. On June 25, 2018, the Supreme Court found in favor of American Express in that case. We continue to vigorously defend similar antitrust claims initiated by merchants. See Note 7 to the "Consolidated Financial Statements" for descriptions of the cases. It is possible that actions impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a material adverse effect on our business. For more information on the potential impacts of an adverse decision in the merchant litigations on our business, please see the “Risk Factors” section of the 2019 Form 10-K.
Privacy, 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 and a governance framework to comply with applicable laws, meet evolving customer expectations and support and enable business innovation and growth. Global financial institutions like us, as well as our customers, colleagues, regulators, vendors and other third parties, 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 cyber attacks, including computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing, impersonation and identity takeover attempts), corporate espionage, hacking, website defacement, denial-of-service attacks and other attacks and similar disruptions from the misconfiguration or unauthorized use of or access to computer systems. For more information on privacy, data protection and information and cyber security regulation and the potential impacts of a major information or cyber security incident on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2019 Form 10-K.
Glossary of Selected Terminology
Adjusted net interest income — A non-GAAP measure that represents net interest income attributable to our Card Member loans (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.
Airline-related volume — Represents spend at airlines as a merchant.
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 transferred loans or receivables. The securitized loans and receivables of our Lending Trust and Charge Trust (collectively, the Trusts) 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 the average pricing at all merchants accepting American Express cards and represents the percentage of proprietary and GNS billed business retained by us from merchants we acquire, or from merchants acquired by third parties on our behalf, net of amounts retained by such third parties. The average discount rate, together with billed business, drive our discount revenue.
Billed business — Represents transaction volumes (including cash advances) on cards and other payment products issued by American Express (proprietary billed business) and cards issued under network partnership agreements with banks and other institutions, including joint ventures (GNS billed business).  In-store spending activity within GNS retail cobrand portfolios, from which we earn no revenue, is not included in billed business.  Billed business is reported as inside the United States or outside the United States based on the location of the issuer. Billed business, together with the average discount rate, drive our discount revenue.
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Capital ratios — Represents the minimum standards established by 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 section under “Consolidated Capital Resources and Liquidity” for further related definitions under Basel III.
Cards-in-force — Represents the number of cards that are issued and outstanding by American Express (proprietary cards-in-force) and cards issued and outstanding under network partnership agreements with banks and other institutions, including joint ventures (GNS cards-in-force), except for GNS retail cobrand cards that had no out-of-store spending activity during the prior twelve months. Basic cards-in-force excludes supplemental cards issued on consumer accounts. Cards-in-force is useful in understanding the size of our Card Member base.
Card Member — The individual holder of an issued American Express-branded card.
Card Member loans — Represents the outstanding amount due from Card Members for charges made on their American Express credit cards, as well as any interest charges and card-related fees. Card Member loans also include revolving balances on certain American Express charge card products.
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, other than revolving balances on certain American Express charge cards with Pay Over Time features. Such revolving balances are included within Card Member loans.
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 cards have additional Pay Over Time feature(s) that allow revolving of certain charges.
Cobrand cards — Cards issued under cobrand agreements with selected commercial partners. 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. The partner is then 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 — Primarily represents the amount earned on transactions occurring at merchants that have entered into a card acceptance agreement with us, a GNS partner or other third-party merchant acquirer, for facilitating transactions between the merchants and Card Members.
Interest expense — Includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs. 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. 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 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 — 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.
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Loyalty Coalitions — Programs that 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 in these programs generally fund the consumer offers and are responsible to us for the cost of rewards points; we earn revenue from operating the loyalty platform and by providing marketing support.
Net card fees — Represents the card membership fees earned during the period 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 provision for credit losses and are thus not included in the net interest yield calculation.
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 receivable 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.
Operating expenses — Represents salaries and employee benefits, professional services, occupancy and equipment, and other expenses.
Reserve build (release) — Represents the portion of the provisions for credit losses for the period related to increasing or decreasing reserves for credit losses as a result of, among other things, changes in volumes, macroeconomic outlook, portfolio composition and credit quality of portfolios. Reserve build represents the amount by which the provision for credit losses exceeds net write-offs, while reserve release represents the amount by which net write-offs exceed the provision for credit losses.
Return on average equity — Calculated by dividing one-year period net income by one-year average total shareholders’ equity.
T&E-related volume — Represents spend on travel and entertainment, which primarily includes airline, cruise, lodging and dining merchant categories. Non-T&E-related volume includes spend in all other merchant categories.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. The forward-looking statements, which address our current expectations regarding business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue,” 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:
•uncertainty regarding the duration, extent and severity of the pandemic; a further deterioration in global economic and business conditions and consumer and business spending generally; an inability or unwillingness of Card Members to pay amounts owed to us; insufficient governmental stimulus and relief programs to address the impact of the pandemic; prolonged measures to contain the spread of COVID-19 or premature easing of such containment measures, both of which could further exacerbate the effects on business activity and our Card Members, partners and merchants; health concerns associated with the pandemic continuing to affect consumer behavior, spending levels and preferences, and travel patterns and demand even after government restrictions are lifted and economies reopen; our inability to manage risk in an uncertain environment; market volatility, changes in capital and credit market conditions and the availability and cost of capital; issues impacting brand perceptions and our reputation; and an inability of business partners to meet their obligations to us and our customers due to slowdowns or disruptions in their businesses, bankruptcy or liquidation, or otherwise;
•future credit performance, which will depend in part on macroeconomic factors such as unemployment rates, GDP and the volume of bankruptcies; collections capabilities; the enrollment in, and effectiveness of, hardship programs and troubled debt restructurings; the availability of government stimulus programs for borrowers; and governmental actions that provide forms of relief with respect to certain loans and fees, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance;
•net interest income and the amount of loans outstanding being higher or lower than current expectations, which will depend on the behavior of Card Members and their actual spending and borrowing patterns, our ability to manage risk and enhance the Card Member value propositions, and changes in interest rates and our cost of funds;
•the actual amount to be spent on marketing, which will be based in part on continued changes in macroeconomic conditions and business performance; management’s assessment of competitive opportunities; and the receptivity of Card Members and prospective customers to advertising initiatives; and management’s ability to realize efficiencies and optimize investment spending;
•the actual amount to be spent on Card Member rewards and services and business development, and the relationship of these variable customer engagement costs to revenues, which could be impacted by Card Members’ interest in the value propositions we offer; further enhancements to product benefits to make them attractive to Card Members, potentially in a manner that is not cost effective; 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 (including travel redemptions); the costs related to reward point redemptions; and new and renegotiated contractual obligations with business partners;
•our ability to control our operating expenses, which could be impacted by, among other things, an inability to balance expense control and investments in the business; management’s decision to increase or decrease spending in such areas as technology, business and product development, sales force, premium servicing and digital capabilities depending on overall business performance; an inability to innovate efficient channels of customer interactions, such as chat supported by artificial intelligence; restructuring activity; higher-than-expected cyber, fraud or compliance expenses or consulting, legal and other professional fees, including as a result of increased litigation or internal and regulatory reviews; the level of M&A activity and related expenses; the payment of civil money penalties, disgorgement, restitution, non-income tax assessments and litigation-related settlements; impairments of goodwill or other assets; the impact of changes in foreign currency exchange rates on costs; and greater than expected inflation;
35


•net card fees not growing consistent with current expectations, which could be impacted by, among other things, the further deterioration in macroeconomic conditions impacting the ability and desire of Card Members to pay card fees; higher attrition rates; Card Members continuing to be attracted to our premium card products and the pace of Card Member acquisition activity; and an inability to address competitive pressures and implement our strategies and business initiatives, including introducing new and enhanced benefits and services that are designed for the current environment;
•a further decline of the average discount rate, including as a result of further 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) and other factors;
•changes in the substantial and increasing worldwide competition in the payments industry, including competitive pressure that may materially impact the prices we charge merchants that accept American Express cards, competition for new and existing cobrand relationships, competition from new and non-traditional competitors and the success of marketing, promotion and rewards programs;
•changes affecting our plans regarding the return of capital to shareholders, including our intention to maintain our current quarterly common share dividend for the fourth quarter of 2020, subject to approval by the Board of Directors, which will depend on factors such as our capital levels and regulatory capital ratios; changes in the stress testing and capital planning process and approval of our capital plans by the Federal Reserve; our results of operations and financial condition; our credit ratings and rating agency considerations; and the economic environment and market conditions in any given period;
•a failure in or breach of our operational or security systems, processes or infrastructure, or those of third parties, including as a result of cyberattacks, which could compromise the confidentiality, integrity, privacy and/or security of data, disrupt our operations, reduce the use and acceptance of American Express cards and lead to regulatory scrutiny, litigation, remediation and response costs, and reputational harm;
•further changes in capital and credit market conditions, 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;
•legal and regulatory developments, 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 Card Members, partners, merchants and other third parties, including our ability to continue certain cobrand and agent relationships in the EU; 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 result in harm to the American Express brand;
•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
•factors beyond our control such as resurgences of COVID-19 cases, severe weather conditions, natural and man-made disasters, power loss, disruptions in telecommunications, or terrorism, any of which could significantly affect demand for and spending on American Express cards, delinquency rates, loan and receivable 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 the 2019 Form 10-K, the Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2020, and other reports filed with the Securities and Exchange Commission.
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ITEM 1. FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30 (Millions, except per share amounts)20202019
Revenues
Non-interest revenues
Discount revenue$4,999 $6,566 
Net card fees1,191 1,033 
Other fees and commissions478 825 
Other209 362 
Total non-interest revenues6,877 8,786 
Interest income
Interest on loans2,266 2,885 
Interest and dividends on investment securities33 53 
Deposits with banks and other25 142 
Total interest income2,324 3,080 
Interest expense
Deposits202 401 
Long-term debt and other248 476 
Total interest expense450 877 
Net interest income1,874 2,203 
Total revenues net of interest expense8,751 10,989 
Provisions for credit losses
Card Member receivables117 238 
Card Member loans571 604 
Other(23)37 
Total provisions for credit losses665 879 
Total revenues net of interest expense after provisions for credit losses8,086 10,110 
Expenses
Marketing and business development1,822 1,821 
Card Member rewards2,004 2,614 
Card Member services259 558 
Salaries and employee benefits1,408 1,499 
Other, net1,229 1,352 
Total expenses6,722 7,844 
Pretax income1,364 2,266 
Income tax provision291 511 
Net income$1,073 $1,755 
Earnings per Common Share (Note 14)(a)
Basic$1.31 $2.09 
Diluted$1.30 $2.08 
Average common shares outstanding for earnings per common share:
Basic804 825 
Diluted805 827 
(a)Represents net income less (i) earnings allocated to participating share awards of $7 million and $11 million for the three months ended September 30, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $16 million and $21 million for the three months ended September 30, 2020 and 2019, respectively.
See Notes to Consolidated Financial Statements.
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AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30 (Millions, except per share amounts)20202019
Revenues
Non-interest revenues
Discount revenue$14,852 $19,338 
Net card fees3,442 2,965 
Other fees and commissions1,647 2,465 
Other707 1,087 
Total non-interest revenues20,648 25,855 
Interest income
Interest on loans7,543 8,374 
Interest and dividends on investment securities98 138 
Deposits with banks and other155 487 
Total interest income7,796 8,999 
Interest expense
Deposits788 1,206 
Long-term debt and other920 1,457 
Total interest expense1,708 2,663 
Net interest income6,088 6,336 
Total revenues net of interest expense26,736 32,191 
Provisions for credit losses
Card Member receivables1,069 715 
Card Member loans3,416 1,732 
Other356 102 
Total provisions for credit losses4,841 2,549 
Total revenues net of interest expense after provisions for credit losses21,895 29,642 
Expenses
Marketing and business development4,889 5,172 
Card Member rewards5,745 7,717 
Card Member services923 1,671 
Salaries and employee benefits4,152 4,288 
Other, net3,748 4,351 
Total expenses19,457 23,199 
Pretax income2,438 6,443 
Income tax provision741 1,377 
Net income$1,697 $5,066 
Earnings per Common Share (Note 14)(a)
Basic$2.01 $5.97 
Diluted$2.01 $5.95 
Average common shares outstanding for earnings per common share:
Basic805 833 
Diluted806 835 
(a)Represents net income less (i) earnings allocated to participating share awards of $10 million and $35 million for the nine months ended September 30, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $65 million and $61 million for the nine months ended September 30, 2020 and 2019, respectively.
See Notes to Consolidated Financial Statements.
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AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Millions)2020201920202019
Net income$1,073 $1,755 $1,697 $5,066 
Other comprehensive income (loss):
Net unrealized debt securities (losses) gains, net of tax(9)3 43 46 
Foreign currency translation adjustments, net of tax40 (59)(159)(87)
Net unrealized pension and other postretirement benefits, net of tax8 1 (19)(23)
Other comprehensive income (loss)39 (55)(135)(64)
Comprehensive income$1,112 $1,700 $1,562 $5,002 
See Notes to Consolidated Financial Statements.
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AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions, except share data)September 30,
2020		December 31,
2019
Assets
Cash and cash equivalents
Cash and due from banks$2,105 $3,402 
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2020, $304; 2019, $87)30,817 20,392 
Short-term investment securities108 138 
Total cash and cash equivalents33,030 23,932 
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2020, $4,247; 2019, $8,284), less reserves for credit losses: 2020, $422; 2019, $61940,389 56,794 
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2020, $25,219; 2019, $32,230), less reserves for credit losses: 2020, $5,688; 2019, $2,38363,918 84,998 
Other loans, less reserves for credit losses: 2020, $370; 2019, $1523,144 4,626 
Investment securities22,443 8,406 
Premises and equipment, less accumulated depreciation and amortization: 2020, $7,470; 2019, $6,5624,835 4,834 
Other assets (includes restricted cash of consolidated variable interest entities: 2020, $2,065; 2019, $85), less reserves for credit losses: 2020, $85; 2019, $2719,500 14,731 
Total assets$187,259 $198,321 
Liabilities and Shareholders’ Equity
Liabilities
Customer deposits$85,461 $73,287 
Accounts payable8,232 12,738 
Short-term borrowings1,716 6,442 
Long-term debt (includes debt issued by consolidated variable interest entities: 2020, $14,582; 2019, $19,668)44,777 57,835 
Other liabilities25,204 24,948 
Total liabilities$165,390 $175,250 
Contingencies (Note 7)
Shareholders’ Equity
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of September 30, 2020 and December 31, 2019
0 0 
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 805 million shares as of September 30, 2020 and 810 million shares as of December 31, 2019161 163 
Additional paid-in capital11,818 11,774 
Retained earnings12,762 13,871 
Accumulated other comprehensive loss
Net unrealized debt securities gains, net of tax of: 2020, $24; 2019, $1176 33 
Foreign currency translation adjustments, net of tax of: 2020, $(242); 2019, $(319)(2,348)(2,189)
Net unrealized pension and other postretirement benefits, net of tax of: 2020, $(198); 2019, $(208)(600)(581)
Total accumulated other comprehensive loss(2,872)(2,737)
Total shareholders’ equity21,869 23,071 
Total liabilities and shareholders’ equity$187,259 $198,321 

See Notes to Consolidated Financial Statements.
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AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30 (Millions)
20202019
Cash Flows from Operating Activities
Net income$1,697 $5,066 
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for credit losses4,841 2,549 
Depreciation and amortization1,115 883 
Deferred taxes and other79 619 
Stock-based compensation175 217 
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Other assets(1,432)(43)
Accounts payable & other liabilities(4,384)1,145 
Net cash provided by operating activities2,091 10,436 
Cash Flows from Investing Activities
Sale of investment securities58 0 
Maturities and redemptions of investment securities4,881 5,072 
Purchase of investments(18,977)(8,917)
Net decrease (increase) in Card Member loans and receivables, and other loans32,262 (6,071)
Purchase of premises and equipment, net of sales: 2020, $1; 2019, $41(1,042)(1,214)
Acquisitions/dispositions, net of cash acquired0 (270)
Other investing activities7 148 
Net cash provided by (used in) investing activities17,189 (11,252)
Cash Flows from Financing Activities
Net increase in customer deposits12,158 3,346 
Net decrease in short-term borrowings(4,737)(285)
Proceeds from long-term debt0 12,710 
Payments of long-term debt(13,699)(13,279)
Issuance of American Express common shares34 77 
Repurchase of American Express common shares and other(1,026)(3,463)
Dividends paid(1,112)(1,048)
Net cash used in financing activities(8,382)(1,942)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash283 304 
Net increase (decrease) in cash, cash equivalents and restricted cash11,181 (2,454)
Cash, cash equivalents and restricted cash at beginning of period24,446 27,808 
Cash, cash equivalents and restricted cash at end of period$35,627 $25,354 

Supplemental cash flow information
Cash, cash equivalents and restricted cash reconciliationSep-20Dec-19Sep-19Dec-18
Cash and cash equivalents per Consolidated Balance Sheets$33,030 $23,932 $24,266 $27,445 
Restricted cash included in Other assets per Consolidated Balance Sheets2,597 514 1,088 363 
Total cash, cash equivalents and restricted cash$35,627 $24,446 $25,354 $27,808 

See Notes to Consolidated Financial Statements.
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AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
Three months ended September 30, 2020 (Millions, except per share amounts)TotalPreferred
Shares		Common
Shares		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Loss		Retained
Earnings
Balances as of June 30, 2020$21,062 $0 $161 $11,760 $(2,911)$12,052 
Net income1,073 — — — — 1,073 
Other comprehensive income39 — — — 39 0 
Other changes, primarily employee plans59 — — 58 — 1 
Cash dividends declared preferred Series B, $9.98 per share(7)— — — — (7)
Cash dividends declared preferred Series C, $9.20 per share(9)— — — — (9)
Cash dividends declared common, $0.43 per share(348)— — — — (348)
Balances as of September 30, 2020$21,869 $0 $161 $11,818 $(2,872)$12,762 

Nine months ended September 30, 2020 (Millions, except per share amounts)TotalPreferred SharesCommon SharesAdditional Paid-in CapitalAccumulated Other Comprehensive LossRetained Earnings
Balances as of December 31, 2019$23,071 $0 $163 $11,774 $(2,737)$13,871 
Cumulative effect of change in accounting principle - Reserve for Credit Losses (a)
(882)— — — — (882)
Net income1,697 — — — — 1,697 
Other comprehensive loss(135)— — — (135)0 
Repurchase of common shares(875)— (2)(105)— (768)
Other changes, primarily employee plans102 — — 149 — (47)
Cash dividends declared preferred Series B, $36.44 per share(27)— — — — (27)
Cash dividends declared preferred Series C, $43.99 per share(38)— — — — (38)
Cash dividends declared common, $1.29 per share(1,044)— — — — (1,044)
Balances as of September 30, 2020$21,869 $0 $161 $11,818 $(2,872)$12,762 
(a)Represents $1,170 million, net of tax of $288 million, related to the impact as of January 1, 2020 of adopting the new accounting guidance for the recognition of credit losses on certain financial instruments.
See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
Three months ended September 30, 2019 (Millions, except per share amounts)TotalPreferred
Shares		Common
Shares		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Loss		Retained
Earnings
Balances as of June 30, 2019$23,092 $0 $167 $11,980 $(2,606)$13,551 
Net income1,755 — — — — 1,755 
Other comprehensive loss(55)— — — (55)0 
Repurchase of common shares(1,450)— (2)(170)— (1,278)
Other changes, primarily employee plans58 — — 59 — (1)
Cash dividends declared preferred Series C, $24.50 per share(21)— — — — (21)
Cash dividends declared common, $0.43 per share(354)— — — — (354)
Balances as of September 30, 2019$23,025 $0 $165 $11,869 $(2,661)$13,652 

Nine months ended September 30, 2019 (Millions, except per share amounts)TotalPreferred
Shares		Common
Shares		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Loss		Retained
Earnings
Balances of December 31, 2018$22,290 $0 $170 $12,218 $(2,597)$12,499 
Net income5,066 — — — — 5,066 
Other comprehensive loss(64)— — — (64)0 
Repurchase of common shares(3,325)— (6)(517)— (2,802)
Other changes, primarily employee plans127 — 1 168 — (42)
Cash dividends declared preferred Series B, $26.00 per share(19)— — — — (19)
Cash dividends declared preferred Series C, $49.00 per share(42)— — — — (42)
Cash dividends declared common, $1.21 per share(1,008)— — — — (1,008)
Balances as of September 30, 2019$23,025 $0 $165 $11,869 $(2,661)$13,652 
See Notes to Consolidated Financial Statements.


43
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. Basis of Presentation
The Company
We are a globally integrated payments company that provides our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are credit and charge card products, along with travel and lifestyle 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. 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 mobile and online applications, affiliate marketing, customer referral programs, third-party vendors and business partners, direct mail, telephone, in-house sales teams, and direct response advertising.
The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. If not materially different, certain note disclosures included therein have been omitted from these Consolidated Financial Statements.
The interim Consolidated Financial Statements included in this report have not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim Consolidated Financial Statements, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.
Certain reclassifications of prior period amounts have been made to conform to the current period presentation.
Recently Adopted Accounting Standards
Effective January 1, 2020, we adopted the new credit reserving methodology, applicable to certain financial instruments, known as the Current Expected Credit Loss (CECL) methodology under a modified retrospective transition. The CECL methodology requires measurement of expected credit losses for the estimated life of the financial instrument, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. Upon implementation, total loan reserves increased by $1,663 million and total receivable reserves decreased by $493 million, along with the associated current and deferred tax impact of $288 million, and an offset to the opening balance of retained earnings, net of tax, of $882 million. There were no material changes to our business processes or internal controls as a result of adopting the new guidance. Refer to Note 3 for additional information on how management estimates reserves for credit losses in accordance with the CECL methodology.
In addition, for available-for-sale debt securities, the new methodology 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 is determined to be other-than-temporary. There was no financial impact related to this implementation. Refer to Note 4 for additional information.
44
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


2. Loans and Card Member Receivables
Our lending and charge payment card products result in the generation of Card Member loans and Card Member receivables. We also extend credit to consumer and commercial customers through non-card financing products, resulting in Other loans. Reserves for reporting periods beginning after January 1, 2020 are presented using the CECL methodology, while comparative information continues to be reported in accordance with the incurred loss methodology in effect for prior periods.
Card Member loans by segment and Other loans as of September 30, 2020 and December 31, 2019 consisted of:
(Millions)20202019
Global Consumer Services Group (a)
$57,538 $73,266 
Global Commercial Services12,068 14,115 
Card Member loans69,606 87,381 
Less: Reserve for credit losses5,688 2,383 
Card Member loans, net$63,918 $84,998 
Other loans, net (b)
$3,144 $4,626 
(a)Includes approximately $25.2 billion and $32.2 billion of gross Card Member loans available to settle obligations of a consolidated variable interest entity (VIE) as of September 30, 2020 and December 31, 2019, respectively.
(b)Other loans represent consumer and commercial non-card financing products, and Small Business Administration Paycheck Protection Program (PPP) loans. There were $0.7 billion of gross PPP loans as of September 30, 2020. Other loans are presented net of reserves for credit losses of $370 million and $152 million as of September 30, 2020 and December 31, 2019, respectively.
Card Member receivables by segment as of September 30, 2020 and December 31, 2019 consisted of:
(Millions)20202019
Global Consumer Services Group (a)
$16,093 $22,844 
Global Commercial Services (b)
24,718 34,569 
Card Member receivables40,811 57,413 
Less: Reserve for credit losses422 619 
Card Member receivables, net$40,389 $56,794 
(a)Includes NaN and $8.3 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of September 30, 2020 and December 31, 2019, respectively.
(b)Includes $4.2 billion and NaN of gross Card Member receivables available to settle obligations of a consolidated VIE as of September 30, 2020 and December 31, 2019, respectively.
45
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Card Member Loans and Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of September 30, 2020 and December 31, 2019:
2020 (Millions)Current30-59
Days
Past Due		60-89
Days
Past Due		90+
Days
Past Due		Total
Card Member Loans:
Global Consumer Services Group$56,833 $174 $141 $390 $57,538 
Global Commercial Services
Global Small Business Services11,880 30 25 77 12,012 
Global Corporate Payments (a)
(b)(b)(b)0 56 
Card Member Receivables:
Global Consumer Services Group15,963 36 27 67 16,093 
Global Commercial Services
Global Small Business Services$14,171 $35 $26 $77 $14,309 
Global Corporate Payments (a)
(b)(b)(b)$67 $10,409 

2019 (Millions)Current30-59
Days
Past Due		60-89
Days
Past Due		90+
Days
Past Due		Total
Card Member Loans:
Global Consumer Services Group$72,101 $322 $253 $590 $73,266 
Global Commercial Services
Global Small Business Services13,898 56 40 85 14,079 
Global Corporate Payments (a)
(b)(b)(b)0 36 
Card Member Receivables:
Global Consumer Services Group22,560 86 58 140 22,844 
Global Commercial Services
Global Small Business Services$17,113 $99 $58 $134 $17,404 
Global Corporate Payments (a)
(b)(b)(b)$136 $17,165 
(a)Global Corporate Payments (GCP) reflects global, large and middle market corporate accounts. 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 loan or 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.
46
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the nine months ended September 30:
20202019
Net Write-Off RateNet Write-Off Rate
Principal Only(a)
Principal, Interest & Fees(a)
30+ Days Past Due as a % of Total
Principal Only(a)
Principal, Interest & Fees(a)
30+ Days Past Due as a % of Total
Card Member Loans:
Global Consumer Services Group2.7 %3.2 %1.2 %2.3 %2.8 %1.6 %
Global Small Business Services2.1 %2.4 %1.1 %1.8 %2.1 %1.3 %
Card Member Receivables:
Global Consumer Services Group2.0 %2.2 %0.8 %1.7 %1.8 %1.4 %
Global Small Business Services2.3 %2.6 %1.0 %1.9 %2.1 %1.7 %
Global Corporate Payments(b)2.2 %(c)(b)(d)(c)
(a)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 estimating our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented.
(b)Net write-off rate based on principal losses only is not available due to system constraints.
(c)For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. Delinquency data for periods other than 90+ days past billing is not available due to system constraints. 90+ Days Past Billing as a % of total was 0.6% and 0.7% for the periods ended September 30, 2020 and 2019, respectively.
(d)Net loss ratio was the credit quality indicator for GCP Card Member receivables for prior periods and represents the ratio of GCP Card Member receivables 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. The net loss ratio for the nine months ended September 30, 2019 was 0.08%.

Refer to Note 3 for additional indicators, including external environmental qualitative factors, management considers in its evaluation process for reserves for credit losses.
47
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Impaired Loans and Receivables
Impaired loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that we will be unable to collect all amounts due according to the original contractual terms of the customer agreement. We consider 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 customer is experiencing financial difficulty, we may modify, through various financial relief programs, loans and receivables with the intention to minimize losses and improve collectability, while providing customers with temporary or permanent financial relief. We have classified loans and receivables in these modification programs as TDRs and continue to classify customer 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 our TDR disclosures), (ii) placing the customer on a fixed payment plan not to exceed 60 months and (iii) suspending delinquency fees until the customer exits the modification program. Upon entering the modification program, the customer’s ability to make future purchases is either limited, canceled, or in certain cases suspended until the customer successfully exits from the modification program. In accordance with the modification agreement with the customer, loans and/or receivables may revert back to the original contractual terms (including the contractual interest rate where applicable) when the customer exits the modification program, which is (i) when all payments have been made in accordance with the modification agreement or (ii) when the customer defaults out of the modification program.
Reserves for modifications deemed TDRs are measured individually and incorporate a discounted cash flow model. All changes in the impairment measurement are included within provisions for credit losses.
In response to the COVID-19 pandemic, the United States introduced the Coronavirus Aid, Relief, and Economic Security Act, which among other things provides financial institutions with the option to temporarily suspend (i) certain requirements under U.S. GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be treated as TDRs and (ii) any determination that a loan modified as a result of the COVID-19 pandemic is a TDR (including impairment for accounting purposes). Based on the nature of our programs, we have not elected the accounting and reporting relief afforded by this guidance and continue to report modifications as TDRs.
In the first quarter of 2020, we created a Customer Pandemic Relief (CPR) program for customers who have been impacted by the COVID-19 pandemic to provide a concession in the form of payment deferrals and waivers of certain fees and interest. We assessed the CPR program and determined that eligible loan modifications were temporary in nature, for example, less than three months, and not considered TDRs. Our short-term CPR programs are no longer widely available with immaterial balances remaining in the program as of September 30, 2020.

48
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following tables provide additional information with respect to our impaired loans and receivables as of September 30, 2020 and December 31, 2019:
As of September 30, 2020
Accounts Classified as a TDR (c)
2020 (Millions)
Over 90 days Past Due & Accruing Interest(a)
Non-
Accruals(b)
In
Program(d)
Out of Program(e)
Total
Impaired Balance		Reserve for Credit Losses - TDRs
Card Member Loans:
Global Consumer Services Group$243 $186 $1,479 $209 $2,117 $825 
Global Commercial Services37 45 473 56 611 297 
Card Member Receivables:
Global Consumer Services Group0 0 232 22 254 38 
Global Commercial Services0 0 605 57 662 105 
Other Loans(f)
4 1 283 3 291 101 
Total$284 $232 $3,072 $347 $3,935 $1,366 

As of December 31, 2019
Accounts Classified as a TDR (c)
2019 (Millions)
Over 90 days Past Due & Accruing Interest(a)
Non-
Accruals(b)
In
Program(d)
Out of Program(e)
Total
Impaired Balance		Reserve for Credit Losses - TDRs
Card Member Loans:
Global Consumer Services Group$384 $284 $500 $175 $1,343 $137 
Global Commercial Services44 54 97 38 233 22 
Card Member Receivables:
Global Consumer Services Group0 0 56 16 72 3 
Global Commercial Services0 0 109 30 139 6 
Total$428 $338 $762 $259 $1,787 $168 
(a)Our policy is generally to accrue interest through the date of write-off (typically 180 days past due). We establish reserves for interest that we believe will not be collected. Amounts presented exclude loans classified as a TDR.
(b)Non-accrual loans not in modification programs primarily include certain loans placed with outside collection agencies for which we have ceased accruing interest. Amounts presented exclude loans classified as TDRs.
(c)Accounts classified as a TDR include $31 million and $26 million that are over 90 days past due and accruing interest and $9 million and $10 million that are non-accruals as of September 30, 2020 and December 31, 2019, respectively.
(d)In Program TDRs include accounts that are currently enrolled in a modification program.
(e)Out of Program TDRs include $256 million and $188 million of accounts that have successfully completed a modification program and $91 million and $72 million of accounts that were not in compliance with the terms of the modification programs as of September 30, 2020 and December 31, 2019, respectively.
(f)Other loans primarily represent consumer and commercial non-card financing products. Prior period balances were not significant.
49
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Loans and Receivables Modified as TDRs
The following table provides additional information with respect to loans and receivables modified as TDRs for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended
September 30, 2020		Nine Months Ended
September 30, 2020
Number of
Accounts
(thousands)
Outstanding
Balances
(millions)(a)
Average Interest
Rate Reduction
(% Points)		Average Payment
Term Extensions
(# of Months)		Number of
Accounts
(thousands)
Outstanding
Balances
(millions)(a)
Average Interest
Rate Reduction
(% Points)		Average Payment
Term Extension
(# of Months)
Troubled Debt Restructurings:
Card Member Loans76 $649 14 (b)216 $1,947 14 (b)
Card Member Receivables13 231 (c)1838 1,049 (c)19
 Other Loans(d)
3 $165 3 178 $319 3 16
Total92 $1,045 262 $3,315 

Three Months Ended
September 30, 2019		Nine Months Ended
September 30, 2019
Number of
Accounts
(thousands)
Outstanding
Balances
(millions)(a)
Average Interest
Rate Reduction
(% Points)		Average Payment
Term Extensions
(# of Months)		Number of
Accounts
(thousands)
Outstanding
Balances
(millions)(a)
Average Interest
Rate Reduction
(% Points)		Average Payment
Term Extension
(# of Months)
Troubled Debt Restructurings:
Card Member Loans21 $160 13 (b)55 $425 13 (b)
Card Member Receivables2 54 (c)276 144 (c)27
Total23 $214 61 $569 
(a)Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on loans and principal and fees on receivables. Modifications did not reduce the principal balance.
(b)For Card Member loans, there have been no payment term extensions.
(c)We do not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.
(d)Other loans primarily represent consumer and commercial non-card financing products. Prior period balances were not significant.

50
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table provides information with respect to loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A customer can miss up to three payments before being considered in default, depending on the terms of the modification program. For all customers that defaulted from a modification program, the probability of default is factored into the reserves for loans and receivables.
Three Months Ended
September 30, 2020		Nine Months Ended
September 30, 2020
Number of Accounts (thousands)
Aggregated Outstanding Balances Upon Default (millions)(a)
Number of
Accounts
(thousands)
Aggregated
Outstanding
Balances Upon
Default (millions)(a)
Troubled Debt Restructurings That Subsequently Defaulted:
Card Member Loans4 $32 11 $84 
Card Member Receivables1 16 3 34 
Other Loans (b)
1 1 2 2 
Total6 $49 16 $120 

Three Months Ended
September 30, 2019		Nine Months Ended
September 30, 2019
Number of Accounts (thousands)
Aggregated Outstanding Balances Upon Default (millions)(a)
Number of
Accounts
(thousands)
Aggregated
Outstanding
Balances Upon
Default (millions)(a)
Troubled Debt Restructurings That Subsequently Defaulted:
Card Member Loans4 $23 9 $59 
Card Member Receivables1 5 3 13 
Total5 $28 12 $72 
(a)The outstanding balances upon default include principal, fees and accrued interest on loans, and principal and fees on receivables.
(b)Other loans primarily represent consumer and commercial non-card financing products. Prior period balances were not significant.
51
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


3. Reserves for Credit Losses
Reserves for credit losses represent our best estimate of the expected credit losses in our outstanding portfolio of Card Member loans and receivables as of the balance sheet date. The CECL methodology, which became effective January 1, 2020, requires us to estimate lifetime expected credit losses by incorporating historical loss experience, as well as current and future economic conditions over a reasonable and supportable period (R&S Period) beyond the balance sheet date. We make various judgments combined with historical loss experience to calculate a reserve rate that is applied to the outstanding loan or receivable balance to produce a reserve for expected credit losses.
We use a combination of statistically-based models that incorporate current and future economic conditions throughout the R&S Period. The process of estimating expected credit losses is based on several key models: Probability of Default (PD), Exposure at Default (EAD), and future recoveries for each month of the R&S Period. Beyond the R&S Period, we estimate expected credit losses using our historical loss rates.
•PD models are used to estimate the likelihood an account will be written-off.
•EAD models are used to estimate the balance of an account at the time of write-off. This includes balances less expected repayments based on historical payment and revolve behavior, which vary by customer. Due to the nature of revolving loan portfolios, the EAD models are complex and involve assumptions regarding the relationship between future spend and payment behaviors.
•Recovery models are used to estimate amounts that are expected to be received from Card Members after default occurs, typically as a result of collection efforts. Future recoveries are estimated taking into consideration the time of default, time elapsed since default and macroeconomic conditions.
We also estimate the likelihood and magnitude of recovery of previously written off accounts considering how long ago the account was written off and future economic conditions. Our models are developed using historical loss experience covering the economic cycle and consider the impact of account characteristics on expected losses.
Future economic conditions that are incorporated over the R&S Period include multiple macroeconomic scenarios provided to us by an independent third party. Management reviews these economic scenarios quarterly and uses their judgment to weight them in order to reflect the uncertainty surrounding these scenarios. These macroeconomic scenarios contain certain variables, including unemployment rates and real gross domestic product, that are significant to our models.
We also evaluate whether to include qualitative reserves to cover losses that are expected but, in our assessment, may not be adequately represented in the quantitative methods or the economic assumptions. We consider whether to adjust the quantitative reserves (higher or lower) to address possible limitations within the models or factors not included within the models, such as external conditions, emerging portfolio trends, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due accounts, or management risk actions.
Lifetime losses for most of our loans and receivables are evaluated at an appropriate level of granularity, including assessment on a pooled basis where financial assets share similar risk characteristics, such as past spend and remittance behaviors, credit bureau scores where available, delinquency status, tenure of balance outstanding, amongst others. Credit losses on accrued interest are measured and presented as part of Reserves for credit losses on the Consolidated Balance Sheets and within the Provisions for credit losses in the Consolidated Statements of Income, rather than reversing interest income. Separate models are used for accounts deemed a troubled debt restructuring, which are measured individually using a discounted cash flow model. See Note 2 for information on troubled debt restructurings.
Loans and receivable balances are written off when we consider 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 for pay in full or revolving loans and 120 days past due for term loans. Loans and receivables in bankruptcy or owed by deceased individuals are generally written off upon notification.
Results for reporting periods beginning after January 1, 2020 are presented using the CECL methodology while comparative information continues to be reported in accordance with the incurred loss methodology in effect for prior periods.
52
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Changes in Card Member Loans Reserve for Credit Losses
Card Member loans reserve for credit losses increased for the three months ended September 30, 2020, primarily driven by further deterioration of the global macroeconomic outlook and greater weight placed on the downside scenario given continued high levels of uncertainty regarding the pace of recovery, partially offset by improved credit performance.
Card Member loans reserve for credit losses increased for the nine months ended September 30, 2020, primarily driven by deterioration of the global macroeconomic outlook, including unemployment and GDP, and changes in portfolio mix, partially offset by a decline in outstanding balances.
The following table presents changes in the Card Member loans reserve for credit losses for the three and nine months ended September 30:
Three Months Ended September 30,Nine Months Ended September 30,
(Millions)2020201920202019
Beginning Balance (a)
$5,628 $2,168 $4,027 $2,134 
Provisions (b)
571 604 3,416 1,732 
Net write-offs (c)
Principal(432)(447)(1,449)(1,367)
Interest and fees(91)(91)(301)(277)
Other (d)
12 (2)(5)10 
Ending Balance$5,688 $2,232 $5,688 $2,232 
(a)For the nine months ended September 30, 2020, beginning balance includes an increase of $1,643 million as of January 1, 2020, related to the adoption of the CECL methodology.
(b)Provisions for principal, interest and fee reserve components. Provisions for credit losses includes reserve build (release) and replenishment for net write-offs.
(c)Principal write-offs are presented less recoveries of $142 million and $135 million for the three months ended September 30, 2020 and 2019, respectively, and $421 million and $389 million for the nine months ended September 30, 2020 and 2019, respectively. Recoveries of interest and fees were not significant. Amounts include net (write-offs) recoveries from TDRs of $(35) million and $(20) million for the three months September 30, 2020 and 2019, respectively, and $(98) million and $(53) million for the nine months ended September 30, 2020 and 2019, respectively.
(d)Primarily includes foreign currency translation adjustments of $13 million and $(6) million for the three months ended September 30, 2020 and 2019, respectively, and $(4) million and $(3) million for the nine months ended September 30, 2020 and 2019, respectively.

53
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Changes in Card Member Receivables Reserve for Credit Losses
Card Member receivables reserve for credit losses decreased for the three months ended September 30, 2020, primarily driven by improved credit performance.
Card Member receivables reserve for credit losses increased for the nine months ended September 30, 2020, primarily driven by deterioration of the global macroeconomic outlook, including unemployment and GDP, partially offset by a decline in outstanding balances.
The following table presents changes in the Card Member receivables reserve for credit losses for the three and nine months ended September 30:
Three Months Ended September 30,Nine Months Ended September 30,
(Millions)2020201920202019
Beginning Balance (a)
$519 $616 $126 $573 
Provisions (b)
117 238 1,069 715 
Net write-offs (c)
(219)(231)(776)(657)
Other (d)
5 (8)3 (16)
Ending Balance$422 $615 $422 $615 
(a)For the nine months ended September 30, 2020, beginning balance includes a decrease of $493 million as of January 1, 2020, related to the adoption of the CECL methodology.
(b)Provisions for principal and fee reserve components. Provisions for credit losses includes reserve build (release) and replenishment for net write-offs.
(c)Net write-offs are presented less recoveries of $103 million and $94 million for the three months ended September 30, 2020 and 2019, respectively, and $283 million and $278 million for the nine months ended September 30, 2020 and 2019, respectively. Amounts include net (write-offs) recoveries from TDRs of $(15) million and $(5) million for the three months ended September 30, 2020 and 2019, respectively, and $(31) million and $(11) million, for the nine months ended September 30, 2020 and 2019, respectively.
(d)Primarily includes foreign currency translation adjustments of $3 million and $(6) million for the three months ended September 30, 2020 and 2019, respectively, and $2 million and $(3) million for the nine months ended September 30, 2020 and 2019, respectively.

54
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


4. Investment Securities
Investment securities principally include available-for-sale debt securities carried at fair value on the Consolidated Balance Sheets. The CECL methodology, which became effective January 1, 2020, requires us to estimate lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position. Comparative information continues to be reported in accordance with the methodology in effect for prior periods. When estimating a security’s probability of default and the recovery rate, we assess the security’s credit indicators, including credit ratings. If our assessment indicates that an expected credit loss exists, we determine the portion of the unrealized loss attributable to credit deterioration and record an allowance for the expected credit loss through the Consolidated Statements of Income in Other loans Provision for credit losses. Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in the Consolidated Statements of Comprehensive Income, net of tax. We had accrued interest on our available-for-sale debt securities totaling $54 million and $20 million, as of September 30, 2020 and December 31, 2019, respectively, presented as Other assets on the Consolidated Balance Sheets.
Investment securities also include equity securities carried at fair value on the Consolidated Balance Sheets with unrealized gains and losses recorded in the Consolidated Statements of Income as Other, net expense.
Realized gains and losses are recognized upon disposition of the securities using the specific identification method.
The following is a summary of investment securities as of September 30, 2020 and December 31, 2019:
20202019
Description of Securities
(Millions)
CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value		CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
Available-for-sale debt securities:
State and municipal obligations$173 $7 $0 $180 $236 $8 $(1)$243 
U.S. Government agency obligations8 0 0 8 9 0 0 9 
U.S. Government treasury obligations21,431 89 0 21,520 7,395 35 (1)7,429 
Corporate debt securities24 0 0 24 27 0 0 27 
Mortgage-backed securities (a)
31 3 0 34 39 2 0 41 
Foreign government bonds and obligations577 1 0 578 578 1 0 579 
Equity securities (b)
57 44 (2)99 55 25 (2)78 
Total$22,301 $144 $(2)$22,443 $8,339 $71 $(4)$8,406 
(a)Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
(b)Equity securities comprise investments in common stock, exchange-traded funds and mutual funds.

55
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table provides information about our available-for-sale debt 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, 2019. There were 0 available-for-sale debt securities with gross unrealized losses as of September 30, 2020.
2019
Less than 12 months12 months or more
Description of Securities
(Millions)
Estimated Fair ValueGross
Unrealized
Losses		Estimated Fair ValueGross
Unrealized
Losses
State and municipal obligations$18 $(1)$0 $0 
U.S. Government treasury obligations0 0 324 (1)
Total$18 $(1)$324 $(1)
The following table summarizes the gross unrealized losses by ratio of fair value to amortized cost as of December 31, 2019. There were 0 available-for-sale debt securities with gross unrealized losses as of September 30, 2020.
Less than 12 months12 months or moreTotal
Ratio of Fair Value to Amortized Cost
(Dollars in millions)
Number of
Securities		Estimated
Fair Value		Gross
Unrealized
Losses		Number of
Securities		Estimated
Fair Value		Gross
Unrealized
Losses		Number of
Securities		Estimated
Fair Value		Gross
Unrealized
Losses
2019:
90%–100%2 $18 $(1)3 $324 $(1)5 $342 $(2)
Total as of December 31, 20192 $18 $(1)3 $324 $(1)5 $342 $(2)
Contractual maturities for investment securities with stated maturities as of September 30, 2020 were as follows:
(Millions)CostEstimated
Fair Value
Due within 1 year$14,313 $14,326 
Due after 1 year but within 5 years7,618 7,680 
Due after 5 years but within 10 years181 201 
Due after 10 years132 137 
Total$22,244 $22,344 
The expected payments on state and municipal obligations, U.S. government agency obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.
56
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


5. Asset Securitizations
We periodically securitize Card Member loans and receivables arising from our card businesses through the transfer of those assets to securitization trusts, American Express Credit Account Master Trust (the Lending Trust) and American Express Issuance Trust II (the Charge Trust and together with the Lending Trust, the Trusts). The Trusts then issue debt securities collateralized by the transferred assets to third-party investors.
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. We perform the servicing and key decision making for the Trusts, and therefore have 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, we hold all of the variable interests in both Trusts, with the exception of the debt securities issued to third-party investors. As of September 30, 2020 and December 31, 2019, our ownership of variable interests was $10.9 billion and $12.9 billion, respectively, for the Lending Trust and $4.3 billion and $8.3 billion, respectively, for the Charge Trust. These variable interests held by us provide us 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, we are the primary beneficiary of the Trusts and therefore consolidate the Trusts.
The following table provides information on the restricted cash held by the Trusts as of September 30, 2020 and December 31, 2019, included in Other assets on the Consolidated Balance Sheets:
(Millions)20202019
Lending Trust$2,065 $85 
Charge Trust0 0 
Total$2,065 $85 
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 nine months ended September 30, 2020 and the year ended December 31, 2019, no such triggering events occurred.
57
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


6. Customer Deposits
As of September 30, 2020 and December 31, 2019, customer deposits were categorized as interest-bearing or non-interest-bearing as follows:
(Millions)20202019
U.S.:
Interest-bearing$83,963 $72,445 
Non-interest-bearing (includes Card Member credit balances of: 2020, $701; 2019, $389)726 415 
Non-U.S.:
Interest-bearing20 23 
Non-interest-bearing (includes Card Member credit balances of: 2020, $749; 2019, $401)752 404 
Total customer deposits$85,461 $73,287 
Customer deposits by deposit type as of September 30, 2020 and December 31, 2019 were as follows:
(Millions)20202019
U.S. retail deposits:
Savings accounts – Direct$60,370 $46,394 
Certificates of deposit:
Direct2,592 1,854 
Third-party (brokered)6,899 8,076 
Sweep accounts – Third-party (brokered)14,102 16,121 
Other deposits:
U.S. non-interest bearing deposits25 26 
Non-U.S. deposits23 26 
Card Member credit balances ― U.S. and non-U.S.1,450 790 
Total customer deposits$85,461 $73,287 
The scheduled maturities of certificates of deposit as of September 30, 2020 were as follows:
(Millions)U.S.Non-U.S.Total
2020$1,612 $3 $1,615 
20213,744 5 3,749 
20223,013 1 3,014 
2023644 0 644 
2024274 0 274 
After 5 years204 0 204 
Total$9,491 $9 $9,500 
As of September 30, 2020 and December 31, 2019, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:
(Millions)20202019
U.S.$966 $622 
Non-U.S.1 4 
Total$967 $626 

58
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


7. Contingencies
In the ordinary course of business, we and our 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).
Based on our current knowledge, and taking into consideration our litigation-related liabilities, 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 or 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. Certain legal proceedings involving us or our subsidiaries are described below.
A putative merchant class action in the Eastern District of New York, consolidated in 2011 and collectively captioned In re: American Express Anti-Steering Rules Antitrust Litigation (II), alleged that provisions in our merchant agreements prohibiting merchants from differentially surcharging our cards or steering a customer to use another network’s card or another type of general-purpose card (“anti-steering” and “non-discrimination” contractual provisions) violate U.S. antitrust laws. On January 15, 2020, our motion to compel arbitration of claims brought by merchants who accept American Express and to dismiss claims of merchants who do not was granted. Plaintiffs have appealed part of this decision.
On February 25, 2020, we were named as a defendant in a case filed in the Superior Court of California, Los Angeles County, captioned Laurelwood Cleaners LLC v. American Express Co., et al., in which the plaintiff seeks a public injunction prohibiting American Express from enforcing its anti-steering and non-discrimination provisions and from requiring merchants “to offer the service of Amex-card acceptance for free.” We intend to vigorously defend the case.
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.
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. On August 28, 2020, the court granted plaintiffs' motion for class certification.
We are being challenged in a number of countries regarding our application of value-added taxes (VAT) to certain of our international transactions, which are in various stages of audit, or are being contested in legal actions. While we believe we have complied with all applicable tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional VAT. In certain jurisdictions where we are contesting the assessments, we were required to pay the VAT assessments prior to contesting.
59
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Our legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members to governmental proceedings. These legal proceedings involve various lines of business 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 us specify the damages sought, 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 us 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 us to estimate an amount of loss or a range of possible loss, while other matters have progressed sufficiently such that we are able to estimate an amount of loss or a range of possible loss.
We have accrued for certain of our outstanding legal proceedings. An accrual 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 accrual. We evaluate, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the accrual that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable.
For those disclosed material legal proceedings where a loss is reasonably possible in future periods, whether in excess of a recorded accrual for legal or tax contingencies, or where there is no such accrual, and for which we are able to estimate a range of possible loss, the current estimated range is 0 to $200 million in excess of any accruals related to those matters. This range represents management’s estimate based on currently available information and does not represent our maximum loss exposure; actual results may vary significantly. As such legal proceedings evolve, we may need to increase our range of possible loss or recorded accruals. In addition, it is possible that significantly increased merchant steering or other actions impairing the Card Member experience as a result of an adverse resolution in one or any combination of the disclosed merchant cases could have a material adverse effect on our business.
In addition, we face exposure associated with Card Member purchases of goods and services, including with respect to the following:
•Return Protection — refunds the price of qualifying purchases made with eligible cards, where the merchant will not accept the return, for up to 90 days from the date of purchase; and
•Merchant Protection — protects Card Members primarily against non-delivery of goods and services, usually in the event of the bankruptcy or liquidation of a merchant. When this occurs, the Card Member may dispute the transaction for which we will generally credit the Card Member’s account. If we are unable to collect the amount from the merchant, we may bear the loss for the amount credited to the Card Member. The largest component of the exposure relates to Card Member transactions associated with travel-related merchants, primarily through business arrangements where we have remitted payment to such merchants for a Card Member travel purchase that has not yet been used or “flown.”
We have an accrual of $17 million related to these exposures as of September 30, 2020. To date, we have not experienced significant losses related to these exposures; however, our historical experience may not be representative in the current environment given the economic and financial disruptions caused by the COVID-19 pandemic and resulting containment measures. A reasonable possible loss related to these exposures in excess of the recorded accrual cannot be quantified as the Card Member purchases that may include or result in claims are not sufficiently estimable, although we believe our risk of loss has increased in the current environment.


60
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


8. Derivatives and Hedging Activities
We use derivative financial instruments 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 an 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 our market risk management. We do not transact in derivatives for trading purposes.
In relation to our credit risk, certain of our bilateral derivative agreements include provisions that allow our counterparties to terminate the agreement in the event of a downgrade of our debt credit rating below investment grade and settle the outstanding net liability position. As of September 30, 2020, these derivatives were not in a significant net liability position. Based on our assessment of the credit risk of our derivative counterparties and our own credit risk as of September 30, 2020 and December 31, 2019, no credit risk adjustment to the derivative portfolio was required.
A majority of our derivative assets and liabilities as of September 30, 2020 and December 31, 2019 are subject to master netting agreements with our derivative counterparties. We present derivative assets and liabilities subject to enforceable netting arrangements with the same counterparty on a net basis on the Consolidated Balance Sheets.
The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 2020 and December 31, 2019:
Other Assets Fair ValueOther Liabilities Fair Value
(Millions)2020201920202019
Derivatives designated as hedging instruments:
Fair value hedges - Interest rate contracts (a)
$565 $185 $0 $0 
Net investment hedges - Foreign exchange contracts150 24 134 186 
Total derivatives designated as hedging instruments715 209 134 186 
Derivatives not designated as hedging instruments:
Foreign exchange contracts164 134 182 254 
Total derivatives, gross879 343 316 440 
Derivative asset and derivative liability netting (b)
(158)(90)(158)(90)
Cash collateral netting (c)(d)
(566)(185)(17)(9)
Total derivatives, net$155 $68 $141 $341 
(a)For our centrally cleared derivatives, variation margin payments are legally characterized as settlement payments as opposed to collateral.
(b)Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.
(c)Represents the offsetting of the fair value of bilateral interest rate contracts and certain foreign exchange contracts with the right to cash collateral held from the counterparty or cash collateral posted with the counterparty.
(d)We posted $42 million and $47 million as of September 30, 2020 and December 31, 2019, respectively, as initial margin on our centrally cleared interest rate swaps; such amounts are recorded within Other assets on the Consolidated Balance Sheets and are not netted against the derivative balances.
61
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Fair Value Hedges
We are exposed to interest rate risk associated with our fixed-rate debt obligations. At the time of issuance, certain fixed-rate long-term 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. We have $15.8 billion and $22.6 billion of fixed-rate debt obligations designated in fair value hedging relationships as of September 30, 2020 and December 31, 2019, respectively.
The following table presents the gains and losses recognized in Interest expense on the Consolidated Statements of Income associated with the fair value hedges of our fixed-rate long-term debt for the three and nine months ended September 30:
Gains (losses)
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Millions)2020201920202019
Fixed-rate long-term debt$96 $(123)$(497)$(563)
Derivatives designated as hedging instruments(97)127 504 571 
Total$(1)$4 $7 $8 
The carrying values of the hedged liabilities, recorded within Long-term debt on the Consolidated Balance Sheets, were $16.5 billion and $22.7 billion as of September 30, 2020 and December 31, 2019, respectively, including the cumulative amount of fair value hedging adjustments of $714 million and $217 million for the respective periods.
We recognized a net decrease of $81 million and a net increase of $28 million in Interest expense on Long-term debt for the three months ended September 30, 2020 and 2019, respectively, and a net decrease of $183 million and a net increase of $102 million for the nine months ended September 30, 2020, and 2019, respectively, primarily related to the net settlements (interest accruals) on our interest rate derivatives designated as fair value hedges.
Net Investment Hedges
We had notional amounts of approximately $10.1 billion and $9.8 billion of foreign currency derivatives designated as net investment hedges as of September 30, 2020 and December 31, 2019, respectively. 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 $170 million and a gain of $138 million for the three months ended September 30, 2020 and 2019, respectively, and gains of $223 million and $63 million for the nine months ended September 30, 2020 and 2019, respectively. Net investment hedge reclassifications out of AOCI into the Consolidated Statements of Income associated with the sale or liquidation of a business, net of taxes, were NaN for both the three months ended September 30, 2020 and 2019, a gain of $1 million and NaN for the nine months ended September 30, 2020 and 2019, respectively.
Derivatives Not Designated as Hedges
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 net gains of $4 million and $25 million for the three months ended September 30, 2020 and 2019, respectively, and net gains of $22 million and $52 million for the nine months ended September 30, 2020 and 2019, respectively, that are recognized in Other, net expenses in the Consolidated Statements of Income.
62
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


9. Fair Values
Financial Assets and Financial Liabilities Carried at Fair Value
The following table summarizes our financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s fair value hierarchy, as of September 30, 2020 and December 31, 2019
20202019
(Millions)TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Assets:
Investment securities: (a)
Equity securities$99 $98 $1 $0 $78 $77 $1 $0 
Debt securities22,344 0 22,344 0 8,328 0 8,328 0 
Derivatives, gross (a)
879 0 879 0 343 0 343 0 
Total Assets23,322 98 23,224 0 8,749 77 8,672 0 
Liabilities:
Derivatives, gross (a)
316 0 316 0 440 0 440 0 
Total Liabilities$316 $0 $316 $0 $440 $0 $440 $0 
(a)Refer to Note 4 for the fair values of investment securities and to Note 8 for the fair values of derivative assets and liabilities, on a further disaggregated basis.

63
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Financial Assets and Financial Liabilities Carried at Other Than Fair Value
The following table summarizes the estimated fair values of our financial assets and financial liabilities that are measured at amortized cost, and not required to be carried at fair value on a recurring basis, as of September 30, 2020 and December 31, 2019. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of September 30, 2020 and December 31, 2019, and require management’s judgment. These figures may not be indicative of future fair values, nor can the fair value of American Express be estimated by aggregating the amounts presented.
Carrying
Value		Corresponding Fair Value Amount
2020 (Billions)TotalLevel 1Level 2Level 3
Financial Assets:
Financial assets for which carrying values equal or approximate fair value
Cash and cash equivalents (a)
$33 $33 $32 $1 $0 
Other financial assets (b)
45 45 0 45 0 
Financial assets carried at other than fair value
Card Member and Other loans, less reserves (c)
67 72 0 0 72 
Financial Liabilities:
Financial liabilities for which carrying values equal or approximate fair value95 95 0 95 0 
Financial liabilities carried at other than fair value
Certificates of deposit (d)
9 10 0 10 0 
Long-term debt (c)
$45 $47 $0 $47 $0 

Carrying
Value		Corresponding Fair Value Amount
2019 (Billions)TotalLevel 1Level 2Level 3
Financial Assets:
Financial assets for which carrying values equal or approximate fair value
Cash and cash equivalents (a)
$24 $24 $23 $1 $0 
Other financial assets (b)
60 60 0 60 0 
Financial assets carried at other than fair value
Card Member and Other loans, less reserves (c)
90 91 0 0 91 
Financial Liabilities:
Financial liabilities for which carrying values equal or approximate fair value92 92 0 92 0 
Financial liabilities carried at other than fair value
Certificates of deposit (d)
10 10 0 10 0 
Long-term debt (c)
$58 $60 $0 $60 $0 
(a)Level 2 amounts reflect time deposits and short-term investments.
(b)Balances include Card Member receivables (including fair values of Card Member receivables of $4.2 billion and $8.2 billion held by a consolidated VIE as of September 30, 2020 and December 31, 2019, 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 $25.1 billion and $32.0 billion as of September 30, 2020 and December 31, 2019, respectively, and the fair values of Long-term debt were $14.9 billion and $19.8 billion as of September 30, 2020 and December 31, 2019, respectively.
(d)Presented as a component of Customer deposits on the Consolidated Balance Sheets.
Nonrecurring Fair Value Measurements
We have 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 they are determined to be impaired or where there are observable price changes for equity investments without readily determinable fair values. During the nine months ended September 30, 2020 and the year ended December 31, 2019, we did 0t have any material assets that were measured at fair value due to impairment and there were no material fair value adjustments for equity investments without readily determinable fair values.
64
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


10. Guarantees
The maximum potential undiscounted future payments and related liability resulting from guarantees and indemnifications provided by us in the ordinary course of business were $1 billion and $23 million, respectively, as of September 30, 2020, and $1 billion and $29 million, respectively, as of December 31, 2019, all of which were primarily related to our real estate and business dispositions.
To date, we have not experienced any significant losses related to guarantees or indemnifications. Our recognition of these instruments is at fair value. In addition, we establish reserves when a loss is probable and the amount can be reasonably estimated.
11. Changes in Accumulated Other Comprehensive Income
AOCI 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 and nine months ended September 30, 2020 and 2019 were as follows:
Three Months Ended September 30, 2020 (Millions), net of taxNet Unrealized
Gains (Losses) on
Debt Securities		Foreign Currency
Translation Adjustment Gains (Losses)		Net Unrealized
Pension and Other
Postretirement
Benefit Gains
(Losses)		Accumulated Other
Comprehensive
(Loss) Income
Balances as of June 30, 2020$85 $(2,388)$(608)$(2,911)
Net unrealized losses(9)0 0 (9)
Net translation gains on investments in foreign operations0 210 0 210 
Net losses related to hedges of investments in foreign operations0 (170)0 (170)
Pension and other postretirement benefits0 0 8 8 
Net change in accumulated other comprehensive (loss) income(9)40 8 39 
Balances as of September 30, 2020$76 $(2,348)$(600)$(2,872)

Nine Months Ended September 30, 2020 (Millions), net of taxNet Unrealized
Gains (Losses) on
Debt Securities		Foreign Currency
Translation Adjustment Gains (Losses)		Net Unrealized
Pension and Other
Postretirement
Benefit Gains
(Losses)		Accumulated Other
Comprehensive
(Loss) Income
Balances as of December 31, 2019$33 $(2,189)$(581)$(2,737)
Net unrealized gains43 0 0 43 
Decrease due to amounts reclassified into earnings0 (3)0 (3)
Net translation losses on investments in foreign operations0 (379)0 (379)
Net gains related to hedges of investments in foreign operations0 223 0 223 
Pension and other postretirement benefits0 0 (19)(19)
Net change in accumulated other comprehensive income (loss)43 (159)(19)(135)
Balances as of September 30, 2020$76 $(2,348)$(600)$(2,872)

65
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Three Months Ended September 30, 2019 (Millions), net of taxNet Unrealized
Gains (Losses) on
Debt Securities		Foreign Currency
Translation
Adjustment Gains (Losses)		Net Unrealized
Pension and Other
Postretirement
Benefit Gains (Losses)		Accumulated
Other
Comprehensive
(Loss) Income
Balances as of June 30, 2019$35 $(2,161)$(480)$(2,606)
Net unrealized gains3 0 0 3 
Net translation losses on investments in foreign operations0 (197)0 (197)
Net gains related to hedges of investments in foreign operations0 138 0 138 
Pension and other postretirement benefits0 0 1 1 
Net change in accumulated other comprehensive income (loss)3 (59)1 (55)
Balances as of September 30, 2019$38 $(2,220)$(479)$(2,661)

Nine Months Ended September 30, 2019 (Millions), net of taxNet Unrealized
Gains (Losses) on
Debt Securities		Foreign Currency
Translation
Adjustment Gains (Losses)		Net Unrealized
Pension and Other
Postretirement
Benefit Gains (Losses)		Accumulated
Other
Comprehensive
(Loss) Income
Balances as of December 31, 2018$(8)$(2,133)$(456)$(2,597)
Net unrealized gains46 0 0 46 
Net translation losses on investments in foreign operations0 (150)0 (150)
Net gains related to hedges of investments in foreign operations0 63 0 63 
Pension and other postretirement benefits0 0 (23)(23)
Net change in accumulated other comprehensive income (loss)46 (87)(23)(64)
Balances as of September 30, 2019$38 $(2,220)$(479)$(2,661)

The following table shows the tax impact for the three and nine months ended September 30 for the changes in each component of AOCI presented above:
Tax expense (benefit)
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Millions)2020201920202019
Net unrealized debt securities$(3)$1 $13 $14 
Net translation on investments in foreign operations(14)(4)10 11 
Net hedges on investments in foreign operations(57)45 67 23 
Pension and other postretirement benefits(1)2 10 (5)
Total tax impact$(75)$44 $100 $43 
Reclassifications out of AOCI into the Consolidated Statements of Income associated with the sale or liquidation of a business, net of taxes, were NaN for both the three months ended September 30, 2020 and 2019, and a gain of $3 million and NaN for the nine months ended September 30, 2020 and 2019, respectively.
66
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


12. Other Fees and Commissions and Other Expenses
The following is a detail of Other fees and commissions for the three and nine months ended September 30:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Millions)2020201920202019
Fees charged to Card Members:
Delinquency fees$159 $257 $615 $763 
Foreign currency conversion fee revenue86 252 336 732 
Other customer fees:
Loyalty coalition-related fees112 106 309 329 
Travel commissions and fees19 108 84 337 
Service fees and other (a)
102 102 303 304 
Total Other fees and commissions$478 $825 $1,647 $2,465 
(a)Other includes Membership Rewards program fees that are not related to contracts with customers.
Revenue expected to be recognized in future periods related to contracts that have an original expected duration of one year or less and contracts with variable consideration (e.g. discount revenue) are not required to be disclosed. Non-interest revenue expected to be recognized in future periods through remaining contracts with customers is not material.
The following is a detail of Other expenses for the three and nine months ended September 30:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Millions)2020201920202019
Occupancy and equipment$577 $544 $1,690 $1,569 
Professional services421 491 1,266 1,497 
Other (a)
231 317 792 1,285 
Total Other expenses$1,229 $1,352 $3,748 $4,351 
(a)Other expense primarily includes general operating expenses, unrealized gains and losses on certain equity investments, communication expenses, Card Member and merchant-related fraud losses, non-income taxes, foreign currency-related gains and losses, and litigation expenses.
13. Income Taxes
The effective tax rate was 21.3 percent and 22.6 percent for the three months ended September 30, 2020 and 2019, respectively, and 30.4 percent and 21.4 percent for the nine months ended September 30, 2020 and 2019, respectively. The decline in the effective tax rate for the three month period primarily reflected changes in the level and geographic mix of pretax income. The increase in the effective tax rate for the nine month period primarily reflected the impact of discrete tax charges in the current period related to the realizability of certain foreign deferred tax assets.
We are under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which we have significant business operations. The tax years under examination and open for examination vary by jurisdiction. We are currently under examination by the IRS for the 2017 and 2018 tax years.
We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $106 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 $106 million of unrecognized tax benefits, approximately $90 million relates to amounts that, if recognized, would impact the effective tax rate in a future period.

67
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


14. Earnings Per Common Share (EPS)
The computations of basic and diluted EPS for the three and nine months ended September 30 were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Millions, except per share amounts)2020201920202019
Numerator:
Basic and diluted:
Net income$1,073 $1,755 $1,697 $5,066 
Preferred dividends(16)(21)(65)(61)
Net income available to common shareholders$1,057 $1,734 $1,632 $5,005 
Earnings allocated to participating share awards (a)
(7)(11)(10)(35)
Net income attributable to common shareholders$1,050 $1,723 $1,622 $4,970 
Denominator: (a)
Basic: Weighted-average common stock804 825 805 833 
Add: Weighted-average stock options (b)
1 2 1 2 
Diluted805 827 806 835 
Basic EPS$1.31 $2.09 $2.01 $5.97 
Diluted EPS$1.30 $2.08 $2.01 $5.95 
(a)Our 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 0.9 million and NaN of options for the three months ended September 30, 2020 and 2019, respectively, and 0.6 million and 0.3 million of options for the nine months ended September 30, 2020 and 2019, respectively, because inclusion of the options would have been anti-dilutive.

68
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


15. Reportable Operating Segments
Effective for the first quarter of 2020, we made certain enhancements to our transfer pricing methodology related to the sharing of revenues between our card issuing, network and merchant businesses, and our methodology related to the allocation of certain funding costs primarily related to our Card Member loan and Card Member receivable portfolios. These enhancements resulted in certain changes to Non-interest revenues, Interest expense and operating expenses across our reportable operating segments. Prior period amounts have been revised to conform to the current period presentation. These changes had no impact on our Consolidated Results of Operations.
The following table presents certain selected financial information for our reportable operating segments and Corporate & Other as of or for the three and nine months ended September 30:
Three Months Ended September 30, 2020 (Millions, except where indicated)GCSGGCSGMNS
Corporate & Other (a)
Consolidated
Total non-interest revenues$3,517 $2,327 $1,111 $(78)$6,877 
Revenue from contracts with customers (b)
2,364 1,969 1,053 (6)5,380 
Interest income1,916 351 4 53 2,324 
Interest expense242 139 (18)87 450 
Total revenues net of interest expense5,191 2,539 1,133 (112)8,751 
Net income (loss)$855 $220 $263 $(265)$1,073 
Total assets (billions)
$81 $40 $12 $54 $187 

Nine Months Ended September 30, 2020 (Millions, except where indicated)GCSGGCSGMNS
Corporate & Other (a)
Consolidated
Total non-interest revenues$10,343 $7,129 $3,376 $(200)$20,648 
Revenue from contracts with customers (b)
6,893 5,993 3,168 (21)16,033 
Interest income6,298 1,252 14 232 7,796 
Interest expense842 493 (60)433 1,708 
Total revenues net of interest expense15,799 7,888 3,450 (401)26,736 
Net income (loss)$1,583 $198 $746 $(830)$1,697 
Total assets (billions)
$81 $40 $12 $54 $187 

Three Months Ended September 30, 2019 (Millions, except where indicated)GCSGGCSGMNS
Corporate & Other (a)
Consolidated
Total non-interest revenues$4,226 $3,070 $1,471 $19 $8,786 
Revenue from contracts with customers (b)
3,047 2,668 1,337 (1)7,051 
Interest income2,402 485 6 187 3,080 
Interest expense437 262 (74)252 877 
Total revenues net of interest expense6,191 3,293 1,551 (46)10,989 
Net income (loss)$991 $568 $523 $(327)$1,755 
Total assets (billions)
$99 $54 $17 $24 $194 

Nine Months Ended September 30, 2019 (Millions, except where indicated)GCSGGCSGMNS
Corporate & Other (a)
Consolidated
Total non-interest revenues$12,331 $9,055 $4,398 $71 $25,855 
Revenue from contracts with customers (b)
8,931 7,874 4,017 5 20,827 
Interest income6,971 1,407 22 599 8,999 
Interest expense1,318 787 (241)799 2,663 
Total revenues net of interest expense17,984 9,675 4,661 (129)32,191 
Net income (loss)$2,826 $1,641 $1,658 $(1,059)$5,066 
Total assets (billions)
$99 $54 $17 $24 $194 
(a)Corporate & Other includes adjustments and eliminations for intersegment activity.
(b)Includes discount revenue, certain other fees and commissions and other revenues from customers.
69
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. Our market risk exposures include (i) interest rate risk due to changes in the relationship between the interest rates on our assets (such as loans, receivables and investment securities) and the interest rates on our liabilities (such as debt and deposits); and (ii) foreign exchange risk related to transactions, funding, investments and earnings in currencies other than the U.S. dollar.
Interest Rate Risk
We analyze a variety of interest rate scenarios in response to changes in balance sheet composition, market conditions, and other factors. As of September 30, 2020, the composition of the balance sheet shifted substantially compared to December 31, 2019. There was a substantial net reduction in total fixed rate assets within Card Member loans, Card Member receivables and investment securities, and an increase in floating rate assets such as cash and cash equivalents. Largely as a result of this change in balance sheet composition, the adverse impact of changes in market interest rates on our net interest income has been significantly lowered since December 31, 2019. A hypothetical, immediate 100 basis point increase or decrease in market interest rates would have a detrimental effect of no greater than $70 million on our annual net interest income, based on the balance sheet as of September 30, 2020. The detrimental impact from rate changes is measured by instantaneously increasing or decreasing the anticipated future interest rates by 100 basis points, using a static asset liability gapping model. Our estimated repricing risk assumes that our interest-rate sensitive assets and liabilities that reprice within the twelve-month horizon generally reprice by the same magnitude as benchmark rate changes, and these benchmark rates do not fall below zero percent. It is further assumed that, within our interest-rate sensitive liabilities, certain deposits reprice at lower magnitudes than benchmark rate movements, and the magnitude of this repricing in turn depends on, among other factors, the direction of rate movements. These assumptions are 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.
Foreign Exchange Risk
With respect to earnings denominated in foreign currencies, the adverse impact of a hypothetical 10 percent strengthening of the U.S. dollar would have been approximately $38 million and $173 million on our pretax income for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively.

Table 19: Regulatory Risk-Based Capital Components and Risk Weighted Assets
American Express Company September 30, 
($ in Billions) 2017 
Risk-Based Capital   
Common Equity Tier 1 $16.4 
Tier 1 Capital  17.9 
Tier 2 Capital(a)
  2.3 
Total Capital  20.2 
     
Risk-Weighted Assets  138.0 
Average Total Assets to calculate the Tier 1 Leverage Ratio  164.6 
Total Leverage Exposure to calculate SLR $191.7 
(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.

Our primary source of equity capital has been the generation of net income. Historically, capital generated through net income and other sources, such as the exercise of stock options by employees, has exceeded the annual growth in our capital requirements. To the extent capital has exceeded business, regulatory and rating agency requirements, we have historically returned excess capital to shareholders through our regular common share dividend and share repurchase program.

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. We do not currently intend or foresee a need to shift capital from non-U.S. subsidiaries with permanently reinvested earnings to a U.S. parent company.

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.

Fully 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 September 30, 2017. These ratios are calculated using the standardized approach for determining risk-weighted assets. 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.


Table 20: Estimated Fully Phased-in Basel III Capital and Leverage Ratios

  September 30, 
($ in Billions) 2017 
Estimated Common Equity Tier 1 Ratio under Fully Phased-In Basel III(a)
  11.5%
Estimated Tier 1 Capital Ratio under Fully Phased-In Basel III (a)
  12.7 
     
Estimated Tier 1 Leverage Ratio under Fully Phased-In Basel III(b)
  10.7 
Estimated Supplementary Leverage Ratio under Fully Phased-In Basel III(b)
  9.2%
     
Estimated Risk-Weighted Assets under Fully Phased-In Basel III(c)
 $139.2 
Estimated Average Total Assets to calculate the Tier 1 Leverage Ratio(b)
  164.4 
Estimated Total Leverage Exposure to calculate SLR under Fully Phased-In Basel III (d)
 $191.5 
(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 21 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 supplementary leverage ratios, 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 supplementary leverage ratio 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 September 30, 2017.

Table 21: Transitional Basel III versus Fully Phased-in Basel III
(Billions) CET1  Tier 1 
Risk-Based Capital under Transitional Basel III $16.4  $17.9 
Adjustments related to:        
AOCI  (0.1)  (0.1)
Transition provisions for intangible assets  (0.2)  (0.2)
Estimated CET1 and Tier 1 Risk-Based Capital under Fully Phased-in Basel III $16.1  $17.6 

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 Supplementary Leverage Ratio — Calculated by dividing Fully Phased-in Basel III Tier 1 capital by our Fully Phased-in total leverage exposure for supplementary leverage ratio 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 three and nine months ended September 30, 2017, we returned $1.6 billion and $3.9 billion, respectively, to our shareholders in the form of common stock dividends ($0.3 billion and $0.9 billion, respectively) and share repurchases ($1.3 billion and $3.0 billion, respectively). We repurchased 15 million common shares at an average price of $86.08 in the third quarter of 2017. These dividend and share repurchase amounts collectively represent approximately 115 percent and 97 percent of total capital generated during the three and nine-month periods, respectively.
In addition, during the three months ended September 30, 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 C Preferred Shares during the third quarter of 2017 were $21 million.


Funding 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.
Summary of Consolidated Debt
We had the following consolidated debt and customer deposits outstanding as of September 30, 2017 and December 31, 2016:

Table 22: Summary of Consolidated Debt and Customer Deposits

(Billions) September 30, 2017  December 31, 2016 
Short-term borrowings $2.3  $5.6 
Long-term debt  48.8   47.0 
Total debt  51.1   52.6 
Customer deposits  61.3   53.0 
Total debt and customer deposits $112.4  $105.6 

During the three months ended September 30, 2017, we issued (i) $519 million of asset-backed securities from the American Express Credit Account Master Trust (the Lending Trust) consisting of $500 million of five year Class A Certificates at a floating rate of 1-month LIBOR plus 38 basis points and $19 million of five year Class B Certificates at a floating rate of 1-month LIBOR plus 58 basis points, and (ii) $2.3 billion of senior unsecured notes from American Express Company consisting of $1.9 billion of five year notes at a fixed rate of 2.50% and $400 million of five year notes at a floating rate of 3-month LIBOR plus 61 basis points.
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 23: Unsecured Debt Ratings

Credit AgencyAmerican Express EntityShort-Term RatingsLong-Term RatingsOutlook
DBRSAll rated entitiesR-1 (middle)A (high)Stable
FitchAll rated entitiesF1AStable
Moody’s
TRS and rated operating subsidiaries (a)
Prime 1A2Stable
Moody'sAmerican Express CompanyPrime 2A3Stable
S&P
TRS  (a)
N/AA-Stable
S&POther rated operating subsidiariesA-2A-Stable
S&PAmerican Express CompanyA-2BBB+Stable
(a)American Express Travel Related Services Company, Inc.

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.
Liquidity 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:


Maintaining diversified funding sources (refer to the “Funding Strategy” section for more details);
Maintaining unencumbered liquid assets and off-balance sheet liquidity sources;
Projecting cash inflows and outflows under a variety of economic and market scenarios;
Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements;
Incorporating liquidity risk management as appropriate into our capital adequacy framework.


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 (Dodd-Frank) 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.

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 September 30, 2017, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2020, that 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 that gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the Lending Trust. On September 15, 2017, we extended the Lending Trust’s $2.0 billion facility by two years to mature on September 15, 2020. 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 September 30, 2017, no amounts were drawn on the Charge Trust or Lending Trust facilities. On October 6, 2017, $3.0 billion was drawn on the Charge 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 $64.3 billion as of September 30, 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.

Committed 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 September 30, 2017 of $3.0 billion. On October 16, 2017, we increased the committed syndicated bank credit facility size to $3.5 billion and extended the facility by two years to mature on October 16, 2020. As of September 30, 2017, no amounts were drawn on this facility.


Unused Credit Outstanding
As of September 30, 2017, we had approximately $268 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.
Cash Flows
The following table summarizes our cash flow activity for the nine months ended September 30:

Table 24: Cash Flows

(Billions) 2017  2016 
Total cash provided by (used in):      
Operating activities $8.6  $5.0 
Investing activities  (10.5)  10.1 
Financing activities  2.6   (11.3)
Effect of foreign currency exchange rates on cash and cash equivalents  0.3   ― 
Net increase in cash and cash equivalents $1.0  $3.8 


Cash Flows from Operating Activities
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.

Net cash provided by operating activities was driven by net income of $3.9 billion and $4.6 billion for the current and prior periods, respectively, adjusted for non-cash items including changes in provisions for losses, depreciation and amortization, deferred taxes, and stock-based compensation. The prior period net income includes gains of $1.2 billion on the sales of the HFS portfolios, which are presented in Net (increase) decrease in Card Member receivables and loans, including held for sale, within cash flows from investing activities. The increase in cash provided by operating activities during the periods of comparison was also driven by impacts from movements in Other receivables and Accounts payable and other liabilities as a result of normal business operating activities.

Cash Flows from Investing Activities
Our cash flows from investing activities primarily include changes in Card Member receivables and loans, including Card Member loans and receivables HFS, along with gains on sales related thereto, as well as changes in our available for sale investment securities portfolio.

The decrease in net cash provided by investing activities primarily reflected the sale of the HFS portfolios in the prior period, as well as growth in Card Member loans and receivables and a higher increase in restricted cash in the current period.

Cash Flows from Financing Activities
Our cash flows from financing activities primarily include issuing and repaying debt, changes in customer deposits, issuing and repurchasing our common shares, and paying dividends.

The increase in net cash provided by financing activities was primarily driven by an increase in customer deposits during the current period, versus a decrease in the prior period, and net long-term debt issuances during the current period, versus net long-term debt repayments during the prior period.


OTHER MATTERS

Certain Legislative, Regulatory and Other Developments
We are subject to comprehensive government regulation and supervision in jurisdictions around the world, 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 and unpredictable regulatory enforcement environment.
Please see the “Supervision and Regulation” and “Risk Factors” sections of the Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Form 10-K) for further information.
Payments 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 European Union, 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. 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, such regulation extends to certain aspects of our business. For example, the EU regulation might apply price caps as well as other regulatory measures in circumstances where three-party networks issue cards with a cobrand partner or through an agent. We have brought a legal challenge and seek a ruling from the EU Court of Justice to clarify the interpretation and validity of that part of the regulation. As a precursor to the Court’s final ruling, an advisory opinion was issued on July 6, 2017 advising the Court that (a) the case should be declared inadmissible and (b) if the Court determines to treat the case as admissible, the law should be considered valid and applicable. The advisory opinion is not binding on the Court and there can be no assurance as to the outcome of our legal challenge. For more information on the European Union payments legislation, our related legal challenge and the Australia payments regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2016 Form 10-K.
Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to localize aspects of their operations, such as processing infrastructure, which could increase our costs and diminish the value of our closed loop. The development and enforcement of payment system regulatory regimes generally continue to grow and may adversely affect our ability to compete effectively and maintain and extend our global network.
Surcharging
In certain countries, such as certain Member States in the European Union and Australia, merchants are permitted by law to surcharge card purchases. While surcharging continues to be actively considered in certain jurisdictions, the benefits to customers have not been apparent in countries that have allowed it, and in some cases regulators are addressing concerns about excessive surcharging by merchants. For example, the Reserve Bank of Australia amended its rules to limit surcharging in Australia to the actual cost of card acceptance paid to the merchant acquirer.
Surcharging, particularly where it disproportionately impacts American Express Card Members, which is known as differential surcharging, as well as other steering practices that are permitted by regulation in some countries, could have a material adverse effect on us if it becomes widespread. As revisions to the Payment Services Directive in the European Union are transposed into national law by each Member State, there may be increased instances of differential surcharging of our cards, customer and merchant confusion as to which transactions may be surcharged and Card Member dissatisfaction. On July 19, 2017, the U.K. indicated it would ban surcharging on consumer cards starting January 2018. In addition, the laws of a number of states in the United States that prohibit surcharging are being challenged in litigation brought by merchant groups.
For more information on the potential impacts of surcharging and other actions that could impair the Card Member experience, please see the “Risk Factors” section of the 2016 Form 10-K.
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 Consumer Financial Protection Bureau (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.
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, substantial 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 will be a continuing focus for the CFPB and regulators more broadly, as well as for the company itself. As an example, federal banking regulators announced they are conducting horizontal reviews of banking sales practices and we are cooperating with regulators in those reviews. Also, 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.
On July 10, 2017, the CFPB issued a final rule that, among other changes, would prohibit providers of certain consumer financial products and services from using a pre-dispute arbitration agreement to bar consumers from filing or participating in a class action. The rule would apply to agreements entered into on or after March 19, 2018. As a result of the rule, we may face increased class claims and therefore be subject to the complexities and costs associated with class action litigation. Given the inherent uncertainties involved in litigation, and the very large or indeterminate damages sought in some class action matters, there is significant uncertainty as to the ultimate impact of this rule.
For more information on consumer financial products regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2016 Form 10-K.
Antitrust Litigation
The U.S. Department of Justice (DOJ) and certain states’ attorneys general brought an action against us in 2010 alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from engaging in various actions to discriminate against our card products violate the U.S. antitrust laws. We continue to vigorously defend this and similar antitrust claims initiated by merchants in other court and arbitration proceedings. See Part II, Item 1. “Legal Proceedings” below and the “Legal Proceedings” section in our 2016 Form 10-K for descriptions of the DOJ and related cases. It is possible that significantly increased merchant steering or other actions impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a material adverse effect on our business. For more information on the potential impacts of an adverse decision in the merchant litigations on our business, please see the “Risk Factors” section of the 2016 Form 10-K.
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 is a component of net interest yield on 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 balances.

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 Card Member loans —A non-GAAP measure that is computed by dividing adjusted net interest income by average 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 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.
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.
Return on average segment capital — Calculated by dividing one-year period segment income by one-year average segment capital.
Segment capital — Represents the capital allocated to a segment based upon specific business operational needs, risk measures, and regulatory capital requirements.
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.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. Our market risk exposures include (i) interest rate risk due to changes in the relationship between the interest rates on our assets (such as loans, receivables and investment securities) and the interest rates on our liabilities (such as debt and deposits); and (ii) foreign exchange risk related to transactions, funding, investments and earnings in currencies other than the U.S. dollar. There were no material changes in these market risks since December 31, 2016.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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, our 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have not been any changes in our 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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information that updates the disclosures set forth under Part I, Item 3. “Legal Proceedings” in our 2019 Form 10-K, refer to Note 7 to the “Consolidated Financial Statements” in this Form 10-Q.
ITEM 1A. RISK FACTORS
For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K) and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the First Quarter Form 10-Q). The information included in the "Risk Factors" section of the First Quarter Form 10-Q is incorporated by reference herein. The risks and uncertainties that we face are not limited to those set forth in the 2019 Form 10-K, as supplemented and updated in the First Quarter Form 10-Q. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment and stimulus measures, continued outbreaks and increasing rates of infection, and the related impacts to economic and operating conditions.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)   ISSUER PURCHASES OF SECURITIES
The table below sets forth the information with respect to purchases of our common stock made by or on behalf of us during the three months ended September 30, 2020.
Total Number of Shares PurchasedAverage 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
July 1-31, 2020
Repurchase program(a)
— $— — 102,171,653 
Employee transactions(b)
—— N/AN/A
August 1-31, 2020
Repurchase program(a)
— $— — 102,171,653 
Employee transactions(b)
11,983 $94.65N/AN/A
September 1-30, 2020
Repurchase program(a)
— $— — 102,171,653 
Employee transactions(b)
—— N/AN/A
Total
Repurchase program(a)
— $— — 102,171,653 
Employee transactions(b)
11,983 $94.65N/AN/A
(a)On September 23, 2019, the Board of Directors authorized the repurchase of up to 120 million common shares from time to time, subject to market conditions and in accordance with our capital plans. This authorization replaced the prior repurchase authorization and does not have an expiration date. See “MD&A – Consolidated Capital Resources and Liquidity” for additional information regarding share repurchases.
(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.
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ITEM 5. OTHER INFORMATION
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.
In 2020, we became aware of credit card accounts opened with American Express International, Inc. (Hong Kong branch) by the Acting Consul General of the Iranian Consulate in Hong Kong, and his predecessor, the now-former Consul General. We believe these cards were used only for personal expenses. The Acting Consul General had two cards, both of which were opened in 2018 and one of which was closed by client request on or about April 3, 2019, and the other of which was cancelled by us on or about June 16, 2020. The former Consul General’s card was issued in January 2019 and cancelled by us on or about March 13, 2019. We had negligible gross revenues and net profits attributable to these accounts. As all of the accounts were cancelled, we do not intend to continue to engage in this activity.
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Table of Contents
ITEM 6. EXHIBITS
The following exhibits are filed as part of this Quarterly Report:
ExhibitDescription
31.1
31.2

There have not been any changes in our 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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Cautionary Note Regarding Forward-looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. The forward-looking statements, which address 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:
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 level of spend in bonus categories on rewards-based and/or cash-back cards and redemptions of Card Member rewards and offers; 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 operating leverage at levels consistent with current expectations; 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); 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, our geographic mix of income being weighted more to higher tax jurisdictions than expected, changes in tax laws and regulation and unfavorable tax audits and other unanticipated tax items; write-downs of deferred tax assets as a result of tax law or other changes; the impact of accounting changes and reclassifications; and our ability to continue executing the share repurchase program;
our ability to grow revenues net of interest expense, 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, a greater impact on discount revenue from cash back and cobrand partner and client incentive payments, more cautious spending by large and global corporate Card Members, the willingness of Card Members to pay higher card fees, and 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;
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 and the success of marketing, promotion or rewards programs;
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 and actual usage and redemption of rewards, 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 marketing and promotion, 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; competitive pressures that may require additional expenditures; 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;
our ability to reduce our overall cost base, which will depend in part on the timing and financial impact of reengineering plans, which could be impacted by factors such as our inability to mitigate the operational and other risks posed by potential staff reductions, our inability to develop and implement technology resources to realize cost savings and underestimating hiring and other employee needs; our ability to reduce annual operating expenses, which could be impacted by, among other things, the factors identified below; our ability to optimize marketing and promotion expenses, which could be impacted by the factors identified in the preceding bullet;
the ability to reduce annual operating expenses, 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; our ability to develop, implement and achieve substantial benefits from reengineering plans; 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; our ability to balance expense control and investments in the business; the impact of accounting changes and reclassifications; and the level of M&A activity and related expenses;
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;
our ability to execute against our lending strategy to grow loans, 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;
the growth in net interest income moderating more than expected, which will be impacted by the growth and mix of Card Member and other loans, which will depend in part on the factors identified in the preceding bullet, and our net interest yield on Card Member loans, 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, the factors identified in the subsequent bullet;
deposit rates increasing faster or slower than current expectations due to changes in our funding mix, market pressures, regulatory constraints or changes in benchmark interest rates, which could affect net interest yield and our funding costs;
the possibility that we will not execute on our plans to significantly increase merchant coverage, which will depend in part on the success of OptBlue merchant acquirers in signing merchants to accept American Express, which could be impacted by the pricing set by the merchant acquirers, the value proposition offered to small merchants and the efforts of OptBlue merchant acquirers to sign merchants for American Express acceptance, as well as the awareness and willingness of Card Members to use American Express cards at small merchants and of those merchants to accept American Express cards;
changes affecting our ability or desire to return capital to shareholders through dividends and share repurchases, which will depend on factors such as approval of our capital plans by our primary regulators, the amount we spend on acquisitions of companies and our results of operations and capital needs and economic environment in any given period;
changes in global economic and business conditions, consumer and business spending, the availability and cost of capital, unemployment rates, geopolitical conditions (including potential impacts resulting from the U.S. Administration and the proposed exit of the United Kingdom from the European Union), 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;
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, restrict our access to the capital markets or result in contingent payments under contracts;
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;
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;
potential actions by the FDIC and credit rating agencies applicable to securitization trusts, which could impact our asset securitization program;
potential changes to the taxation of our businesses, the allowance of deductions for significant expenses, or the incidence of consumption taxes on our transactions, products and services;
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
factors beyond our control such as fire, power loss, disruptions in telecommunications, severe weather conditions, natural disasters (including further impacts from the recent hurricanes in Texas, Florida and Puerto Rico), health pandemics, terrorism, cyberattacks 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 the 2016 Form 10-K and our other reports filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION

ITEM 1. 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 or seek an indeterminate amount of damages, it is possible that the outcome of legal proceedings, including the possible resolution of merchant claims, 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 could have a material adverse effect on our business. Certain legal proceedings involving us or our subsidiaries are described in this section and others, for which there have been no subsequent material developments since the filing of our 2016 Form 10-K, are described in such report. For additional information, see Note 8 to our “Consolidated Financial Statements.”
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, MasterCard International Incorporated and Visa, Inc., alleging a violation of Section 1 of the Sherman Antitrust Act (the DOJ case). 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 in the DOJ case, 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 directed the trial court to enter a judgment for American Express. Following denial of rehearing en banc by the Court of Appeals for the Second Circuit, the trial court entered judgment for American Express on January 25, 2017. On June 2, 2017, the DOJ announced it would not petition the U.S. Supreme Court to review the Second Circuit’s decision in favor of American Express. At the same time, 11 of the 17 states that are party to the case filed a petition with the Supreme Court seeking such a review. On October 16, 2017, the U.S. Supreme Court granted certiorari.


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 with leave to replead.
On October 16, 2015, a putative class action, captioned Houssain v. American Express Company, et al., was filed in the United States District Court for the Southern District of New York under the Employee Retirement Income Security Act of 1974 (ERISA) relating to disclosures of the Costco cobrand relationship. On May 10, 2016, the plaintiff filed an amended complaint naming certain officers of the Company as defendants and alleging that the defendants violated certain ERISA fiduciary obligations by, among other things, allowing the investment of American Express Retirement Savings Plan (Plan) assets in American Express common stock when American Express common stock was not a prudent investment and misrepresenting and failing to disclose material facts to Plan participants in connection with the administration of the Plan. The amended complaint sought, among other remedies, an unspecified amount of damages. On September 28, 2017, the Court granted defendants’ motion to dismiss the amended complaint.

ITEM 1A. RISK FACTORS

For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of the 2016 Form 10-K. There are no material changes from the risk factors set forth in the 2016 Form 10-K. However, the risks and uncertainties that we face are not limited to those set forth in the 2016 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)   ISSUER PURCHASES OF SECURITIES

The table below sets forth the information with respect to purchases of our common stock made by or on behalf of us during the three months ended September 30, 2017.

  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 
             
July 1-31, 2017            
Repurchase program(a)
  3,203,577  $85.05   3,203,577   110,708,033 
Employee transactions(b)
  ―   ―   N/A   N/A 
                 
August 1-31, 2017                
Repurchase program(a)
  6,481,629  $85.65   6,481,629   104,226,404 
Employee transactions(b)
  26,593  $84.80   N/A   N/A 
                 
September 1-30, 2017                
Repurchase program(a)
  5,530,176  $87.18   5,530,176   98,696,228 
Employee transactions(b)
  12  $85.97   N/A   N/A 
                 
Total                
Repurchase program(a)
  15,215,382  $86.08   15,215,382   98,696,228 
Employee transactions(b)
  26,605  $84.80   N/A   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.
32.1
(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.

.
ITEM 5. OTHER INFORMATION

CEO Succession

On October 18, 2017, we announced that the Board of Directors appointed Stephen J. Squeri 58, Chief Executive Officer of American Express Company and elected him Chairmanpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Board, each effective February 1, 2018.  Mr. Squeri succeeds Kenneth I. Chenault, 66, who will retireSarbanes-Oxley Act of 2002.
32.2
In connection with his new role, effective February 1, 2018 Mr. Squeri will receive an annual base salary of $1.5 million and will be eligible to earn an annual cash incentive award of $4.5 million and an annual long-term incentive award consisting of restricted stock units and stock options with a value of $10.2 million.

In addition, Mr. Squeri will be awarded performance-vesting options on October 31, 2017 with a grant date fair value of $4.5 million.  On the same date, Douglas E. Buckminster, President, Global Consumer Services, and Anré Williams, President, Global Merchant Services and Loyalty, will also be granted performance-vesting stock options, each with a grant date fair value of $2.25 million, in connection with the CEO transition. The options will have a term of seven years, an exercise price equal to the closing price on the grant date and vesting subject to (i) a stock price goal of 30% above the closing price on the grant date, which must be met for a period of 20 consecutive trading days during the five-year period beginning on the grant date, (ii) a financial goal of positive cumulative GAAP net income for the three-year period 2018-2020 and (iii) a three-year service condition. 50%Section 906 of the net after-tax shares received upon exercise must be held for at least 12 months. 

Required Iran Disclosures

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human RightsSarbanes-Oxley Act of 2012, which added Section 13(r) to2002.
101.INSXBRL Instance Document - The instance document does not appear in the Exchange Act, an issuer is required to discloseinteractive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained 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 third quarter of 2017 approximately 73 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.Exhibit 101)

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ITEM 6. EXHIBITS

The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index” which is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN EXPRESS COMPANY
(Registrant)
Date: October 23, 2020By/s/ Jeffrey C. Campbell
Jeffrey C. Campbell
Chief Financial Officer
Date: October 23, 2020By/s/ Jessica Lieberman Quinn
Jessica Lieberman Quinn
Executive Vice President and
Corporate Controller
(Principal Accounting Officer)
AMERICAN EXPRESS COMPANY
(Registrant)
      Date: October 24, 2017By/s/ Jeffrey C. Campbell
Jeffrey C. Campbell
Executive Vice President and
Chief Financial Officer
      Date: October 24, 2017By/s/ Linda Zukauckas
Linda Zukauckas
Executive Vice President and
Corporate Controller
(Principal Accounting Officer)
EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report:

Exhibit
Description
12
Computation in Support of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
31.1
Certification of Kenneth I. Chenault pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2
Certification of Jeffrey C. Campbell pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1
Certification of Kenneth I. Chenault pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Jeffrey C. Campbell pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document




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E-1