American Express 2015 Annual Report Download - page 64

Growth in net interest income remained strong during the year, driven by loan growth. Card Member loans held for
investment were down in 2015 on a reported basis due to the transfer of the Costco and JetBlue loan portfolios to Card
Member loans and receivables HFS, effective December 1, 2015. Excluding the HFS portfolios from the prior year,
worldwide loans increased. We expect to see strong growth in loans held for investment in 2016, and continue to
believe there are opportunities to increase our share of lending without significantly changing our overall risk profile.
Our credit provision was down versus the prior year, as lending write-off rates remained at lower levels. We expect
continued growth in loans will contribute to an increase in provisions; we also expect to see some upward pressure on
our write-off rates, due primarily to the seasoning of loans related to new Card Members.
Our capital position allowed us to return over $5 billion to our shareholders in the form of dividends and share
repurchases, representing approximately 105 percent of total capital generated during the year, reflecting our ongoing
commitment to using our capital strength to create value for our shareholders.
As mentioned above, we are now reporting the Costco portfolio as HFS. We expect the sale to close around mid-
year 2016 and that our merchant acceptance agreement will extend through the transaction close. The ultimate gain
on sale will be determined based on the assets actually sold, but we currently estimate a gain of approximately $1
billion. We have not yet signed a definitive agreement and given that we are still several months away from the close,
and the Card Member borrowing and paydown trends are difficult to predict in this type of transition, the final gain
could differ from our estimate. We expect the portfolio sale gain will be partially used to fund spending on growth
initiatives throughout 2016, resulting in some unevenness in our quarterly performance. As of December 31, 2015,
Costco cobrand accounts were responsible for approximately 19 percent of our worldwide Card Member loans held for
investment and HFS (combined) and approximately 10 percent of our total cards-in-force. Costco cobrand accounts
generated approximately 8 percent of our worldwide billed business for the year ended December 31, 2015.
Approximately 70 percent of the spending on these accounts occurred outside Costco warehouses. In addition, 1
percent of our worldwide billed business for the year ended December 31, 2015, came from spending on other (non-
Costco cobrand) American Express cards at Costco warehouses.
In an effort to accelerate and expand our cost control efforts to right size our cost base with the evolving business
environment, we have launched, in the first quarter of 2016, cost initiatives that are designed to remove $1 billion from
our overall cost base, which includes total operating expenses plus marketing and promotion costs, by the end of
2017. We plan to take action throughout 2016 to drive benefits in 2017 and beyond, which we expect will result in
restructuring charges in 2016.
See “Legal, Regulatory and Compliance Risk” in “Risk Factors” for information on the potential impacts of an
adverse decision in the Department of Justice (DOJ) case and related merchant litigations on our business. For
discussion of certain legislative and regulatory changes that could have a material adverse effect on our results of
operations and financial condition, see “Card-Issuing Business and Deposit Programs — Regulation” under “U.S. Card
Services,” “International Card Services — Regulation,” “Global Commercial Services — Regulation,” “Global
Network & Merchant Services — Regulation” and “Supervision and Regulation” in “Business.”
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