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ANNUAL REPORT
AMERICAN EXPRESS COMPANY

Table of contents

  • Page 1
    AMERICAN EXPRESS COMPANY ANNUAL REPORT

  • Page 2
    ... EMPLOYEES) Total Revenues Net of Interest Expense Net Income Return on Average Equity Total Assets Shareholders' Equity Diluted Income Attributable to Common Shareholders Cash Dividends Declared per Share Book Value per Share Average Common Shares Outstanding for Diluted Earnings per Common Share...

  • Page 3
    ...in annual charge volume for the first time. This milestone reflects years of growth - from the days when the Card was made of paper and held by a select few, to today, when our global network connects millions of consumers, businesses and merchants, and AMERICAN EXPRESS COMPANY | ANNUAL REPORT 2014...

  • Page 4
    ... credit quality, and disciplined expense controls drove our profits. Let's take a closer look at each of these factors. HIGHER CARD MEMBER SPENDING Spending on our network rose 7 percent, which brought us to a total of $1.02 trillion for the year. Adjusting for changes in foreign currency exchange...

  • Page 5
    ... merchant network. At year-end, total cards-in-force stood at 112.2 million, up by 5 million from the prior year. HIGHER LOANS AND EXCELLENT CREDIT QUALITY Card Member spending continues to drive the economics of our business, but lending is also playing an important role. During 2014, worldwide...

  • Page 6
    ...good on our commitment to hold expense growth in check in 2014. Total expenses were ï¬,at with a year ago and slightly below 2012 levels, despite significant increases in business-building investments. For example, spending on marketing and promotion (up 9 percent), rewards (up 7 percent), and Card...

  • Page 7
    ...outperformed the market over the longer term, including five-year returns that topped the S&P 500 and S&P Financials. Although we manage the company for the moderate to long term, we obviously have been disappointed with our recent stock performance. AMERICAN EXPRESS COMPANY | ANNUAL REPORT 2014 6

  • Page 8
    ... worldwide, with more openings planned for 2015. The Amex EveryDay Credit Card, launched in March in a new television campaign featuring comedienne Tina Fey, is on track to be one of the company's most successful U.S. card launches in recent years. 7 AMERICAN EXPRESS COMPANY | ANNUAL REPORT 2014

  • Page 9
    ... support of their local businesses. Loyalty Partner: A sophisticated approach to customer loyalty, this business brings together groups of merchants to share a common rewards platform. Consumers who enroll earn PAYBACK points and digital offers when they shop at participating merchants. The largest...

  • Page 10
    ...we've transformed our Membership Rewards program to provide increasingly customized mobile rewards at the point of purchase. Then there's the launch of AmEx Offers, which uses our knowledge of spending patterns to deliver curated merchant deals. Big Data analysis is also helping us improve servicing...

  • Page 11
    .... This year, we launched a new mobile loyalty program with Uber. Our integration with the Uber app lets AmEx Card Members earn double Membership Rewards points or redeem points for rides. In another significant partnership, we joined forces with Apple Pay. Apple has designed a simple, secure, user...

  • Page 12
    ... each time a Card Member redeemed points. In a first-of-its-kind technology integration into the Uber iOS and Android apps, U.S. Card Members enrolled in the Membership Rewards program can choose to earn 2x points or use points for Uber rides. 11 AMERICAN EXPRESS COMPANY | ANNUAL REPORT 2014

  • Page 13
    ... a range of business-building initiatives. Spending fewer marketing dollars would help bolster our results for now, however it would also be short-sighted and inconsistent with our approach of managing the business for moderate to long-term growth. AMERICAN EXPRESS COMPANY | ANNUAL REPORT 2014 12

  • Page 14
    ... lawsuit brought against us by the U.S. Department of Justice. The suit centered on provisions in our merchant contracts designed to prevent discrimination at the point of sale. Unfortunately, the judge ruled against American Express. While this ruling did not yet address what, if any, changes...

  • Page 15
    ... American Express has turned in strong earnings and made major strides in our digital transformation over the past several years. Thanks to our flexibility and financial strength, we've successfully navigated many challenges to grow our business and reward our shareholders. Looking ahead, it's clear...

  • Page 16
    ... our core business, advance our digital transformation, and invest in new opportunities that complement our strengths. American Express is nothing if not resourceful - a trait that we've demonstrated throughout the years as we've transformed our business through innovation. I have seen us go from...

  • Page 17
    ...REPORTING 68 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 69 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 70 CONSOLIDATED FINANCIAL STATEMENTS 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 124 CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA 125 COMPARISON OF FIVE-YEAR TOTAL RETURN...

  • Page 18
    ... types of revenue for the Company: á,§ Discount revenue, our largest revenue source, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services at merchants on our network; á,§ Net card fees, which represent revenue earned from annual card...

  • Page 19
    ... Rewards points by U.S. Card Members; and á,§ A tax benefit of $146 million related to the realization of certain foreign tax credits. FINANCIAL TARGETS We seek to achieve three financial targets, on average and over time: á,§ Earnings per share (EPS) growth of 12 to 15 percent; á,§ Revenues net...

  • Page 20
    ... of our GNS business (where we share discount revenue we earn from merchants with our issuing bank partners), certain contract signings and payments made to corporate clients and merchant partners, strong growth in our cash rebate rewards products and changes in the mix of spending by location and...

  • Page 21
    ...percent of our total cards-in-force. In addition, 1 percent of our worldwide billed business for the year ended December 31, 2014 came from spending on other American Express cards at Costco warehouses. Our current co-brand and merchant acceptance agreements with Costco are set to expire on March 31...

  • Page 22
    ... 31, 2014. We believe return on average tangible common equity is a useful measure of the profitability of our business. TABLE 3: TOTAL REVENUES NET OF INTEREST EXPENSE SUMMARY Years Ended December 31, (Millions, except percentages) Discount revenue Net card fees Travel commissions and fees Other...

  • Page 23
    ... 2012. The increase in 2014 as compared to 2013 was primarily driven by higher revenue from our Loyalty Partner business and delinquency fees. The increase in 2013 as compared to 2012 was primarily driven by lower Card Member reimbursements and marginally higher delinquency fees and foreign currency...

  • Page 24
    ... COMPANY 2014 FINANCIAL REVIEW TABLE 5: EXPENSES SUMMARY Years Ended December 31, (Millions, except percentages) Marketing and promotion Card Member rewards Card Member services and other Total marketing, promotion, rewards and Card Member services and other Salaries and employee benefits Other, net...

  • Page 25
    ...of certain foreign tax credits. The tax rates in all years reflect the level of pretax income in relation to recurring permanent tax benefits and variances in the geographic mix of business. TABLE 6: SELECTED STATISTICAL INFORMATION Change 2014 vs. 2013 8% 6 7 3 6 5 4 7 5 3 - 2% Change 2013 vs. 2012...

  • Page 26
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW TABLE 7: SELECTED STATISTICAL INFORMATION 2014 Percentage Increase (Decrease) Assuming No Changes in Foreign Exchange Rates(a) 9% 7 15 6 2013 Percentage Increase (Decrease) Assuming No Changes in Foreign Exchange Rates(a) 8% 7 16 3 Percentage Increase ...

  • Page 27
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW TABLE 8: SELECTED STATISTICAL INFORMATION As of or for the Years Ended December 31, (Millions, except percentages and where indicated) Worldwide Card Member receivables Total receivables (billions) Loss reserves: Beginning balance Provisions(a) Net ...

  • Page 28
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW TABLE 9: NET INTEREST YIELD ON CARD MEMBER LOANS Years Ended December 31, (Millions, except percentages and where indicated) Net interest income Exclude: Interest expense not attributable to the Company's Card Member loan portfolio Interest income not ...

  • Page 29
    ... 25 of the Consolidated Financial Statements for additional discussion of the products and services by segment. Results of the business segments essentially treat each segment as a stand-alone business. The management reporting process that derives these results allocates revenue and expense using...

  • Page 30
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW U.S. CARD SERVICES SEGMENT TABLE 10: USCS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Discount revenue, net card fees and other Interest income Interest expense Net interest income Total revenues net ...

  • Page 31
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW Total expenses increased $27 million in 2013 as compared to 2012 primarily driven by higher marketing and promotion expenses and rewards costs. The increase in Card Member rewards was driven by higher co-brand rewards expenses, substantially offset by ...

  • Page 32
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW INTERNATIONAL CARD SERVICES SEGMENT TABLE 12: ICS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Discount revenue, net card fees and other Interest income Interest expense Net interest income Total ...

  • Page 33
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW EXPENSES Marketing, promotion, rewards and Card Member services and other expenses increased $147 million or 7 percent in 2014 as compared to 2013, and increased 11 percent excluding the impact of foreign exchange rates.3 The increase was primarily ...

  • Page 34
    ...Card Member loans: Total loans (billions) Net write-off rate - principal only(c) Net write-off rate - principal, interest and fees(c) 30 days past due as a % of total Calculation of Net Interest Yield on Card Member Loans: Net interest income Exclude: Interest expense not attributable to the Company...

  • Page 35
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW GLOBAL COMMERCIAL SERVICES SEGMENT TABLE 14: GCS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Discount revenue, net card fees and other Interest income Interest expense Net interest expense Total ...

  • Page 36
    ... the Company's non-U.S. business travel operations, as well as the allocated share of tax benefits related to the resolution of certain prior years' tax items. The effective tax rate for 2012 reflects the allocated share of tax benefits related to the realization of certain foreign tax credits. The...

  • Page 37
    ... COMPANY 2014 FINANCIAL REVIEW GLOBAL NETWORK & MERCHANT SERVICES SEGMENT TABLE 16: GNMS SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions, except percentages) Revenues Discount revenue, net card fees and other Interest income Interest expense Net interest income Total revenues net...

  • Page 38
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW TABLE 17: GNMS SELECTED STATISTICAL INFORMATION As of or for the Years Ended December 31, (Millions, except percentages and where indicated) Global worldwide card billed business (billions) Total segment assets (billions) Segment capital Return on ...

  • Page 39
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY Our balance sheet management objectives are to maintain: á,§ A solid and flexible equity capital profile; á,§ A broad, deep and diverse set of funding sources to finance our assets and meet operating ...

  • Page 40
    ...a cost efficient manner; failure to maintain minimum capital levels could affect our status as a financial holding company and cause the respective regulatory agencies to take actions that could limit our business operations. Our primary source of equity capital has been the generation of net income...

  • Page 41
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW Common Equity Tier 1 Risk-Based Capital Ratio - The Common Equity Tier 1 risk-based capital ratio is calculated as Common Equity Tier 1 capital, divided by risk-weighted assets. Common Equity Tier 1 is the sum of common shareholders' equity, adjusted ...

  • Page 42
    ... We have a share repurchase program to return excess capital to shareholders. The share repurchases reduce shares outstanding and offset, in whole or part, the issuance of new shares as part of employee compensation plans. During the year ended December 31, 2014, we returned $5.4 billion to...

  • Page 43
    ...-term borrowings Long-term debt Total debt Customer deposits Total debt and customer deposits $ $ 2014 3.5 58.0 61.5 44.2 105.7 $ $ 2013 5.0 55.3 60.3 41.8 102.1 Management does not currently expect to make any significant changes to our funding programs in order to satisfy Basel III's liquidity...

  • Page 44
    ... Statements for further description of these borrowings. DEPOSIT PROGRAMS We offer deposits within our American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (FSB) subsidiaries (together, the Banks). These funds are currently insured up to $250,000 per account holder...

  • Page 45
    ...: Savings accounts - Direct Certificates of deposit:(a) Direct Third-party Sweep accounts - Third-party Other retail deposits: Non-U.S. deposits and U.S. non-interest bearing Card Member credit balances - U.S. and non-U.S. Total customer deposits $ 2014 26.2 0.3 7.8 9.0 0.2 0.7 $ 44.2 $ $ 2013 24...

  • Page 46
    ...and credit rating agency considerations. The yield we receive on our cash and readily marketable securities is, generally, less than the interest expense on the sources of funding for these balances. Thus, we incur substantial net interest costs on these amounts. The level of net interest costs will...

  • Page 47
    ... inflow within investing activities. An increase in accounts payable and other liabilities, which is a source of cash, was driven by higher discount business volumes and the restructuring charge taken in the fourth quarter of the current year. For the year ended December 31, 2013, net cash provided...

  • Page 48
    ... sale of our investment in Concur. For the year ended December 31, 2013, net cash used in investing activities was $(7.2) billion consisting of a net increase in Card Member receivables and loans as well as purchases of premises and equipment, net of sales. For the year ended December 31, 2012, net...

  • Page 49
    ... of owning an American Express card. As of December 31, 2014, we had guarantees totaling approximately $45 billion related to Card Member protection plans, as well as other guarantees in the ordinary course of business. Refer to Note 16 to the Consolidated Financial Statements for further discussion...

  • Page 50
    ... regular updates on the Audit Plan's status and results including significant reports issued by Internal Audit and the status of management's corrective actions. The Compensation and Benefits Committee of our Board of Directors works with the Chief Risk Officer to ensure the compensation programs...

  • Page 51
    ..., including prospecting, new account approvals, point-of-sale authorizations, credit line management and collections. The subordinate risk policies and operating manuals are designed to ensure consistent application of risk management principles and standardized reporting of asset quality and loss...

  • Page 52
    ... airlines. Our largest airline partner is Delta, and this relationship includes exclusive co-brand credit card partnerships and other arrangements including Membership Rewards redemption, merchant acceptance, travel and corporate payments. See Part I, Item 1A, "Risk Factors" in our Annual Report...

  • Page 53
    ... by: á,§ Interest rate risk in our card and insurance businesses, as well as in our investment portfolios; and á,§ Foreign exchange risk in our operations outside the U.S. Market risk limits and escalation triggers within the Market Risk and Asset Liability Management (ALM) Policies are approved by...

  • Page 54
    ... equity generally do. We conduct scenario analysis to inform management of potential impacts to earnings that may occur due to changes in foreign exchange rates of various severities. With respect to cross-currency charges and balance sheet exposures, including related foreign exchange forward...

  • Page 55
    ... number of points earned by current enrollees that will ultimately be redeemed in future periods. Management uses statistical and actuarial models to estimate the URR of points earned to date by current Card Members based on redemption trends, card product type, enrollment tenure, card spend levels...

  • Page 56
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW Changes in the Membership Rewards URR and WAC per point have the effect of either increasing or decreasing the liability through the current period marketing, promotion, rewards and Card Member services expense by an amount estimated to cover the cost ...

  • Page 57
    ... future economic conditions. To discount these cash flows we use our expected cost of equity, determined using a capital asset pricing model. When using the market method under the market approach, we apply comparable publically traded companies' multiples (e.g., earnings, revenues) to our reporting...

  • Page 58
    ...pricing of card issuers, merchant acquirers and payment networks and the establishment of broad and ongoing regulatory oversight regimes for payment systems. Regulators and legislators have focused on the fees merchants pay to accept cards, including the way bankcard network members collectively set...

  • Page 59
    ... of licenses granted to some GNS partners to date, which have been subject to varying levels of exclusivity in relation to a particular country. á,§ Separation of network processing - Beginning one year after the date the regulation would become effective, card networks would be required to separate...

  • Page 60
    ... reviews of marketing and billing practices related to several credit card add-on products. For a description of these settlements, see Part I, Item 3. "Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, 2013. In October 2012, we announced that American Express...

  • Page 61
    ...reported as assets on our Consolidated Balance Sheets. Average discount rate - This calculation is generally designed to reflect pricing at merchants accepting general purpose American Express cards. It represents the percentage of billed business (generated from both proprietary and GNS Card Member...

  • Page 62
    AMERICAN EXPRESS COMPANY 2014 FINANCIAL REVIEW Discount revenue - Represents revenue earned from fees generally charged to merchants with whom we have entered into a card acceptance agreement for processing Card Member transactions. The discount fee generally is deducted from our payment reimbursing...

  • Page 63
    ... and outstanding under network partnership agreements, except for retail co-brand Card Member accounts which have no outof-store spend activity during the prior 12-month period. Total risk-based capital ratio - Refer to the Capital Strategy section under "Consolidated Capital Resources and Liquidity...

  • Page 64
    ... benefits of our reengineering plans, our ability to balance expense control and investments in the business, the impact of changes in foreign currency exchange rates on costs and results, the impact of accounting changes and reclassifications, and the level of acquisition activity and related...

  • Page 65
    ... ability of Card Members to sustain spending, the effectiveness of marketing and loyalty programs, regulatory and market pressures on pricing, credit trends, changes in foreign currency exchange and interest rates, and changes in general economic conditions, such as GDP growth, consumer confidence...

  • Page 66
    ... F of the Internal Revenue Code, which could increase our effective tax rate and have an adverse impact on net income. A further description of these uncertainties and other risks can be found in our Annual Report on Form 10-K for the year ended December 31, 2014 and our other reports filed with the...

  • Page 67
    ... a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate...

  • Page 68
    ... REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AMERICAN EXPRESS COMPANY: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, cash flows and shareholders' equity...

  • Page 69
    ... Years Ended December 31, 2014, 2013 and 2012 PAGE 70 71 72 73 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Note 2 - Acquisitions and Divestitures Note 3 - Accounts Receivable and Loans Note 4 - Reserves for Losses Note 5 - Investment Securities...

  • Page 70
    AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 (Millions, except per share amounts) Revenues Non-interest revenues Discount revenue Net card fees Travel commissions and fees Other commissions and fees Other Total non-interest revenues Interest income Interest on ...

  • Page 71
    AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 (Millions) Net income Other comprehensive income (loss): Net unrealized securities gains (losses), net of tax Net unrealized derivatives gains, net of tax Foreign currency translation adjustments, net of...

  • Page 72
    ...EXPRESS COMPANY CONSOLIDATED BALANCE SHEETS December 31 (Millions, except per share data) Assets Cash and cash equivalents Cash and due from banks Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2014, $204; 2013, $143) Short-term investment securities...

  • Page 73
    ... Card Member loans/receivables Purchase of premises and equipment, net of sales: 2014, $3; 2013, $72; 2012, $3 Acquisitions/dispositions, net of cash acquired Net decrease in restricted cash Net cash used in investing activities Cash Flows from Financing Activities Net increase in customer deposits...

  • Page 74
    ... common, $0.89 per share Balances as of December 31, 2013 Net income Other comprehensive loss Preferred shares issued Repurchase of common shares Other changes, primarily employee plans Cash dividends declared common, $1.01 per share Balances as of December 31, 2014 $ $ Total 18,794 4,482 (51...

  • Page 75
    ...the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company's Consolidated Statements of Income...

  • Page 76
    ... COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOTAL REVENUES NET OF INTEREST EXPENSE Discount Revenue Discount revenue represents the amount earned by the Company on transactions occurring at merchants with which the Company, or a Global Network Services (GNS) partner, has entered into card...

  • Page 77
    ... Other Intangible Assets Membership Rewards Stock-based Compensation Retirement Plans Legal Contingencies Derivative Financial Instruments and Hedging Activities Fair Value Measurements Income Taxes Regulatory Matters and Capital Adequacy Reportable Operating Segments Note Title Accounts Receivable...

  • Page 78
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RECENTLY ISSUED ACCOUNTING STANDARDS Accounting Standards Update (ASU) No. 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Customers was issued on May 28, 2014. The guidance establishes the principles to apply...

  • Page 79
    ... of Card Member receivables outside the U.S. as of December 31, 2014 and 2013, respectively. (e) Other receivables primarily represent amounts related to (i) certain merchants for billed discount revenue and (ii) GNS partner banks for items such as royalty and franchise fees. Additionally, for 2013...

  • Page 80
    ... due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances. For Card Member receivables in GCS as of December 31, 2014 and...

  • Page 81
    ... FINANCIAL STATEMENTS CREDIT QUALITY INDICATORS FOR CARD MEMBER LOANS AND RECEIVABLES The following tables present the key credit quality indicators as of or for the years ended December 31: 2014 Net Write-Off Rate Principal, Interest, & Fees(a) 1.7% 2.4% 1.8% 2.1% 30 Days Past Due as a % of Total...

  • Page 82
    ...: U.S. Card Services Total NonAccrual Loans(b) 426 5 - 431 Unpaid Principal Balance(d) 1,073 69 111 1,253 $ $ Allowance for TDRs(e) 152 1 91 244 Interest Income Recognized 47 16 - 63 (a) The Company's policy is generally to accrue interest through the date of write-off (i.e. 180 days past due...

  • Page 83
    ... 518 Average Interest Rate Reduction (% points) 10 (c) Average Payment Term Extensions (# of months) (c) 12 2014 Troubled Debt Restructurings: Card Member Loans Card Member Receivables Total 2013 Troubled Debt Restructurings: Card Member Loans Card Member Receivables Total Number of Accounts (in...

  • Page 84
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides information for the years ended December 31, 2014, 2013 and 2012, with respect to the USCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification....

  • Page 85
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CHANGES IN CARD MEMBER RECEIVABLES RESERVE FOR LOSSES The following table presents changes in the Card Member receivables reserve for losses for the years ended December 31: (Millions) Balance, January 1 Provisions(a) Net write-...

  • Page 86
    ... results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 15 for a description of the Company's methodology for determining the fair value of investment securities. The following is a summary of investment securities as of...

  • Page 87
    ... the right to call or prepay certain obligations. (b) Average yields for investment securities have been calculated using the effective yield on the date of purchase. (c) Yields on tax-exempt investment securities have been computed on a tax-equivalent basis using the U.S. federal statutory tax rate...

  • Page 88
    ... 31, 2014 and 2013, included in Other Assets on the Company's Consolidated Balance Sheets: (Millions) Charge Trust Lending Trust Total $ $ 2014 2 62 64 $ $ 2013 2 56 58 These amounts relate to collections of Card Member receivables and loans to be used by the trusts to fund future expenses and...

  • Page 89
    ... calculates discount rates based on the expected cost of equity financing, estimated using a capital asset pricing model, to discount future cash flows for each reporting unit. The Company believes the discount rates used appropriately reflect the risks and uncertainties in the financial markets...

  • Page 90
    ... assets in the table above. The Company is a non-controlling partner in these tax credit investment partnerships, and therefore accounts for its ownership interests as equity method investment joint ventures. In 2014, the Company received $990 million in net cash proceeds for the sale of its equity...

  • Page 91
    ... Card Member credit balances of: 2014, $347 million; 2013, $437 million) Total customer deposits $ 2014 43,279 418 115 359 $ 44,171 $ $ 2013 40,831 360 121 451 41,763 Customer deposits by deposit type as of December 31 were as follows: (Millions) U.S. retail deposits: Savings accounts - Direct...

  • Page 92
    ... FINANCIAL STATEMENTS NOTE 9 DEBT SHORT-TERM BORROWINGS The Company's short-term borrowings outstanding, defined as borrowings with original maturities of less than one year, as of December 31 were as follows: 2014 Outstanding Balance $ $ 769 2,711 3,480 Year-End Stated Rate on Debt(a) 2013...

  • Page 93
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LONG-TERM DEBT The Company's long-term debt outstanding, defined as debt with original maturities of one year or greater, as of December 31 was as follows: 2014 Year-End Effective Interest Rate with Swaps(b)(c) 2013 Year-End ...

  • Page 94
    ...American Express Credit Corporation American Express Centurion Bank American Express Bank, FSB American Express Charge Trust II American Express Lending Trust Other Unamortized Underwriting Fees Unamortized Discount and Premium Impacts due to Fair Value Hedge Accounting Total Long-Term Debt $ $ 2015...

  • Page 95
    ... FINANCIAL STATEMENTS NOTE 10 OTHER LIABILITIES The following is a summary of Other liabilities as of December 31: (Millions) Membership Rewards liability Employee-related liabilities(a) Rebate and reward accruals(b) Deferred card and other fees, net Book overdraft balances Other(c) Total $ 2014...

  • Page 96
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of stock option and RSA activity as of December 31, 2014, and changes during the year is presented below: Stock Options WeightedAverage Exercise Price $ 44.98 86.64 48.05 51.83 47.84 44.39 44.39 $ 42.64 RSAs ...

  • Page 97
    ... paid upon vesting of these awards in 2014, 2013 and 2012 was $62 million, $43 million and $66 million, respectively. Summary of Stock Plan Expense The components of the Company's total stock-based compensation expense (net of forfeitures) for the years ended December 31 are as follows: (Millions...

  • Page 98
    ... in 2014, 2013 and 2012, respectively. The Company recognizes the funded status of its defined benefit pension plans and other postretirement benefit plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the Consolidated Balance Sheets...

  • Page 99
    ... agreements. The total rental expense amounted to $237 million in 2014, $281 million in 2013 and $305 million in 2012. As of December 31, 2014, the minimum aggregate rental commitment under all non-cancelable operating leases (net of subleases of $34 million) was as follows: (Millions) 2015...

  • Page 100
    ... fixed-rate funding based on changes in business volumes and mix, among other factors. Foreign exchange risk is generated by Card Member cross-currency charges, foreign currency balance sheet exposures, foreign subsidiary equity and foreign currency earnings in entities outside the U.S. The Company...

  • Page 101
    ..., 2014 and 2013, respectively, as initial margin on its centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Company's Consolidated Balance Sheets and are not netted against the derivative balances. (c) Represents the amount of netting of derivative assets...

  • Page 102
    ...for the years ended December 31, 2014, 2013 and 2012. NET INVESTMENT HEDGES A net investment hedge is used to hedge future changes in currency exposure of a net investment in a foreign operation. The Company primarily designates foreign currency derivatives, typically foreign exchange forwards, and...

  • Page 103
    ... (losses) Amount Description (Millions) Interest rate contracts Foreign exchange contracts(a) Income Statement Line Item Other expenses Interest expense on long-term debt and other Other expenses Cost of Card Member services $ 2014 - - 194 4 198 $ 2013 1 - 72 - 73 $ 2012 (1) (1) (56) - (58) Total...

  • Page 104
    ...). The Company did not measure any financial instruments presented on the Consolidated Balance Sheets at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2014 and 2013, although the disclosed fair value of certain assets that are...

  • Page 105
    ... date: number of shares of the Company's underlying ICBC investment, the quoted market price of the shares in HKD and the monthly settlement terms of the contract inclusive of price and tenor. The fair value of foreign exchange forward contracts is determined based on a discounted cash flow method...

  • Page 106
    ... of customer deposits on the Consolidated Balance Sheets. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2014, and require management judgment. These figures may not be indicative of future fair values. The...

  • Page 107
    ..., the Company uses various inputs derived from an equivalent securitization market to estimate fair value. Such inputs include projected income (inclusive of future interest payments and late fee revenue), estimated pay-down rates, discount rates and relevant credit costs. Financial Liabilities For...

  • Page 108
    ... credited to the Card Member. The largest component of the maximum potential future payments relates to Card Member transactions associated with travel-related merchants, primarily through business arrangements where the Company has remitted payment to such merchant for a Card Member travel purchase...

  • Page 109
    ...(55) 14 1,064 2012 3.6 1,164 (69) 10 1,105 (a) Of the common shares authorized but unissued as of December 31, 2014, approximately 56 million shares are reserved for issuance under employee stock and employee benefit plans. On March 25, 2013, the Board of Directors authorized the repurchase of 150...

  • Page 110
    ...Balances as of December 31, 2013 Net unrealized gains (Decrease) increase due to amounts reclassified into earnings Net translation (loss) of investments in foreign operations Net gains related to hedges of investment in foreign operations Pension and other postretirement (losses) benefit Net change...

  • Page 111
    ... for the years ended December 31, 2014, 2013 and 2012. Specific identification method is used to reclass unrealized gain (losses) into earnings from AOCI upon sale or maturity. (b) Other includes revenues arising from foreign exchange gains on cross-border Card Member spending, merchant-related fees...

  • Page 112
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a detail of Other, net expenses for the years ended December 31: (Millions) Professional services Occupancy and equipment Card-related fraud losses Communications Gain on business travel joint venture transaction ...

  • Page 113
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the Company's restructuring charges, net of revisions, by reportable operating segment and Corporate & Other for the year ended December 31, 2014, and the cumulative amounts relating to the ...

  • Page 114
    ... is based on management's best judgment of the largest amount of benefit that is more likely than not to be realized on ultimate settlement with the taxing authority given the facts, circumstances and information available at the reporting date. The Company adjusts the level of unrecognized tax...

  • Page 115
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents changes in unrecognized tax benefits: (Millions) Balance, January 1 Increases: Current year tax positions Tax positions related to prior years Decreases: Tax positions related to prior years Settlements ...

  • Page 116
    ... Basel I risk-weighted assets. (b) As part of the new Basel III capital rule, effective for 2014, Basel III Advanced Approaches institutions are required to disclose Common Equity Tier 1 capital and associated ratio. (c) FSB Tier 1 leverage ratio is calculated using ending total assets in 2013 and...

  • Page 117
    ... stock only out of net income available to common shareholders generated over the past year, and only if prospective earnings retention is consistent with the organization's current and expected future capital needs, asset quality and overall financial condition. Moreover, bank holding companies...

  • Page 118
    ... that processes and settles proprietary and non-proprietary card transactions. GNMS acquires merchants and provides point-of-sale products, multi-channel marketing programs and capabilities, services and data, leveraging the Company's global closed-loop network. It enters into partnership agreements...

  • Page 119
    ...'s Card Members; within the GNMS segment, discount revenue reflects the network and acquirer component of the overall discount revenue. Net card fees and travel commissions and fees are directly attributable to the segment in which they are reported. Interest and fees on loans and certain investment...

  • Page 120
    ...credit, market and operational risk. Income Taxes An income tax provision (benefit) is allocated to each business segment based on the effective tax rates applicable to various businesses that comprise the segment. GEOGRAPHIC OPERATIONS The following table presents the Company's total revenues net...

  • Page 121
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 26 PARENT COMPANY PARENT COMPANY - CONDENSED STATEMENTS OF INCOME Years Ended December 31 (Millions) Revenues Non-interest revenues Gain on sale of securities Other Total non-interest revenues Interest income Interest expense ...

  • Page 122
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PARENT COMPANY - CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31 (Millions) Cash Flows from Operating Activities Net income Adjustments to reconcile net income to cash provided by operating activities Equity in net income...

  • Page 123
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 QUARTERLY FINANCIAL DATA (UNAUDITED) (Millions, except per share amounts) Quarters Ended Total revenues net of interest expense Pretax income Net income Earnings Per Common Share - Basic: Net income attributable to common ...

  • Page 124
    ... 31, 2012 Consolidated Statements of Income by reducing other revenue and reducing marketing, promotion, rewards, and Card Member services expense, from amounts previously reported in order to conform to the current period presentation. (b) Return on average equity is calculated by dividing one-year...

  • Page 125
    ... COMPANY COMPARISON OF FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS Cumulative Value of $100 Invested on December 31, 2009 $300 AXP $250 S&P 500 Index $200 $150 $100 $50 $0 Dec 2009 Year-end Data* American Express S&P 500 Index S&P Financial Index $ $ $ S&P Financial Index Dec 2010 Dec 2011 Dec 2012...

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  • Page 128
    ...Network and International Card Services James P. Bush Executive Vice President, World Service Jeffrey C. Campbell Executive Vice President and Chief Financial Officer L. Kevin Cox Chief Human Resources Officer Marc D. Gordon Executive Vice President and Chief Information Officer Ash Gupta Chief Risk...

  • Page 129
    ... ©2015 American Express Company. All rights reserved. New York Stock Exchange (Symbol: AXP) INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The company has established an Electronic Direct Deposit of Dividends service for the electronic payment of quarterly dividends on the company's common shares...

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    A M E R I C A N E X P R E S S C O M PA N Y 200 Vesey Street, New York, NY 10285 212.640.2000 www.americanexpress.com