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Section 1: 10-Q (FORM 10-Q OF AMERICAN EXPRESS COMPANY)

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 March 31, 2019

or

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

For the Transition Period from ____ to ____

Commission file number 1-7657

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

New York
 
13-4922250
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
200 Vesey Street, New York, New York
 
10285
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code                                         (212) 640-2000        


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes       No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes       No

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

Yes       No

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

Class
   
Outstanding at April 15, 2019
Common Shares (par value $0.20 per share)
   
835,080,540 Shares
 
 
 
 
 

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
 
 
 
 
Part I.
 
Page No.
 
Item 1.
     
       
1
       
2
       
3
       
4
       
5
       
6
 
Item 2.
   
29
 
Item 3.
   
53
 
Item 4.
   
53
Part II.
   
 
Item 1.
   
56
 
Item 1A.
   
56
 
Item 2.
   
57
 
Item 5.
   
58
 
Item 6.
   
58
 
59
 
E-1

Throughout this report the terms “American Express,” “we,” “our” or “us,” refer to American Express Company and its subsidiaries on a consolidated basis, unless stated or the context implies otherwise. 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 1. FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
 
Three Months Ended March 31 (Millions, except per share amounts)
 
2019
   
2018
 
Revenues
           
Non-interest revenues
           
Discount revenue
 
$
6,195
   
$
5,889
 
Net card fees
   
944
     
830
 
Other fees and commissions
   
803
     
781
 
Other
   
363
     
377
 
Total non-interest revenues
   
8,305
     
7,877
 
Interest income
               
Interest on loans
   
2,725
     
2,326
 
Interest and dividends on investment securities
   
33
     
21
 
Deposits with banks and other
   
196
     
115
 
Total interest income
   
2,954
     
2,462
 
Interest expense
               
Deposits
   
399
     
270
 
Long-term debt and other
   
496
     
351
 
Total interest expense
   
895
     
621
 
Net interest income
   
2,059
     
1,841
 
Total revenues net of interest expense
   
10,364
     
9,718
 
Provisions for losses
               
Charge card
   
253
     
242
 
Card Member loans
   
525
     
499
 
Other
   
31
     
34
 
Total provisions for losses
   
809
     
775
 
Total revenues net of interest expense after provisions for losses
   
9,555
     
8,943
 
Expenses
               
Marketing and business development
   
1,573
     
1,345
 
Card Member rewards
   
2,451
     
2,347
 
Card Member services
   
550
     
409
 
Salaries and employee benefits
   
1,422
     
1,326
 
Other, net
   
1,601
     
1,434
 
Total expenses
   
7,597
     
6,861
 
Pretax income
   
1,958
     
2,082
 
Income tax provision
   
408
     
448
 
Net income
 
$
1,550
   
$
1,634
 
Earnings per Common Share (Note 15):(a)
               
Basic
 
$
1.81
   
$
1.86
 
Diluted
 
$
1.80
   
$
1.86
 
Average common shares outstanding for earnings per common share:
               
Basic
   
841
     
859
 
Diluted
   
843
     
861
 

(a)
Represents net income less (i) earnings allocated to participating share awards of $11 million and $13 million for the three months ended March 31, 2019 and 2018, respectively, and (ii) dividends on preferred shares of $21 million for both the three months ended March 31, 2019 and 2018.
 
 
See Notes to Consolidated Financial Statements.
 
1

 
 
 
 
 

 

AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
 
 
 

 
 
 
Three Months Ended March 31 (Millions)
 
2019
   
2018
 
Net income
 
$
1,550
   
$
1,634
 
Other comprehensive (loss) income:
               
Net unrealized securities gains (losses), net of tax
   
17
     
(11
)
Foreign currency translation adjustments, net of tax
   
8
     
30
 
Net unrealized pension and other postretirement benefits, net of tax
   
(27
)
   
28
 
Other comprehensive (loss) income
   
(2
)
   
47
 
Comprehensive income
 
$
1,548
   
$
1,681
 
 
 
 
 
See Notes to Consolidated Financial Statements.
 
2

Table of Contents
 
 
 
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
March 31,
   
December 31,
 
 (Millions, except share data)
 
2019
   
2018
 
Assets
           
Cash and cash equivalents
           
Cash and due from banks
 
$
4,026
   
$
3,253
 
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2019, $308; 2018, $64)
   
29,110
     
24,026
 
Short-term investment securities
   
41
     
166
 
Total cash and cash equivalents
   
33,177
     
27,445
 
Accounts receivable
               
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2019, $7,758; 2018, $8,539), less reserves: 2019, $608; 2018, $573
   
56,227
     
55,320
 
Other receivables, less reserves: 2019, $25; 2018, $25
   
3,128
     
2,907
 
Loans
               
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2019, $31,495; 2018, $33,194), less reserves: 2019, $2,121; 2018, $2,134
   
78,874
     
79,720
 
Other loans, less reserves: 2019, $129; 2018, $124
   
3,965
     
3,676
 
Investment securities
   
6,457
     
4,647
 
Premises and equipment, less accumulated depreciation and amortization: 2019, $6,315; 2018, $6,015
   
4,479
     
4,416
 
Other assets (includes restricted cash of consolidated variable interest entities: 2019, $84; 2018, $70)
   
10,886
     
10,471
 
Total assets
 
$
197,193
   
$
188,602
 
Liabilities and Shareholders’ Equity
               
Liabilities
               
Customer deposits
 
$
72,857
   
$
69,960
 
Travelers Cheques and other prepaid products
   
2,223
     
2,295
 
Accounts payable
   
16,162
     
12,255
 
Short-term borrowings
   
2,028
     
3,100
 
Long-term debt (includes debt issued by consolidated variable interest entities: 2019, $19,538; 2018, $19,509)
   
58,418
     
58,423
 
Other liabilities
   
23,287
     
20,279
 
Total liabilities
 
$
174,975
   
$
166,312
 
Contingencies (Note 8)
               
Shareholders’ Equity
               
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of March 31, 2019 and December 31, 2018
   
     
 
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 837 million shares as of March 31, 2019 and 847 million shares as of December 31, 2018
   
168
     
170
 
Additional paid-in capital
   
11,963
     
12,218
 
Retained earnings
   
12,686
     
12,499
 
Accumulated other comprehensive loss
               
Net unrealized debt securities gains (losses), net of tax of: 2019, $3; 2018, $(1)
   
9
     
(8
)
Foreign currency translation adjustments, net of tax of: 2019, $(336); 2018, $(300)
   
(2,125
)
   
(2,133
)
Net unrealized pension and other postretirement benefits, net of tax of: 2019, $(181); 2018, $(170)
   
(483
)
   
(456
)
Total accumulated other comprehensive loss
   
(2,599
)
   
(2,597
)
Total shareholders’ equity
   
22,218
     
22,290
 
Total liabilities and shareholders’ equity
 
$
197,193
   
$
188,602
 
 
 
 
 
See Notes to Consolidated Financial Statements.
 
3

Table of Contents
 
 
 
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31 (Millions)
 
2019
   
2018
 
Cash Flows from Operating Activities
           
Net income
 
$
1,550
   
$
1,634
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provisions for losses
   
809
     
775
 
Depreciation and amortization
   
297
     
348
 
Deferred taxes and other
   
137
     
(254
)
Stock-based compensation
   
85
     
84
 
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
               
Other receivables
   
(196
)
   
122
 
Other assets
   
(161
)
   
(85
)
Accounts payable and other liabilities
   
6,100
     
(431
)
Travelers Cheques and other prepaid products
   
(74
)
   
(130
)
Net cash provided by operating activities
   
8,547
     
2,063
 
Cash Flows from Investing Activities
               
Maturities and redemptions of investment securities
   
2,227
     
886
 
Purchases of investments
   
(4,060
)
   
(1,215
)
Net (increase) decrease in Card Member loans and receivables, and other loans(a)
   
(656
)
   
348
 
Purchase of premises and equipment, net of sales: 2019, $33; 2018, nil
   
(348
)
   
(237
)
Acquisitions/dispositions, net of cash acquired
   
(20
)
   
(475
)
Other investing activities, net
   
148
     
 
Net cash used in investing activities
   
(2,709
)
   
(693
)
Cash Flows from Financing Activities
               
Net increase in customer deposits
   
2,892
     
2,206
 
Net decrease in short-term borrowings
   
(1,099
)
   
(1,489
)
Proceeds from long-term borrowings
   
3,633
     
3,984
 
Payments of long-term borrowings
   
(3,821
)
   
(7,203
)
Issuance of American Express common shares
   
19
     
11
 
Repurchase of American Express common shares and other
   
(1,352
)
   
(134
)
Dividends paid
   
(355
)
   
(324
)
Net cash used in financing activities
   
(83
)
   
(2,949
)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash
   
68
     
(178
)
Net increase (decrease) in cash, cash equivalents and restricted cash
   
5,823
     
(1,757
)
Cash, cash equivalents and restricted cash at beginning of period
   
27,808
     
33,263
 
Cash, cash equivalents and restricted cash at end of period
 
$
33,631
   
$
31,506
 
 
(a)
Refer to Note 2 for additional information.
                   
 
 
Supplemental cash flow information
                   
 
Cash, cash equivalents and restricted cash reconciliation
 
Mar-19
   
Dec-18
   
Mar-18
   
Dec-17
 
Cash and cash equivalents per Consolidated Balance Sheets
 
$
33,177
   
$
27,445
   
$
31,092
   
$
32,927
 
Restricted cash included in Other assets per Consolidated Balance Sheets
   
454
     
363
     
414
     
336
 
Total cash, cash equivalents and restricted cash
 
$
33,631
   
$
27,808
   
$
31,506
   
$
33,263
 
 
 
 
 
See Notes to Consolidated Financial Statements.
 
4

Table of Contents
 
 
 
 
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
Three months ended March 31, 2019
(Millions, except per share amounts)
 
Total
   
Preferred Shares
   
Common Shares
   
Additional Paid-in Capital
   
Accumulated Other Comprehensive Loss
   
Retained Earnings
 
Balances as of December 31, 2018
 
$
22,290
   
$
   
$
170
   
$
12,218
   
$
(2,597
)
 
$
12,499
 
Net income
   
1,550
     
     
     
     
     
1,550
 
Other comprehensive loss
   
(2
)
   
     
     
     
(2
)
   
 
Repurchase of common shares
   
(1,245
)
   
     
(3
)
   
(267
)
   
     
(975
)
Other changes, primarily employee plans
   
(27
)
   
     
1
     
12
     
     
(40
)
Cash dividends declared preferred Series C, $24.50 per share
   
(21
)
   
     
     
     
     
(21
)
Cash dividends declared common, $0.39 per share
   
(327
)
   
     
     
     
     
(327
)
Balances as of March 31, 2019
 
$
22,218
   
$
   
$
168
   
$
11,963
   
$
(2,599
)
 
$
12,686
 
 
 
Three months ended March 31, 2018
(Millions, except per share amounts)
 
Total
   
Preferred Shares
   
Common Shares
   
Additional Paid-in Capital
   
Accumulated Other Comprehensive Loss
   
Retained Earnings
 
Balances as of December 31, 2017
 
$
18,261
   
$
   
$
172
   
$
12,210
   
$
(2,428
)
 
$
8,307
 
Net income
   
1,634
     
     
     
     
     
1,634
 
Other comprehensive income
   
47
     
     
     
     
47
     
 
Repurchase of common shares
   
     
     
     
     
     
 
Other changes, primarily employee plans
   
(7
)
   
     
     
15
     
     
(22
)
Cash dividends declared preferred Series C, $24.50 per share
   
(21
)
   
     
     
     
     
(21
)
Cash dividends declared common, $0.35 per share
   
(301
)
   
     
     
     
     
(301
)
Balances as of March 31, 2018
 
$
19,613
   
$
   
$
172
   
$
12,225
   
$
(2,381
)
 
$
9,597
 
 
 
See Notes to Consolidated Financial Statements.
5

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.  Basis of Presentation

The Company

We are a globally integrated payments company that provides customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (the GBT JV). 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, direct mail, in-house sales teams, third-party vendors 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, 2018 (the 2018 Form 10-K). If not materially different, certain note disclosures included therein have been omitted from these Consolidated Financial Statements.

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 June 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance for the recognition of credit losses on financial instruments, effective January 1, 2020. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. In addition, for available-for-sale debt securities, the new guidance replaces the other-than-temporary impairment model, and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. The guidance also requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. We continue to evaluate the impact the new guidance will have on our financial position, results of operations and regulatory risk-based capital. The CECL model will alter the assumptions used in estimating credit losses on Card Member loans and receivables, and we may have material changes to our credit reserves as the new guidance involves earlier recognition of expected losses for the life of the assets. However, the extent of the impact will depend on the characteristics of our loan portfolio, macroeconomic conditions and forecasted information at the date of adoption. We continue to drive our cross-functional implementation efforts and have substantially completed development of CECL models.  Continuing through 2019, we are validating and analyzing model output during CECL parallel runs, and developing the business processes, policies and controls that satisfy the requirements of the new standard.

 
 
 
 
 
6

Table of Contents
 
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
 
 
 

 
Recently Adopted Accounting Standards


In February 2016, the FASB issued new accounting guidance on leases. The accounting standard, effective January 1, 2019, requires virtually all leases to be recognized on the Consolidated Balance Sheets.  Effective January 1, 2019, we adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the Consolidated Balance Sheet without adjusting comparative periods. Under the guidance we have also elected not to separate lease and non-lease components in recognition of the lease-related assets and liabilities, as well as the related lease expense.
We have operating leases for facilities and equipment, which are recorded as assets and liabilities for those leases with terms greater than 12 months. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
Upon adoption of the standard, we recorded approximately $700 million of right of use assets and lease-related liabilities, included in Other assets and Other liabilities, respectively. In conjunction with the adoption, we upgraded our lease administration software and updated our business processes and internal controls in support of the new guidance.


In February 2018, as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Act), the FASB issued new accounting guidance on the reclassification of certain tax effects from accumulated other comprehensive income (AOCI) to retained earnings. We adopted the new guidance effective January 1, 2019 and did not elect the optional reclassification.



2.  Business Events

During the first quarter of 2018, we acquired the portion of the Hilton Worldwide Holdings Inc. cobrand credit card loan portfolio that we did not previously own (the acquired Hilton portfolio). The acquired Hilton portfolio had an outstanding principal and interest balance of approximately $1 billion at acquisition. None of the credit card loans acquired were considered purchased credit impaired at acquisition date. The cash outflows related to this acquisition are reported within the investing section of the Consolidated Statements of Cash Flows primarily as an increase in Card Member receivables and loans.


 
 
 
 
7

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

Our 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 March 31, 2019 and December 31, 2018 consisted of:

(Millions)
 
2019
   
2018
 
Global Consumer Services Group(a)
 
$
67,938
   
$
69,458
 
Global Commercial Services
   
13,057
     
12,396
 
Card Member loans
   
80,995
     
81,854
 
Less: Reserve for losses
   
2,121
     
2,134
 
Card Member loans, net
 
$
78,874
   
$
79,720
 
Other loans, net(b)
 
$
3,965
   
$
3,676
 

(a)
Includes approximately $31.5 billion and $33.2 billion of gross Card Member loans available to settle obligations of a consolidated variable interest entity (VIE) as of March 31, 2019 and December 31, 2018, respectively.


(b)
Other loans primarily represent consumer and commercial non-card financing products. Other loans are presented net of reserves for losses of $129 million and $124 million as of March 31, 2019 and December 31, 2018, respectively.


Card Member accounts receivable by segment and Other receivables as of March 31, 2019 and December 31, 2018 consisted of:

(Millions)
 
2019
   
2018
 
Global Consumer Services Group(a)
 
$
19,929
   
$
21,455
 
Global Commercial Services
   
36,906
     
34,438
 
Card Member receivables
   
56,835
     
55,893
 
Less: Reserve for losses
   
608
     
573
 
Card Member receivables, net
 
$
56,227
   
$
55,320
 
Other receivables, net(b)
 
$
3,128
   
$
2,907
 

(a)
Includes $7.8 billion and $8.5 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of March 31, 2019 and December 31, 2018, respectively.

(b)
Other receivables primarily represent amounts related to (i) Global Network Services partners 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 $25 million as of both March 31, 2019 and December 31, 2018.

 
 
 
 
 
8

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Card Member Loans and Card Member Receivables Aging
Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of March 31, 2019 and December 31, 2018:

2019  (Millions)
Current
 
30-59 Days Past Due
 
60-89 Days Past Due
   
90+ Days Past Due
   
Total
 
Card Member Loans:
                       
Global Consumer Services Group
 
$
66,916
   
$
286
   
$
216
   
$
520
   
$
67,938
 
Global Commercial Services
                                       
      Global Small Business Services
   
12,824
     
53
     
38
     
76
     
12,991
 
      Global Corporate Payments(a)
(b)
 
(b)
 
(b)
     
     
66
 
Card Member Receivables:
                                       
Global Consumer Services Group
   
19,667
     
85
     
58
     
119
     
19,929
 
Global Commercial Services
                                       
      Global Small Business Services
 
$
17,061
   
$
105
   
$
62
   
$
119
   
$
17,347
 
      Global Corporate Payments(a)
(b)
 
(b)
 
(b)
   
$
125
   
$
19,559
 
 
2018  (Millions)
Current
 
30-59 Days Past Due
 
60-89 Days Past Due
   
90+ Days Past Due
   
Total
 
Card Member Loans:
                             
Global Consumer Services Group
 
$
68,442
   
$
290
   
$
220
   
$
506
   
$
69,458
 
Global Commercial Services
                                       
      Global Small Business Services
   
12,195
     
51
     
32
     
73
     
12,351
 
      Global Corporate Payments(a)
(b)
 
(b)
 
(b)
     
     
45
 
Card Member Receivables:
                                       
Global Consumer Services Group
   
21,207
     
80
     
50
     
118
     
21,455
 
Global Commercial Services
                                       
      Global Small Business Services
 
$
16,460
   
$
101
   
$
53
   
$
114
   
$
16,728
 
      Global Corporate Payments(a)
(b)
 
(b)
 
(b)
   
$
129
   
$
17,710
 

(a)
For Global Corporate Payments 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 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.
 

 

 
 
 
 
 

 
 
 
 
 
 
9

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Credit Quality Indicators for Card Member Loans and Receivables
The following tables present the key credit quality indicators as of or for the three months ended March 31:

   
2019
   
2018
 
   
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:
                                   
Global Consumer Services Group
   
2.3
%
   
2.8
%
   
1.5
%
   
2.0
%
   
2.4
%
   
1.4
%
Global Small Business Services
   
1.8
%
   
2.1
%
   
1.3
%
   
1.6
%
   
1.9
%
   
1.3
%
Card Member Receivables:
                                               
Global Consumer Services Group
   
1.7
%
   
1.9
%
   
1.3
%
   
1.6
%
   
1.7
%
   
1.4
%
Global Small Business Services
   
1.9
%
   
2.1
%
   
1.6
%
   
1.7
%
   
1.9
%
   
1.8
%
 
 
   
2019
   
2018
 
   
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 Payments
   
0.08
%
   
0.6
%
   
0.10
%
   
0.8
%

(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.

 
 
 
 
 
10

Table of Contents
 
 

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

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 we 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 our various Troubled Debt Restructuring (TDR) modification programs. Impaired Card Member loans and receivables outside the U.S. are not significant as of March 31, 2019 and December 31, 2018; therefore, such loans and receivables are not included in the following tables unless otherwise noted.

The following tables provide additional information with respect to our impaired Card Member loans and receivables as of March 31, 2019 and December 31, 2018:

 
As of March 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
 
Unpaid Principal Balance
 
Allowance for TDRs
 
Card Member Loans:
                           
Global Consumer Services Group(f)
 
$
348
   
$
250
   
$
354
   
$
137
   
$
1,089
   
$
972
   
$
93
 
Global Commercial Services
   
43
     
49
     
67
     
30
     
189
     
176
     
15
 
Card Member Receivables:
                                                       
Global Consumer Services Group
   
     
     
35
     
12
     
47
     
47
     
3
 
Global Commercial Services
   
     
     
70
     
28
     
98
     
97
     
4
 
Total
 
$
391
   
$
299
   
$
526
   
$
207
   
$
1,423
   
$
1,292
   
$
115
 

 
As of December 31, 2018
 
                             
         
Accounts Classified as a TDR(c)
             
2018 (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:
                           
Global Consumer Services Group(f)
 
$
344
   
$
236
   
$
313
   
$
131
   
$
1,024
   
$
923
   
$
80
 
Global Commercial Services
   
43
     
43
     
59
     
29
     
174
     
161
     
14
 
Card Member Receivables:
                                                       
Global Consumer Services Group
   
     
     
29
     
13
     
42
     
42
     
2
 
Global Commercial Services
   
     
     
61
     
25
     
86
     
86
     
5
 
Total
 
$
387
   
$
279
   
$
462
   
$
198
   
$
1,326
   
$
1,212
   
$
101
 

(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 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 we have ceased accruing interest. Amounts presented exclude Card Member loans classified as a TDR.
(c)
Accounts classified as a TDR include $20 million and $17 million that are over 90 days past due and accruing interest and $12 million and $6 million that are non-accruals as of March 31, 2019 and December 31, 2018, respectively.
(d)
In Program TDRs include Card Member accounts that are currently enrolled in a modification program.
(e)
Out of Program TDRs include $156 million and $148 million of Card Member accounts that have successfully completed a modification program and $51 million and $50 million of Card Member accounts that were not in compliance with the terms of the modification programs as of March 31, 2019 and December 31, 2018, respectively.
(f)
Global Consumer Services Group (GCSG) includes balances outside the U.S. of $77 million and $69 million that are over 90 days and accruing interest and $64 million and $68 million in unpaid principal as of March 31, 2019 and December 31, 2018, respectively.

 

 
 
 
11

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
 
 

 
The following table provides information with respect to our average balances and interest income recognized from impaired Card Member loans and the average balances of impaired Card Member receivables for the three months ended March 31:

 
2019
 
2018
 
                 
     
Interest
     
Interest
 
 
Average
 
Income
 
Average
 
Income
 
(Millions)
Balance
 
Recognized
 
Balance
 
Recognized
 
Card Member Loans:
               
Global Consumer Services Group
 
$
1,057
   
$
31
   
$
801
   
$
26
 
Global Commercial Services
   
181
     
6
     
136
     
5
 
Card Member Receivables:
                               
Global Consumer Services Group
   
45
     
     
27
     
 
Global Commercial Services
   
92
     
     
63
     
 
Total
 
$
1,375
   
$
37
   
$
1,027
   
$
31
 

Card Member Loans and Receivables Modified as TDRs


The following table provides additional information with respect to Card Member loans and receivables modified as TDRs for the three months ended March 31, 2019 and 2018.

   
Three Months Ended
March 31, 2019
 
   
Number of
 
Outstanding
 
Average Interest
   
Average Payment
 
   
Accounts
 
Balances(a)
 
Rate Reduction
   
Term Extensions
 
   
(in thousands)
 
($ in millions)
 
(% Points)
   
(# of Months)
 
Troubled Debt Restructurings:
                     
Card Member loans
   
17
   
$
128
     
13
   
(b)
 
Card Member receivables
   
2
     
40
   
(c)
     
27
 
Total
   
19
   
$
168
                 
 
 
 
Three Months Ended
March 31, 2018
 
 
Number of
 
Outstanding
 
Average Interest
 
Average Payment
 
 
Accounts
 
Balances(a)
 
Rate Reduction
 
Term Extensions
 
 
(in thousands)
 
($ in millions)
 
(% Points)
 
(# of Months)
 
Troubled Debt Restructurings:
                       
Card Member loans
   
11
   
$
81
     
11
 
(b)
 
Card Member receivables
   
1
     
29
   
(c)
     
28
 
Total
   
12
   
$
110
                 

(a)
Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables. Modifications did not reduce the principal balance.

(b)
For Card Member loans, there have been no payment term extensions.
(c)
We do not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.



 
 
 
 
 
12

Table of Contents
 
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
The following table provides information with respect to Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A Card Member is considered in default of a modification program after one and up to two 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 March 31,
 
 
2019
 
2018
 
 
Number of
Accounts
 
Aggregated
Outstanding
Balances
Upon Default(a)
 
Number of
Accounts
 
Aggregated
Outstanding
Balances
Upon Default(a)
 
 
(thousands)
 
(millions)
 
(thousands)
 
(millions)
 
Troubled Debt Restructurings That
               
Subsequently Defaulted:
               
Card Member loans
   
2
   
$
17
     
2
   
$
9
 
Card Member receivables
   
1
     
4
     
1
     
2
 
Total
   
3
   
$
21
     
3
   
$
11
 

(a)
The outstanding balances upon default include principal, fees and accrued interest on Card Member loans, and principal and fees on Card Member receivables.




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 our 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 three months ended March 31:

(Millions)
 
2019
   
2018
 
Balance, January 1
 
$
2,134
   
$
1,706
 
Provisions(a)
   
525
     
499
 
Net write-offs(b)
               
Principal
   
(457
)
   
(358
)
Interest and fees
   
(92
)
   
(71
)
Other(c)
   
11
     
10
 
Balance, March 31
 
$
2,121
   
$
1,786
 

(a)
Provisions for principal, interest and fee reserve components.

(b)
Principal write-offs are presented less recoveries of $124 million and $106 million for the three months ended March 31, 2019 and 2018, respectively. Recoveries of interest and fees were not significant. Amounts include net (write-offs) recoveries from TDRs of $(15) million and $(7) million for the three months ended March 31, 2019 and 2018, respectively.
(c)
Includes foreign currency translation adjustments of $6 million and $6 million and other adjustments of $5 million and $4 million for the three months ended March 31, 2019 and 2018, respectively.

 
 
 
 
 
13

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Card Member Loans Evaluated Individually and Collectively for Impairment


The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of March 31, 2019 and December 31, 2018:

(Millions)
 
2019
   
2018
 
Card Member loans evaluated individually for impairment(a)
 
$
588
   
$
532
 
Related reserves(a)
 
$
108
   
$
94
 
Card Member loans evaluated collectively for impairment(b)
 
$
80,407
   
$
81,322
 
Related reserves(b)
 
$
2,013
   
$
2,040
 

(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.


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

(Millions)
 
2019
   
2018
 
Balance, January 1
 
$
573
   
$
521
 
Provisions(a)
   
253
     
242
 
Net write-offs(b)
   
(216
)
   
(199
)
Other(c)
   
(2
)
   
1
 
Balance, March 31
 
$
608
   
$
565
 

(a)
Provisions for principal and fee reserve components.

(b)
Net write-offs are presented less recoveries of $91 million and $90 million for the three months ended March 31, 2019 and 2018, respectively. Amounts include net (write-offs) recoveries from TDRs of $(4) million and $2 million, for the three months ended March 31, 2019 and 2018, respectively.
(c)
Includes foreign currency translation adjustments of $3 million and $10 million and other adjustments of $(5) million and $(9) million for the three months ended March 31, 2019 and 2018, respectively.


Card Member Receivables Evaluated Individually and Collectively for Impairment


The following table presents Card Member receivables evaluated individually and collectively for impairment and related reserves as of March 31, 2019 and December 31, 2018:

(Millions)
 
2019
   
2018
 
Card Member receivables evaluated individually for impairment(a)
 
$
145
   
$
128
 
Related reserves(a)
 
$
7
   
$
7
 
Card Member receivables evaluated collectively for impairment
 
$
56,690
   
$
55,765
 
Related reserves(b)
 
$
601
   
$
566
 

(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.

 
 
 
 
 
14

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
5.  Investment Securities

Investment securities principally include available-for-sale debt securities carried at fair value on the Consolidated Balance Sheets, with unrealized gains and losses recorded in AOCI, net of income taxes. Realized gains and losses are recognized upon disposition of the securities using the specific identification method.
Investment securities also include equity securities carried at fair value on the Consolidated Balance Sheets. The unrealized gains and losses on equity securities are recorded in the Consolidated Statements of Income.

The following is a summary of investment securities as of March 31, 2019 and December 31, 2018:

 
2019
 
2018
 
     
Gross
 
Gross
 
Estimated
     
Gross
 
Gross
 
Estimated
 
Description of Securities
   
Unrealized
 
Unrealized
 
Fair
     
Unrealized
 
Unrealized
 
Fair
 
 (Millions)
Cost
 
Gains
 
Losses
 
Value
 
Cost
 
Gains
 
Losses
 
Value
 
Available-for-sale debt securities:
                               
State and municipal obligations
 
$
342
   
$
6
   
$
(1
)
 
$
347
   
$
594
   
$
4
   
$
(2
)
 
$
596
 
U.S. Government agency obligations
   
10
     
     
     
10
     
10
     
     
     
10
 
U.S. Government treasury obligations
   
5,404
     
14
     
(9
)
   
5,409
     
3,452
     
5
     
(17
)
   
3,440
 
Corporate debt securities
   
29
     
     
     
29
     
28
     
     
     
28
 
Mortgage-backed securities(a)
   
48
     
1
     
     
49
     
50
     
1
     
     
51
 
Foreign government bonds and obligations
   
565
     
1
     
     
566
     
474
     
     
     
474
 
Equity securities(b)
   
50
     
     
(3
)
   
47
     
51
     
     
(3
)
   
48
 
Total
 
$
6,448
   
$
22
   
$
(13
)
 
$
6,457
   
$
4,659
   
$
10
   
$
(22
)
 
$
4,647
 

(a)
Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

(b)
Equity securities comprise investments in common stock and mutual funds.


The following table provides information about our investment securities with gross unrealized losses and the length of time that individual securities have been in an unrealized loss position as of March 31, 2019 and December 31, 2018:

 
2019
 
2018
 
 
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
 
$
   
$
   
$
52
   
$
(1
)
 
$
   
$
   
$
82
   
$
(1
)
U.S. Government treasury obligations
   
     
     
998
     
(9
)
   
224
     
(2
)
   
791
     
(15
)
Total
 
$
   
$
   
$
1,050
   
$
(10
)
 
$
224
   
$
(2
)
 
$
873
   
$
(16
)


 
 
 
 
 
15

Table of Contents
 
 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of March 31, 2019 and December 31, 2018:

 
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
 
2019:
                                   
90%–100%
   
   
$
   
$
     
26
   
$
1,050
   
$
(10
)
   
26
   
$
1,050
   
$
(10
)
Total as of March 31, 2019
   
   
$
   
$
     
26
   
$
1,050
   
$
(10
)
   
26
   
$
1,050
   
$
(10
)
 
2018:
                                                     
90%–100%
   
2
   
$
224
   
$
(2
)
   
29
   
$
873
   
$
(16
)
   
31
   
$
1,097
   
$
(18
)
Total as of December 31, 2018
   
2
   
$
224
   
$
(2
)
   
29
   
$
873
   
$
(16
)
   
31
   
$
1,097
   
$
(18
)

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

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

Contractual maturities for investment securities with stated maturities as of March 31, 2019 were as follows:

         
Estimated
 
(Millions)
 
Cost
   
Fair Value
 
Due within 1 year
 
$
4,599
   
$
4,600
 
Due after 1 year but within 5 years
   
1,315
     
1,319
 
Due after 5 years but within 10 years
   
179
     
181
 
Due after 10 years
   
305
     
310
 
Total
 
$
6,398
   
$
6,410
 

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.

 
 
 
16

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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
6.  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 March 31, 2019, our ownership of variable interests was $12.3 billion and $7.8 billion for the Lending Trust and the Charge Trust, respectively. 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 March 31, 2019 and December 31, 2018, included in Other assets on the Consolidated Balance Sheets:

(Millions)
 
2019
   
2018
 
Lending Trust
 
$
83
   
$
67
 
Charge Trust
   
1
     
3
 
Total
 
$
84
   
$
70
 

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 three months ended March 31, 2019 and the year ended December 31, 2018, no such triggering events occurred.
 
 
 
 
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
7.  Customer Deposits

As of March 31, 2019 and December 31, 2018, customer deposits were categorized as interest-bearing or non-interest-bearing as follows:

(Millions)
 
2019
   
2018
 
U.S.:
           
Interest-bearing
 
$
72,110
   
$
69,144
 
Non-interest-bearing (includes Card Member credit balances of: 2019, $334; 2018, $376)
   
368
     
412
 
Non-U.S.:
               
Interest-bearing
   
27
     
28
 
Non-interest-bearing (includes Card Member credit balances of: 2019, $343; 2018, $367)
   
352
     
376
 
Total customer deposits
 
$
72,857
   
$
69,960
 

Customer deposits by deposit type as of March 31, 2019 and December 31, 2018 were as follows:

(Millions)
 
2019
   
2018
 
U.S. retail deposits:
           
Savings accounts – Direct
 
$
43,345
   
$
39,491
 
Certificates of deposit:(a)
               
Direct
   
1,107
     
817
 
Third-party (brokered)
   
12,189
     
12,667
 
Sweep accounts – Third-party (brokered)
   
15,469
     
16,169
 
Other deposits:
               
U.S. non-interest bearing deposits
   
34
     
36
 
Non-U.S. deposits
   
36
     
37
 
Card Member credit balances ― U.S. and non-U.S.
   
677
     
743
 
Total customer deposits
 
$
72,857
   
$
69,960
 

(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 47 months and 2.40 percent, respectively, as of March 31, 2019.


The scheduled maturities of certificates of deposit as of March 31, 2019 were as follows:

(Millions)
 
U.S.
   
Non-U.S.
   
Total
 
2019
 
$
4,249
   
$
13
   
$
4,262
 
2020
   
4,406
     
4
     
4,410
 
2021
   
1,937
     
     
1,937
 
2022
   
2,292
     
     
2,292
 
2023
   
327
     
     
327
 
After 5 years
   
85
     
     
85
 
Total
 
$
13,296
   
$
17
   
$
13,313
 

As of March 31, 2019 and December 31, 2018, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:

(Millions)
 
2019
   
2018
 
U.S.
 
$
373
   
$
276
 
Non-U.S.
   
7
     
9
 
Total
 
$
380
   
$
285
 
 
 
 
 
 
18

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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
8.  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.

Individual merchant cases and a putative merchant class action, which were consolidated in 2011 and collectively captioned In re: American Express Anti-Steering Rules Antitrust Litigation (II) in the Eastern District of New York, 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. Following the Supreme Court decision in Ohio v. American Express Co. in favor of American Express, plaintiffs in both the individual merchant cases and the putative merchant class action filed amended complaints. On April 12, 2019, the individual merchant cases were dismissed with prejudice pursuant to a joint stipulation between the parties. Our motion to dismiss and compel arbitration of the class action is pending.
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 July 30, 2015, plaintiff Plumbers and Steamfitters Local 137 Pension Fund, on behalf of themselves and other purchasers of American Express stock, filed a suit, captioned Plumbers and Steamfitters Local 137 Pension Fund v. American Express Co., Kenneth I. Chenault and Jeffrey C. Campbell, in the United States District Court for the Southern District of New York for violation of federal securities law, alleging that the Company deliberately issued false and misleading statements to, and omitted important information from, the public relating to the financial importance of the Costco cobrand relationship to the Company, including, but not limited to, the decision to accelerate negotiations to renew the cobrand agreement. The plaintiff sought damages and injunctive relief. On October 2, 2017, the Court granted defendants’ motion to dismiss the plaintiff’s amended complaint. The plaintiff has appealed the court’s decision.
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.

Our 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 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 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 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 zero to $240 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.

 
 
 
 
 
19

 

 
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9.  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 March 31, 2019, these derivatives were not in a material net liability position. Based on our assessment of the credit risk of our derivative counterparties as of March 31, 2019 and December 31, 2018, no credit risk adjustment to the derivative portfolio was required.

A majority of our derivative assets and liabilities as of March 31, 2019 and December 31, 2018 are subject to master netting agreements with our derivative counterparties. We have no derivative amounts subject to enforceable master netting arrangements that are not offset on the Consolidated Balance Sheets.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of March 31, 2019 and December 31, 2018:

       
Other Assets Fair Value
   
Other Liabilities Fair Value
 
(Millions)
 
2019
   
2018
   
2019
   
2018
 
Derivatives designated as hedging instruments:
                       
Fair value hedges - Interest rate contracts(a)
 
$
66
   
$
34
   
$
39
   
$
74
 
Net investment hedges - Foreign exchange contracts
   
42