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

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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 March 31, 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 April 20, 2020
Common Shares (par value $0.20 per share)804,971,499  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.



PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
Business Introduction
When we use the terms “American Express,” “we,” “our” or “us,” we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
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.
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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
In early March 2020, COVID-19, a disease caused by a novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. Since December 2019, COVID-19 has spread rapidly, with most countries and territories worldwide with confirmed cases of COVID-19, and a high concentration of cases in the United States and many other countries in which we operate. The rapid spread has resulted in authorities around the world implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional and national economies.

As the COVID-19 pandemic unfolded globally, we moved quickly to transition our colleague base to a fully remote working environment in all our locations. We have sought to ensure our colleagues feel secure in their jobs and have the flexibility and resources they need to stay safe and healthy. To support our customers and merchants, we are offering financial and other assistance to help them through this difficult period, adding product benefits to reflect today’s environment, and continuing to provide the high level of customer service they expect and rely on. We are also working with several of our strategic partners on initiatives to support our communities. In the United States we launched our Stand for Small coalition to provide assistance programs designed to help small businesses manage through the crisis and we are working with our hotel partners to provide hotel rooms free of charge to frontline medical professionals.

During the first two months of 2020, while COVID-19 was primarily limited to specific countries in Asia and Europe, we continued to see solid growth in line with previous quarters. During the second half of March, the sharp contraction of the global economy triggered a dramatic decline in our business volumes, which continued into April. To the extent that we continue to see significant year-over-year declines, our future results will be materially impacted.

Our billed business for the quarter was down only modestly as the COVID-19 impacts discussed above became more impactful as the quarter drew to a close. During the first two months of the quarter, our worldwide billed business increased 5 percent over the prior year, followed by a 25 percent year-over-year decline in billings for the month of March, resulting in an overall year-over-year decline of 6 percent for the quarter. While U.S. billed business declined 3 percent versus the prior year, international billings declined by 11 percent (7% on an FX adjusted basis) due to the earlier impact of COVID-19 in Asia and Europe.1 Our proprietary consumer and commercial billed business declined by 3 and 6 percent year-over-year, respectively, with the more rapid decline in commercial primarily driven by a dramatic drop in T&E spending as corporations reduced spending and governments implemented travel restrictions.

Revenues net of interest expense decreased 1 percent year-over-year, with strong growth in the first two months of the quarter, offset by a decline in March. Consistent with the trend in billings, Discount revenue, our largest revenue line, decreased 6 percent for the quarter and 28 percent in the month of March. The contraction in discount revenue was larger than the decline in billed business due to a decrease in the average discount rate. The average discount rate declined by 3 basis points for the full quarter and by 10 basis points in March, both relative to the same periods in the prior year, due to a shift in spend mix to non-T&E categories. If the spending trends we experienced at the end of March and into April continue, we anticipate seeing a further decline in the average discount rate in the second quarter. We also saw COVID-19 related declines in Other fees and commissions and Other revenues, primarily due to declines in consumer travel commissions and fees, and reduced cross-border spending, respectively. Card fee revenues, which are recognized over a twelve-month period, are slower to react to economic shifts and we therefore continued to see a growth in year-over-year revenues. As the pace of new account growth slows in the current environment, we would expect to see a modest slow-down in net card fee growth. Net interest income grew by 13 percent year-over-year, driven by higher average Card Member loans during the quarter and higher net yields.

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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During the first two months of the quarter, we saw continued strong growth in Card Member loans, however this was offset by a sharp decline in March, which resulted in average loans for the quarter up 3 percent year-over-year, with the Card Member loan closing balance down 4 percent year-over-year. In addition, due to significant decline in billings in the month of March, Card Member receivables were lower by 21 percent year-over-year as of the end of the quarter. Provisions for credit losses increased due to a significant reserve build that reflected the deterioration of the estimated global macroeconomic outlook as a result of COVID-19 impacts. The latest macroeconomic outlook reflects a more significant deterioration in United States Gross Domestic Product (GDP) and unemployment than when we closed our books for the first quarter. If those forecasts were to hold or worsen by the time we close our second quarter financials, we would expect to have another large reserve build.
During the quarter, we created a Customer Pandemic Relief Program for customers who have been impacted by COVID-19. As of April 19, 2020, approximately $5.1 billion of Card Member and Other loans and approximately $3.4 billion of Card Member receivables were enrolled in the program, based on balances at the time of enrollment.
Card Members rewards and services, and business development expenses are generally correlated to billings or are variable based on usage and were impacted this quarter by the decline in billing volumes and lower usage of travel-related benefits as governments implemented restrictions to contain the spread of COVID-19. For the rest of the year, we expect to reduce our proactive marketing efforts as well as decrease operating expenses, while re-investing in initiatives and product benefits to support our long-term growth strategy.

We ended the quarter with a strong balance sheet and capital and liquidity profile, as well as broad and well-diversified funding sources. This provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

Looking ahead, there is great uncertainty on when the economy will improve. Our financial performance for the remainder of the year will depend on (i) when and how strongly Card Member spending rebounds as the global economy recovers, and (ii) how long the challenges of high unemployment levels and small business shutdowns last and the impact on our credit losses. At this time we cannot determine the answers to these questions.

Our framework for managing through this challenging economic environment is built on four principles: supporting our colleagues and winning as a team; protecting our customers and our brand; structuring the company for growth in the future; and remaining financially strong. We will remain focused on what we can control in the short term while identifying opportunities across our businesses to position ourselves for growth in the longer term.

See “Certain Legislative, Regulatory and Other Developments” and "Risk Factors" for information on additional impacts of COVID-19 and related containment efforts as well as other matters that could have a material adverse effect on our results of operations and financial condition.

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, as well as current and future economic conditions over a reasonable and supportable period (R&S Period) beyond the balance sheet date.

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In estimating expected credit losses, we use a combination of statistically-based models that include a significant amount of judgment, primarily related to the determination of the appropriate R&S Period, the methodology to incorporate current and future economic conditions, and the determination of the probability of and exposure at default, all of which are ultimately used in measuring the quantitative components of our reserves. 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 rates. We also consider whether to adjust the quantitative reserves for certain external and internal qualitative factors, 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 credit losses, using all available portfolio information, current economic conditions and forecasts of future economic conditions. We obtain our forecasts of future economic conditions from an independent third party, and in determining the relevant R&S Period for Card Member loans and receivables, we also consider information arising from other internal processes, as well as our own past loss experience. 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.
As noted above, CECL requires that the R&S Period include an assumption about current and future economic conditions. We incorporate multiple economic scenarios (e.g., baseline, better and worse) obtained from an independent third party. The expected credit losses calculated from each economic scenario are weighted to reflect uncertainty around the baseline economic scenario. We determine the weighting of each scenario based on our detailed review of the externally sourced information and comparing other economic information we use throughout other processes.
Macroeconomic Sensitivity
Reserves for credit losses are sensitive to various inputs and assumptions, which may differ by portfolio. Macroeconomic forecasts are critical inputs into our models and inherently contain multiple variables, of which the U.S. unemployment rate and U.S. GDP growth rate are the most significant to our estimated expected credit losses. Both variables moved dramatically during the quarter and drove a significant credit reserve build. At December 31, 2019, the U.S. unemployment rate and GDP growth quarter-over-quarter was 3.5 percent and 2.1 percent, respectively. At March 31, 2020, our weighted economic scenarios, obtained from an independent third party, primarily assumed in the second quarter the U.S. unemployment rate peaks between approximately 9 percent to 13 percent and U.S. GDP declines quarter-over-quarter approximately 18 percent to 25 percent, seasonally adjusted to annualized rates. The combination of the material movements in these variables, together with overall changes in our portfolios related to volume and mix, resulted in a build to our reserves for credit losses of $1.7 billion. These macroeconomic forecasts, under different conditions or using different assumptions or estimates, could result in significantly different changes in reserves for credit losses. It is difficult to estimate how potential changes in specific factors might affect the overall reserves for credit losses and current results may not reflect the potential future impact of macroeconomic forecast changes.
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 quarter ended March 31, 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 months ended March 31, 2020 compared to the same period 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 COVID-19 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 the 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
March 31,
Change
2020 vs. 2019
(Millions, except percentages and per share amounts)20202019
Total revenues net of interest expense$10,310  $10,364  $(54) (1)%
Provisions for credit losses2,621  809  1,812  #
Expenses7,237  7,597  (360) (5) 
Pretax income452  1,958  (1,506) (77) 
Income tax provision85  408  (323) (79) 
Net income367  1,550  (1,183) (76) 
Earnings per common share — diluted (a)
$0.41  $1.80  $(1.39) (77)%
Return on average equity (b)
24.4 %31.9 %
Effective tax rate18.8 %20.8 %
# Denotes a variance greater than 100 percent
(a)Represents net income, less (i) earnings allocated to participating share awards of $2 million and $11 million for the three months ended March 31, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $32 million and $21 million for the three months ended March 31, 2020 and 2019, respectively.
(b)Return on average equity (ROE) is computed by dividing (i) one-year period of net income ($5.6 billion and $6.8 billion for March 31, 2020 and 2019, respectively) by (ii) one-year average of total shareholders’ equity ($22.8 billion and $21.5 billion for March 31, 2020 and 2019, respectively).
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Table 2: Total Revenues Net of Interest Expense Summary
Three Months Ended
March 31,
Change
2020 vs. 2019
(Millions, except percentages)20202019
Discount revenue$5,838  $6,195  $(357) (6)%
Net card fees1,110  944  166  18  
Other fees and commissions720  803  (83) (10) 
Other312  363  (51) (14) 
Total non-interest revenues7,980  8,305  (325) (4) 
Total interest income3,046  2,954  92   
Total interest expense716  895  (179) (20) 
Net interest income2,330  2,059  271  13  
Total revenues net of interest expense$10,310  $10,364  $(54) (1)%
Total Revenues Net of Interest Expense
Discount revenue decreased, primarily due to a decrease in billed business of 6 percent. U.S. billed business decreased 3 percent. Non-U.S. billed business decreased 11 percent (7 percent on an FX-adjusted basis).2
Additional billed business highlights:
Proprietary consumer and commercial billed business both decreased for the quarter as compared to 2019, with a greater decline in commercial billed business driven by a dramatic drop in T&E spending as corporations reduced spending and governments implemented travel restrictions.
Worldwide billed business increased 5 percent for both the months of January and February and decreased 25 percent for the month of March. The significant decrease in March reflected the impacts of the spread of COVID-19 globally.
U.S. billed business increased 7 percent and 9 percent for the months of January and February, respectively, and decreased 22 percent for the month of March, as the impacts of COVID-19 accelerated in the U.S. in March.
Non-U.S. billed business increased 1 percent (4 percent on an FX-adjusted basis) for the month of January and decreased 2 percent (2 percent increase on an FX-adjusted basis) and 30 percent (26 percent on an FX-adjusted basis) for the months of February and March, respectively, reflecting the impacts of COVID-19 in certain countries in Asia beginning in January, and the increased spread in February and March internationally.2
The average discount rate was 2.34 percent, down from 2.37 percent a year ago, due to a shift in spend mix to non-T&E categories. For the month of March, the average discount rate was 2.27 percent.
See Tables 5 and 6 for more details on billed business performance.
Net card fees increased, primarily driven by growth in the Platinum, Delta and Gold portfolios as well as growth in certain key international countries (Japan, United Kingdom, Mexico and India) compared to a year ago. Card fees, which are recognized over a 12-month period, are slower to react to economic shifts and therefore the impacts of COVID-19 were not a significant driver of the year-over-year change.
Other fees and commissions decreased, primarily due to the impacts of COVID-19 containment measures, including travel bans and restrictions, which resulted in lower travel commissions and fees from our consumer travel business, as well as lower foreign exchange conversion revenue related to decreased cross-border Card Member spending.
Other revenues decreased, primarily driven by a net loss in the current year, as compared to net income in the prior year, from the GBT JV, as well as lower foreign exchange spread revenue earned on cross-border Card Member spending.
Interest income increased, primarily reflecting higher average Card Member loans and higher yields. Although average Card Member loans were higher during the quarter, ending Card Member loans at March 31, 2020 decreased 4 percent as compared to March 31, 2019. The reductions in benchmark interest rates, which occurred in late March, did not have a significant impact on our yields for the quarter.
Interest expense decreased, primarily driven by lower interest rates paid on deposits and outstanding debt.


2 Refer to footnote 1 on page 2 for details regarding foreign currency adjusted information.
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Table 3: Provisions for Credit Losses Summary
Three Months Ended March 31,Change
2020 vs. 2019
(Millions, except percentages)20202019
Card Member receivables$597  $253  $344   
Card Member loans1,876  525  1,351   
Other148  31  117   
Total provisions for credit losses$2,621  $809  $1,812   
# Denotes a variance greater than 100 percent
Provisions for Credit Losses
Provisions for credit losses on loans and receivables increased, primarily driven by significant reserve builds, which reflect the deterioration of the estimated global macroeconomic outlook, including unemployment and GDP, as a result of COVID-19 impacts.
Table 4: Expenses Summary
Three Months Ended March 31,Change
2020 vs. 2019
(Millions, except percentages)20202019
Marketing and business development$1,705  $1,575  $130  %
Card Member rewards2,392  2,451  (59) (2) 
Card Member services456  550  (94) (17) 
Total marketing, business development, and Card Member rewards and services4,553  4,576  (23) (1) 
Salaries and employee benefits1,395  1,422  (27) (2) 
Other, net1,289  1,599  (310) (19) 
Total expenses$7,237  $7,597  $(360) (5)%
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 with the re-launch, resulted in higher Marketing and business development, lower Card Member rewards and lower Card Member services expenses, as compared to the prior year.
Marketing and business development expense increased, primarily due to the Delta changes described above, partially offset by a decrease in corporate client incentives driven by lower billed business, reflecting the impacts of COVID-19 containment measures.
Card Member rewards expense decreased, primarily due to a decrease in cobrand rewards expense of $46 million, reflecting the Delta changes described above and a combined decrease in Membership Rewards and cash back rewards of $13 million, primarily due to a decrease in billed business, as a result of the impacts of COVID-19.
The Membership Rewards URR for current program participants was 96 percent (rounded up) at both March 31, 2020 and 2019.
Card Member services expense decreased, primarily due to lower usage of travel-related benefits, as well as the Delta changes described above. The decrease in usage of travel-related benefits includes the impact of travel restrictions and other COVID-19 containment measures.
Salaries and employee benefits expense decreased, primarily driven by the stock market downturn and the resulting mark-to-market impact on deferred compensation, resulting in lower deferred compensation expenses, partially offset by higher payroll costs.
Other expenses decreased, primarily driven by a prior year litigation-related charge.
Income Taxes
The effective tax rate was 18.8 percent and 20.8 percent for the three months ended March 31, 2020 and 2019, respectively. The change in tax rate primarily reflects discrete tax benefits in the current period in relation to lower pretax income.
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Table 5: Selected Card-Related Statistical Information
As of or for the
Three Months Ended
March 31,
Change
2020
vs.
2019
20202019
Billed business: (billions)
U.S.$190.2  $195.5  (3)%
Outside the U.S.89.1  100.2  (11) 
Total$279.3  $295.7  (6) 
Proprietary$242.6  $253.3  (4) 
GNS36.7  42.4  (13) 
Total$279.3  $295.7  (6) 
Cards-in-force: (millions)
U.S.54.9  54.1   
Outside the U.S.58.7  59.8  (2) 
Total113.6  113.9  —  
Proprietary70.4  69.7   
GNS43.2  44.2  (2) 
Total113.6  113.9  —  
Basic cards-in-force: (millions)
U.S.43.1  42.5   
Outside the U.S.49.2  49.9  (1) 
Total92.3  92.4  —  
Average proprietary basic Card Member spending: (dollars)
U.S.$4,922  $5,082  (3) 
Outside the U.S.3,505  3,927  (11) 
Worldwide Average$4,497  $4,741  (5) 
Average discount rate2.34 %2.37 %   
Average fee per card (dollars)(a)
$63  $54  17 %
(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 Growth
Three Months Ended
March 31, 2020
Year over Year Percentage
Increase (Decrease)
Year over Year Percentage Increase (Decrease) Assuming No Changes in FX Rates (a)
Worldwide
Proprietary
Proprietary consumer(3)%(2)%
Proprietary commercial(6) (5) 
Total Proprietary(4) (3) 
GNS(13) (10) 
Worldwide Total(6) (4) 
T&E-related volume (26% of Worldwide Total)(21) (19) 
Non-T&E-related volume (74% of Worldwide Total)  
Airline-related volume (7% of Worldwide Total)(32) (30) 
U.S.
Proprietary
Proprietary consumer(1) 
Proprietary commercial(4) 
Total Proprietary(3) 
U.S. Total(3) 
T&E-related volume (24% of U.S. Total)(17) 
Non-T&E-related volume (76% of U.S. Total) 
Airline-related volume (6% of U.S. Total)(29) 
Outside the U.S.
Proprietary
Proprietary consumer(6) (2) 
Proprietary commercial(12) (7) 
Total Proprietary(8) (4) 
Outside the U.S. Total(11) (7) 
Japan, Asia Pacific & Australia(10) (6) 
Latin America & Canada(12) (5) 
Europe, the Middle East & Africa(13) (10) 
(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).
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Table 7: Selected Credit-Related Statistical Information
As of or for the Three Months Ended March 31, Change
2020
vs.
2019
(Millions, except percentages and where indicated)20202019
Worldwide Card Member loans:
Card Member loans: (billions)
U.S.$69.0  $70.8  (3)%
Outside the U.S.8.7  10.2  (15) 
Total$77.7  $81.0  (4) 
Credit loss reserves:
Beginning balance (a)
$4,027  $2,134  89  
Provisions - principal, interest and fees1,876  525   
Net write-offs — principal less recoveries(518) (457) 13  
Net write-offs — interest and fees less recoveries(107) (92) 16  
Other (b)
(42) 11   
Ending balance$5,236  $2,121   
% of loans6.7 %2.6 %
% of past due406 %178 %
Average loans (billions)
$83.4  $80.6   
Net write-off rate — principal only (c)
2.5 %2.3 %
Net write-off rate — principal, interest and fees (c)
3.0  2.7  
30+ days past due as a % of total
1.7 %1.5 %
Worldwide Card Member receivables:
Card Member receivables: (billions)
U.S.$32.6  $39.7  (18) 
Outside the U.S.12.1  17.1  (29) 
Total
$44.7  $56.8  (21) 
Credit loss reserves:
Beginning balance (a)
$126  $573  (78) 
Provisions - principal and fees$597  $253   
Net write-offs - principal and fees less recoveries$(258) $(216) 19  
Other (b)
$(6) $(2)  
Ending balance$459  $608  (25)%
% of receivables1.0 %1.1 %
Net write-off rate — principal and fees (c)
1.9  1.6  
Net write-off rate — principal and fees, excluding GCP (c)(d)
2.3  2.0  
Net write-off rate — principal only, excluding GCP (c)(d)
2.1  1.8  
30+ days past due as a % of total, excluding GCP (e)
1.9 %1.5 %
# Denotes a variance greater than 100 percent
(a)Includes an increase of $1,643 million and decrease of $493 million to the beginning reserve balances for Card Member loans and receivables, respectively, related to the adoption of the CECL methodology. Refer to Note 3 to the "Consolidated Financial Statements" for further information.
(b)Other includes foreign currency translation adjustments.
(c)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.
(d)Global Corporate Payments (GCP) reflects global, large and middle market corporate accounts. A GCP net write-off rate based on principal losses only is not available due to system constraints.
(e) For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. Delinquency data for periods other than 90+ days past billing is not available due to system constraints. 90+ Days Past Billing as a % of total was 1.1 percent and 0.6 percent for the three months ended March 31, 2020 and 2019, respectively.
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Table 8: 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
March 31,
(Millions, except percentages and where indicated)20202019
Net interest income$2,330  $2,059  
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
395  486  
Interest income not attributable to our Card Member loan portfolio (b)
(264) (335) 
Adjusted net interest income (c)
$2,461  $2,210  
Average Card Member loans (billions)
$83.4  $80.6  
Net interest income divided by average Card Member loans (c)
11.2 %10.2 %
Net interest yield on average Card Member loans (c)
11.9 %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 9: GCSG Selected Income Statement Data
Three Months Ended
March 31,
Change
(Millions, except percentages)202020192020 vs. 2019
Revenues
Non-interest revenues$3,894  $3,912  $(18) — %
Interest income2,411  2,272  139   
Interest expense328  435  (107) (25) 
Net interest income2,083  1,837  246  13  
Total revenues net of  interest expense5,977  5,749  228   
Provisions for credit losses1,810  551  1,259   
Total revenues net of interest expense after provisions for credit losses4,167  5,198  (1,031) (20) 
Expenses
Marketing, business development, and Card Member rewards and services2,702  2,789  (87) (3) 
Salaries and employee benefits and other operating expenses1,234  1,195  39   
Total expenses3,936  3,984  (48) (1) 
Pretax segment income231  1,214  (983) (81) 
Income tax provision30  260  (230) (88) 
Segment income$201  $954  $(753) (79)%
Effective tax rate13.0 %21.4 %
# Denotes a variance greater than 100 percent
GCSG primarily issues a wide range of proprietary consumer cards globally. GCSG also provides services to consumers, including travel and lifestyle services and non-card financing products, and manages certain international joint ventures and our partnership agreements in China.
Non-interest revenues decreased, primarily driven by lower discount revenue and other fees and commissions, mostly offset by higher net card fees.
Discount revenue decreased 3 percent, reflecting a corresponding decrease in proprietary consumer billed business due to lower average spend per card. Proprietary consumer billed business increased 6 percent for both the months of January and February and decreased 25 percent for the month of March. The significant decrease in March reflected the impacts of the spread of COVID-19 globally.
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See Tables 5, 6 and 10 for more details on billed business performance.
Other fees and commissions decreased 14 percent, primarily due to the impacts of COVID-19 containment measures, including travel bans and restrictions, which resulted in lower travel commissions and fees from our consumer travel business, as well as lower foreign exchange conversion revenue related to decreased cross-border spending.
Net card fees increased, primarily driven by growth in the Platinum, Delta, and Gold portfolios, as well as growth across certain key international countries (Japan, United Kingdom, Mexico and India) compared to a year ago.
Net interest income increased, primarily driven by higher yields and growth in average Card Member loans and lower cost of funds. Although average Card Member loans were higher during the quarter, ending Card Member loans at March 31, 2020 decreased 6 percent as compared to March 31, 2019.
Provisions for credit losses on loans and receivables increased, primarily driven by significant reserve builds, which reflected the deterioration of the estimated global macroeconomic outlook, including unemployment and GDP, as a result of COVID-19 impacts.
Marketing, business development, and Card Member rewards and services expenses decreased primarily due to lower spending on growth initiatives, as well as lower usage of travel-related benefits, including the impact of travel restrictions and other COVID-19 containment measures.
Salaries and employee benefits and other operating expenses increased, primarily driven by higher payroll costs and incentive compensation.
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Table 10: GCSG Selected Statistical Information
As of or for the
Three Months Ended
March 31,
Change
2020
vs.
2019
(Millions, except percentages and where indicated)20202019
Proprietary billed business: (billions)
U.S.$90.9  $92.1  (1)%
Outside the U.S.33.7  35.9  (6) 
Total$124.6  $128.0  (3) 
Proprietary cards-in-force:
U.S.38.0  38.0  —  
Outside the U.S.17.6  17.1   
Total55.6  55.1   
Proprietary basic cards-in-force:
U.S.27.0  27.1  —  
Outside the U.S.12.1  11.9   
Total39.1  39.0  —  
Average proprietary basic Card Member spending: (dollars)
U.S.$3,366  $3,402  (1) 
Outside the U.S.$2,777  $3,052  (9) 
Average$3,183  $3,296  (3) 
Total segment assets (billions)
$87.3  $98.5  (11) 
Card Member loans:
Total loans (billions)
U.S.$55.6  $58.0  (4) 
Outside the U.S.8.2  9.9  (17) 
Total$63.8  $67.9  (6) 
Average loans (billions)
U.S.$59.3  $58.3   
Outside the U.S.10.0  9.7   
Total$69.3  $68.0  %
U.S.
Net write-off rate - principal only (a)
2.6 %2.4 %
Net write-off rate - principal, interest and fees (a)
3.1  2.8  
30+ days past due as a % of total1.7  1.5  
   Outside the U.S.
Net write-off rate - principal only (a)
2.9  2.2  
Net write-off rate - principal, interest and fees (a)
3.5  2.8  
30+ days past due as a % of total2.1  1.7  
Total
Net write-off rate – principal only (a)
2.6  2.3  
Net write-off rate – principal, interest and fees (a)
3.2  2.8  
30+ days past due as a % of total1.7 %1.5 %


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As of or for the
Three Months Ended
March 31,
Change
2020
vs.
2019
(Millions, except percentages and where indicated)20202019
Card Member receivables: (billions)
U.S.$10.5  $12.7  (17)%
Outside the U.S.5.3  7.2  (26) 
Total receivables$15.8  $19.9  (21)%
U.S.
Net write-off rate – principal only (a)
1.7 %1.4 %
Net write-off rate – principal and fees (a)
1.9  1.6  
30+ days past due as a % of total1.5  1.2  
Outside the U.S.
Net write-off rate – principal only (a)
2.6  2.2  
Net write-off rate – principal and fees (a)
2.8  2.4  
30+ days past due as a % of total2.2  1.5  
Total
Net write-off rate – principal only (a)
2.0  1.7  
Net write-off rate – principal and fees (a)
2.2  1.9  
30+ days past due as a % of total1.7 %1.3 %
(a)Refer to Table 7 footnote (c).
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Table 11: GCSG Net Interest Yield on Average Card Member Loans
Three Months Ended
March 31,
(Millions, except percentages and where indicated)20202019
U.S.
Net interest income$1,800  $1,596  
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
46  69  
Interest income not attributable to our Card Member loan portfolio (b)
(60) (53) 
Adjusted net interest income (c)
$1,786  $1,612  
Average Card Member loans (billions)
$59.3  $58.3  
Net interest income divided by average Card Member loans (c)
12.1 %11.0 %
Net interest yield on average Card Member loans (c)
12.1 %11.2 %
Outside the U.S.
Net interest income$283  $241  
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
16  21  
Interest income not attributable to our Card Member loan portfolio (b)
(4) (3) 
Adjusted net interest income (c)
$295  $259  
Average Card Member loans (billions)
$10.0  $9.7  
Net interest income divided by average Card Member loans (c)
11.3 %9.9 %
Net interest yield on average Card Member loans (c)
11.9 %10.9 %
Total
Net interest income$2,083  $1,837  
Exclude:
Interest expense not attributable to our Card Member loan portfolio (a)
62  90  
Interest income not attributable to our Card Member loan portfolio (b)
(64) (56) 
Adjusted net interest income (c)
$2,081  $1,871  
Average Card Member loans (billions)
$69.3  $68.0  
Net interest income divided by average Card Member loans (c)
12.0 %10.8 %
Net interest yield on average Card Member loans (c)
12.1 %11.2 %
(a)Refer to Table 8 footnote (a).
(b)Refer to Table 8 footnote (b).
(c)Refer to Table 8 footnote (c).
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Global Commercial Services
Table 12: GCS Selected Income Statement Data
Three Months Ended
March 31,
Change
2020 vs. 2019
(Millions, except percentages)20202019
Revenues
Non-interest revenues$2,788  $2,926  $(138) (5)%
Interest income499  454  45  10  
Interest expense200  256  (56) (22) 
Net interest income299  198  101  51  
Total revenues net of interest expense3,087  3,124  (37) (1) 
Provisions for credit losses762  254  508   
Total revenues net of interest expense after provisions for credit losses2,325  2,870  (545) (19) 
Expenses
Marketing, business development, and Card Member rewards and services1,508  1,469  39   
Salaries and employee benefits and other operating expenses798  756  42   
Total expenses2,306  2,225  81   
Pretax segment income19  645  (626)