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

axp-20200930
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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, 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
(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.
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 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 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 filerAccelerated 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.   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.
ClassOutstanding at October 19, 2020
Common Shares (par value $0.20 per share)805,201,951 Shares




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AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Page No.
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. 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 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. Our range of products and services includes:
Credit card, charge card and other payment and financing products
Merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants
Network services
Other fee services, including fraud prevention services and the design and operation of customer loyalty programs
Expense management products and services
Travel and lifestyle services
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. 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 card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and 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 the 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 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 vary 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, loyalty coalition-related fees, service fees earned from merchants, travel commissions and fees, and Membership Rewards program fees; and
Other revenue, primarily represents revenues arising from contracts with partners of our GNS business (including commissions and signing fees less issuer rate payments), cross-border Card Member spending, ancillary merchant-related fees, 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


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Bank Holding Company
American Express 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.
Throughout the quarter, our colleague base has continued to successfully operate in a mostly remote working environment. To support our customers and merchants, we continued to offer 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 as compared to the last year. In addition, our Card Members are recognizing our commitment to service excellence, ranking us number one in the J.D. Power U.S. Credit Card Satisfaction Study for the tenth time. We also continued to work 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 for 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 portion of our billed business, recovered to pre-pandemic levels, growing 1 percent as compared to the prior year. T&E spend continued to be down 69 percent year-over-year, though we saw a modest improvement 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, our future results will be materially impacted.
Revenues net of interest expense decreased 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, as such revenues are slower to react to economic shifts since they are recognized over a twelve-month period and Card 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 declined by 15 percent year-over-year, primarily driven by lower average loans and lower benchmark interest rates, partially offset by higher net yield.
As a result of the spend-centric nature of our business model, Card Member loans and receivables declined 17 percent and 28 percent year-over-year, respectively, due to lower 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 global macroeconomic outlook due to continuing high levels of uncertainty regarding the pace of a recovery in 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 such results are being compared).


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The 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 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 investments in initiatives to support our customers, such as enhancements that we made to value propositions for many of our card products and our largest ever Shop Small campaign. Looking ahead, we are beginning to place 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 in line with prior quarters, subject to approval by the Board of Directors.
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 earnings and financial performance.
See “Certain Legislative, Regulatory and Other Developments” and "Risk Factors" for information on additional impacts of the COVID-19 pandemic and related 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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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.

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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.
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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).
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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)(109)#293 58 235 #
Total
117 238 (121)(51)1,069 715 354 50
Card Member loans
Net write-offs
523 538 (15)(3)1,750 1,644 106 
Reserve build (a)
48 66 (18)(27)1,666 88 1,578 #
Total
571 604 (33)(5)3,416 1,732 1,684 97 
Other
Net write-offs - Other loans (b)
27 25 880 74 
Net write-offs - Other receivables (c)
12 10 20 20 15 33 
Reserve (release) build - Other loans (a)(b)
(53)(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.

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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 $— %$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.
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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.
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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).
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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).

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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)$(447)(3)(1,449)(1,367)
Net write-offs — interest and fees less recoveries$(91)$(91)— (301)(277)
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 total
1.2 %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.
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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.
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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)20202019
2020 vs. 2019
20202019
2020 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)