AMERICAN EXPRESS CO - Quarter Report: 2020 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Transition Period from ____ to ____

Commission file number 1-7657

AMERICAN EXPRESS COMPANY

(Exact name of registrant as specified in its charter)

New York

13-4922250

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

200 Vesey Street, New York, New York

10285

(Address of principal executive offices)

(Zip Code)

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


None

Former name, former address and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares (par value $0.20 per share)	AXP	New 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 filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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.

Class

Outstanding at October 19, 2020

Common Shares (par value $0.20 per share)

805,201,951

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AMERICAN EXPRESS COMPANY

FORM 10-Q

INDEX

Part I.

Financial Information

Page No.

Item 1.

Financial Statements

Consolidated Statements of Income – Three Months Ended September 3 0 , 20 20 and 2019

Consolidated Statements of Income – Nine Months Ended September 30, 2 020 and 2019

Consolidated Statements of Comprehensive Income – Thre e and Nine Months Ended September 3 0 , 20 20 and 2019

Consolidated Balance Sheets – September 3 0 , 20 20 and December 31, 2019

Consolidated Statements of Cash Flows – Nine Months Ended September 3 0 , 20 20 and 2019

Consolidated Statements of Shareholders' Equity – Three and Nine Months Ended September 30, 2020 and 2019

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

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.

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PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

Business Introduction

•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

Businesses and economies around the globe continue to be significantly affected by the COVID-19 pandemic. There continues to be a high degree of uncertainty in terms of the direction of the pandemic and its impact on the economy, how governments will react to changes in the environment, including possible future stimulus programs (or the failure to implement such programs), and developments in political and social conditions.

Throughout the quarter, our colleague base has continued to successfully operate in a mostly remote working environment. To support our customers and merchants, we continued to offer financial and other assistance, add product benefits to reflect today’s environment, and provide the high level of customer service they expect and rely on. We continued to see lower voluntary attrition rates on our proprietary products as compared to the last year. In addition, our Card Members are recognizing our commitment to service excellence, ranking us number one in the J.D. Power U.S. Credit Card Satisfaction Study for the tenth time. We also continued to work with our strategic partners on initiatives to support our communities and launched our largest ever Shop Small campaign, which included a commitment of over $200 million to help support small merchants.

Reflective of the broader economy and spending trends in our customer segments, our billed business for the quarter was down 19 percent (20 percent on an FX adjusted basis) as compared to the prior year.¹ Since mid-April, we have seen steady improvement in our overall billed business. Proprietary billed business, which accounted for 86 percent of our total billings in the third quarter and drives most of our financial results, showed different recovery trends for non-T&E and T&E spend. Non-T&E spend, which has historically accounted for a large portion of our billed business, recovered to pre-pandemic levels, growing 1 percent as compared to the prior year. T&E spend continued to be down 69 percent year-over-year, though we saw a modest improvement during the quarter primarily driven by proprietary consumer T&E spend. To the extent we continue to see significant year-over-year declines in billed business, our future results will be materially impacted.

Revenues net of interest expense decreased 20 percent as compared to the prior year, which was an improvement from year-over-year decline in the second quarter, consistent with the trend in billings. Discount revenue, our largest revenue line, decreased 24 percent, which was a larger contraction than the decline in billed business for the quarter due to a decrease in the average discount rate. The average discount rate decrease was driven by a shift in spend mix to non-T&E categories, although the erosion in the third quarter was less than the second quarter due to the modest improvement in T&E spend. We continued to see decreases in Other fees and commissions and Other revenues, primarily due to declines in travel-related revenues. Card fee revenues continued to show strong year-over-year growth, as such revenues are slower to react to economic shifts since they are recognized over a twelve-month period and Card Member retention remained high; however, net card fee growth has decelerated as we slowed new card acquisitions over the last two quarters while managing through the peak of uncertainty during this crisis. Net interest income declined by 15 percent year-over-year, primarily driven by lower average loans and lower benchmark interest rates, partially offset by higher net yield.

As a result of the spend-centric nature of our business model, Card Member loans and receivables declined 17 percent and 28 percent year-over-year, respectively, due to lower billed business volumes. Provisions for credit losses decreased, primarily due to a modest reserve release and lower net write-offs. The reserve release reflected improved credit performance and lower loan volumes, partially offset by a more cautious view of the global macroeconomic outlook due to continuing high levels of uncertainty regarding the pace of a recovery in the economy.

¹The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current period apply to the corresponding prior year period against which such results are being compared).

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The balance in our longer-term financial relief programs, which are reported as troubled debt restructurings, grew to approximately $3.1 billion of loans and receivables as of September 30, 2020. See Note 2 to the “Consolidated Financial Statements” for further information on troubled debt restructurings. In addition, as of September 30, 2020, we had $1.2 billion of delinquent loans and receivables, including relevant financial relief program balances, which represented a sequential improvement in delinquencies compared to the second quarter. Our short-term Customer Pandemic Relief programs are no longer widely available, with negligible balances remaining in the programs as of September 30, 2020.

Card Member rewards, Card Member services and business development expenses are generally correlated to billings or are variable based on usage and were lower this quarter due to the decline in billing volumes and lower usage of travel-related benefits. During the quarter, we remained focused on controlling operating expenses, while increasing marketing investments in initiatives to support our customers, such as enhancements that we made to value propositions for many of our card products and our largest ever Shop Small campaign. Looking ahead, we are beginning to place greater emphasis on selectively investing for the long term, including through marketing and operating expenses.

Throughout the year, our liquidity levels remained high, and we also continued to display a strong capital position with capital ratios that are well above our targets and regulatory requirements. These robust capital and liquidity levels provide us with significant flexibility to maintain the strength of our balance sheet through this uncertain period. We also intend to maintain our quarterly dividend for the fourth quarter in line with prior quarters, subject to approval by the Board of Directors.

Although the external environment remains uncertain in the near term, we are confident in how we are managing the company for the long term. The investments we are making set a foundation to rebuild our growth momentum and return to pre-pandemic levels of earnings and financial performance.

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

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CRITICAL ACCOUNTING ESTIMATES

Please see the "Critical Accounting Estimates" section of our Annual Report on Form 10-K for the year ended December 31, 2019 for a full description of all of our critical accounting estimates. The critical accounting estimate related to Reserves for Card Member Credit Losses presented below has been updated to reflect the adoption of the Current Expected Credit Loss (CECL) methodology.

Reserves for Card Member Credit Losses

Reserves for Card Member credit losses represent our best estimate of the expected credit losses in our outstanding portfolio of Card Member loans and receivables as of the balance sheet date. The CECL methodology, which became effective January 1, 2020, requires us to estimate lifetime expected credit losses by incorporating historical loss experience and current and future economic conditions over a reasonable and supportable period (R&S Period) beyond the balance sheet date.

In estimating expected credit losses, we use a combination of statistically based models and analysis of the results produced by these models. These quantitative and qualitative components entail a significant amount of judgment. The primary areas of judgment used in measuring the quantitative components of our reserves relate to the determination of the appropriate R&S Period, the modeling of the probability of and exposure at default, and the methodology to incorporate current and future economic conditions. We use these models and assumptions, combined with historical loss experience, to calculate the reserve rates that are applied to the outstanding loan or receivable balances to produce our reserves for expected credit losses. Beyond the R&S Period, we estimate expected credit losses using our historical loss experience. The qualitative component is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, we consider certain external and internal factors, including emerging portfolio characteristics and trends, which consequentially may increase or decrease the reserves for credit losses on Card Member loans and receivables.

The R&S Period, which is approximately 3 years, represents the maximum time-period beyond the balance sheet date over which we can reasonably estimate expected credit losses, using all available portfolio information, current economic conditions and forecasts of future economic conditions. Card Member loan products do not have a contractual term and balances can revolve if minimum required payments are made, causing some balances to remain outstanding beyond the R&S Period. Card Member receivable products are contractually required to be paid in full; therefore, we have assumed the balances will be either paid or written-off within the R&S Period.

Within the R&S Period, our models use past loss experience and current and future economic conditions to estimate the probability of default, exposure at default and expected recoveries to estimate net losses at default. A significant area of judgment relates to how we apply future Card Member payments to the reporting period balances when determining the exposure at default. The nature of revolving loan products inherently includes a relationship between future payments and spend behavior, which creates complexity in the application of how future payments are either partially or entirely attributable to the existing balance at the end of the reporting period. Using historical customer behavior and other factors, we have assumed that future payments are first allocated to interest and fees associated with the reporting period balance and future spend. We then allocate a portion of the payment to the estimated higher minimum payment amount due because of any future spend. Any remaining portion of the future payment would then be allocated to the remaining balance.

CECL requires that the R&S Period include an assumption about current and future economic conditions. We incorporate multiple macroeconomic scenarios obtained from an independent third party. The estimated credit losses calculated from each macroeconomic scenario are reviewed by management and are weighted to reflect management's judgment about uncertainty around the scenarios. These macroeconomic scenarios contain certain variables, including unemployment rates and real gross domestic product (GDP), that are significant to our models.

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Macroeconomic Sensitivity

To demonstrate the sensitivity of estimated credit losses to the macroeconomic scenarios, we compared our modeled estimate under a baseline scenario to our modeled estimate under a pessimistic downside scenario. For every 10 percentage points change in weighting from the baseline scenario to the pessimistic downside scenario, the estimated credit losses increased by approximately $240 million.

The modeled estimates under these scenarios were influenced by the duration, severity and timing of changes in economic variables within each scenario and these macroeconomic scenarios, under different conditions or using different assumptions, could result in significantly different estimated credit losses. It is difficult to estimate how potential changes in specific factors might affect the estimated credit losses, and current results may not be indicative of the potential future impact of macroeconomic forecast changes.

In addition, this sensitivity analysis relates only to the modeled credit loss estimates under two scenarios without considering management’s judgment on the relative weighting for those and other scenarios, including the weight that has been placed on downside scenarios at the balance sheet date, or any potential changes in other adjustments to the quantitative calculation or the impact of management judgment for qualitative factors, which may have a positive or negative effect on the results. Thus, the results of this sensitivity analysis are hypothetical and are not intended to estimate or reflect our expectations of any changes in the overall reserves for credit losses due to changes in the macroeconomic environment.

The following table reflects the range of key variables in the macroeconomic scenarios utilized for the computation of Reserves for credit losses:


	September 30, 2020	June 30, 2020
U.S. Unemployment Rate
Third quarter of 2020	10% - 11%	8% - 10%
Fourth quarter of 2020	10% - 12%	9% - 11%
Fourth quarter of 2021	8% - 13%	9% - 11%
U.S. GDP Growth (Contraction) ^(a)
Third quarter of 2020	23% - 8%	16% - 10%
Fourth quarter of 2020	3% - (6%)	0.6% - (4%)
Fourth quarter of 2021	6% - 3%	8% - 7%

(a)Real GDP quarter over quarter percentage change seasonally adjusted to annualized rates.

Refer to the "Business Environment" and Table 3 in MD&A and Note 1 and Note 3 to the "Consolidated Financial Statements" for a further description of the impact of CECL, both at implementation and for the three and nine months ended September 30, 2020.

The process of estimating these reserves requires a high degree of judgment. To the extent our expected credit loss models are not indicative of future performance, actual losses could differ significantly from our judgments and expectations, resulting in either higher or lower future provisions for credit losses in any period.

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Results of Operations

Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms and related information appearing within this section.

The discussions in both the “Consolidated Results of Operations” and “Business Segment Results of Operations” provide commentary on the variances for the three and nine months ended September 30, 2020 compared to the same periods in the prior year, as presented in the accompanying tables. These discussions should be read in conjunction with the discussion under “Business Environment,” which contains further information on the COVID-19 pandemic and the related impacts on our results.

As a result of the adoption of CECL on January 1, 2020, there is a lack of comparability in both the reserves and provisions for credit losses for the periods presented. Results for reporting periods beginning after January 1, 2020 are presented using the CECL methodology, while comparative information continues to be reported in accordance with the incurred loss methodology in effect for prior periods. Refer to Note 3 to the "Consolidated Financial Statements" for further information.

Consolidated Results of Operations

Table 1: Summary of Financial Performance


	Three Months Ended September 30,								Change 2020 vs. 2019									Nine Months Ended September 30,					Change 2020 vs. 2019
(Millions, except percentages and per share amounts)	2020			2019													2020			2019
Total revenues net of interest expense	$	8,751		$	10,989		$	(2,238)	(20)	%	$	26,736		$	32,191			$	(5,455)		(17)	%
Provisions for credit losses	665			879			(214)		(24)	%	4,841			2,549				2,292			90
Expenses	6,722			7,844			(1,122)		(14)		19,457			23,199				(3,742)			(16)
Pretax income	1,364			2,266			(902)		(40)		2,438			6,443				(4,005)			(62)
Income tax provision	291			511			(220)		(43)		741			1,377				(636)			(46)
Net income	1,073			1,755			(682)		(39)		1,697			5,066				(3,369)			(67)
Earnings per common share — diluted ^(a)	$	1.30		$	2.08		$	(0.78)	(38)	%	$	2.01		$	5.95			$	(3.94)		(66)	%
Return on average equity ^(b)	15.3		%	31.5		%					15.3		%	31.5		%
Effective tax rate	21.3		%	22.6		%					30.4		%	21.4		%

(a)Represents net income, less (i) earnings allocated to participating share awards of $7 million and $11 million for the three months ended September 30, 2020 and 2019, respectively, and $10 million and $35 million for the nine months ended September 30, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $16 million and $21 million for the three months ended September 30, 2020 and 2019, respectively, and $65 million and $61 million for the nine months ended September 30, 2020 and 2019, respectively.

(b)Return on average equity (ROE) is computed by dividing (i) one-year period of net income ($3.4 billion and $7.1 billion for September 30, 2020 and 2019, respectively) by (ii) one-year average of total shareholders’ equity ($22.2 billion and $22.5 billion for September 30, 2020 and 2019, respectively).

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Table 2: Total Revenues Net of Interest Expense Summary


	Three Months Ended September 30,						Change 2020 vs. 2019							Nine Months Ended September 30,					Change 2020 vs. 2019
(Millions, except percentages)	2020		2019										2020			2019
Discount revenue	$	4,999	$	6,566	$	(1,567)	(24)	%	$	14,852	$	19,338		$	(4,486)		(23)	%
Net card fees	1,191		1,033		158		15		3,442		2,965			477			16
Other fees and commissions	478		825		(347)		(42)		1,647		2,465			(818)			(33)
Other	209		362		(153)		(42)		707		1,087			(380)			(35)
Total non-interest revenues	6,877		8,786		(1,909)		(22)		20,648		25,855			(5,207)			(20)
Total interest income	2,324		3,080		(756)		(25)		7,796		8,999			(1,203)			(13)
Total interest expense	450		877		(427)		(49)		1,708		2,663			(955)			(36)
Net interest income	1,874		2,203		(329)		(15)		6,088		6,336			(248)			(4)
Total revenues net of interest expense	$	8,751	$	10,989	$	(2,238)	(20)	%	$	26,736	$	32,191		$	(5,455)		(17)	%

Total Revenues Net of Interest Expense

Discount revenue decreased for both the three and nine month periods, primarily due to a decrease in worldwide billed business of 19 percent (20 percent on an FX-adjusted basis) and 20 percent (19 percent on an FX-adjusted basis), respectively.² U.S. billed business decreased 17 percent and 18 percent for the three and nine months, respectively, and non-U.S. billed business decreased 24 percent for both these periods, due to the continued impacts of the COVID-19 pandemic.

Additional billed business highlights for the three month period:

•Worldwide non-T&E billed business increased 1 percent as compared to the prior year, primarily driven by growth in online and card-not-present spending, while T&E billed business continued to experience a significant decline with a decrease of 69 percent as compared to the prior year.

•Proprietary consumer and commercial billed business decreased by 17 percent and 23 percent, respectively, as compared to the prior year.

◦U.S. consumer billed business decreased 16 percent and non-U.S. consumer billed business decreased 21 percent, as compared to the prior year.

◦Small and mid-sized enterprises (SME) billed business decreased 13 percent, while large and global corporate decreased 54 percent, each as compared to the prior year.

See Tables 5, 6 and 7 for more details on billed business performance.

The decrease in discount revenue for both the three and nine month periods was also driven by decreases in the average discount rate primarily due to a shift in spend mix to non-T&E categories. The average discount rate was 2.27 percent and 2.39 percent for the three months ended September 30, 2020 and 2019, respectively, and 2.29 percent and 2.38 percent for the nine months ended September 30, 2020 and 2019, respectively.

Net card fees increased for both the three and nine month periods, primarily driven by increases in our premium card product portfolios. Card fees, which are recognized over a twelve-month period, are slower to react to economic shifts.

Other fees and commissions decreased for both the three and nine month periods, primarily due to the impacts of travel restrictions related to the COVID-19 pandemic, which resulted in lower foreign exchange conversion revenue related to decreased cross-border Card Member spending and lower travel commissions and fees from our consumer travel business, as well as a decline in late fees due to lower delinquencies.

Other revenues decreased for both the three and nine month periods, primarily driven by a net loss in the current year, as compared to net income in the prior year from the GBT JV and lower revenue earned on cross-border Card Member spending due to the impacts of the COVID-19 pandemic, including travel restrictions.

Interest income decreased for both the three and nine month periods, primarily driven by lower average Card Member loan volumes and a reduction in benchmark interest rates.

²Refer to footnote 1 on page 2 for details regarding foreign currency adjusted information.

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Interest expense decreased for both the three and nine month periods, primarily driven by lower interest rates paid on deposits and outstanding debt.

Table 3: Provisions for Credit Losses Summary


	Three Months Ended September 30,						Change 2020 vs. 2019							Nine Months Ended September 30,					Change 2020 vs. 2019
(Millions, except percentages)	2020		2019										2020			2019
Card Member receivables
Net write-offs	$	219	$	231	$	(12)	(5)	%	$	776	$	657		$	119		18%
Reserve (release) build ^(a)	(102)		7		(109)		#		293		58			235			#
Total	117		238		(121)		(51)		1,069		715			354			50
Card Member loans
Net write-offs	523		538		(15)		(3)		1,750		1,644			106			6
Reserve build ^(a)	48		66		(18)		(27)		1,666		88			1,578			#
Total	571		604		(33)		(5)		3,416		1,732			1,684			97
Other
Net write-offs - Other loans ^(b)	27		25		2		8		80		74			6			8
Net write-offs - Other receivables ^(c)	12		10		2		20		20		15			5			33
Reserve (release) build - Other loans ^(a)(b)	(53)		7		(60)		#		198		16			182			#
Reserve (release) build - Other receivables ^(a)(c)	(9)		(5)		(4)		80		58		(3)			61			#
Total	(23)		37		(60)		#		356		102			254			#
Total provisions for credit losses	$	665	$	879	$	(214)	(24)%		$	4,841	$	2,549		$	2,292		90	%

# Denotes a variance greater than 100 percent

(a)Refer to the “Glossary of Selected Terminology” for a definition of reserve build (release).

(b)Relates to Other loans of $3.5 billion and $4.8 billion, less reserves of $370 million and $152 million, as of September 30, 2020 and December 31, 2019, respectively; and $4.5 billion and $3.8 billion, less reserves of $140 million and $124 million, as of September 30, 2019 and December 31, 2018, respectively.

(c)Relates to Other receivables included in Other assets on the Consolidated Balance Sheets of $2.6 billion and $3.1 billion, less reserves of $85 million and $27 million as of September 30, 2020 and December 31, 2019, respectively; and $2.9 billion and $2.9 billion, less reserves of $22 million and $25 million, as of September 30, 2019 and December 31, 2018, respectively.

Provisions for Credit Losses

Card Member receivables provision for credit losses decreased for the three month period, primarily due to a reserve release in the current year, versus a reserve build in the prior year, driven by improved credit performance.

Card Member loans provision for credit losses decreased for the three month period, primarily due to a lower reserve build and lower net write-offs. The lower reserve build was driven by improved credit performance, partially offset by further deterioration of the global macroeconomic outlook in the current year and greater weight placed on the downside scenario given continued high levels of uncertainty regarding the pace of recovery.

Other loans provision for credit losses decreased for the three month period, primarily due to a reserve release due to lower balances of non-card loans.

Total provisions for credit losses increased in the nine month period, primarily driven by higher reserve builds reflecting the deterioration of the global macroeconomic outlook in the current year, including unemployment and GDP, and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables.

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Table 4: Expenses Summary


	Three Months Ended September 30,						Change 2020 vs. 2019							Nine Months Ended September 30,					Change 2020 vs. 2019
(Millions, except percentages)	2020		2019										2020			2019
Marketing and business development	$	1,822	$	1,821	$	1	—	%	$	4,889	$	5,172		$	(283)		(5)	%
Card Member rewards	2,004		2,614		(610)		(23)		5,745		7,717			(1,972)			(26)
Card Member services	259		558		(299)		(54)		923		1,671			(748)			(45)
Total marketing, business development, and Card Member rewards and services	4,085		4,993		(908)		(18)		11,557		14,560			(3,003)			(21)
Salaries and employee benefits	1,408		1,499		(91)		(6)		4,152		4,288			(136)			(3)
Other, net	1,229		1,352		(123)		(9)		3,748		4,351			(603)			(14)
Total expenses	$	6,722	$	7,844	$	(1,122)	(14)	%	$	19,457	$	23,199		$	(3,742)		(16)	%

Expenses

In January 2020, we re-launched our Delta cobrand products following the renewal extending our cobrand relationship with Delta Air Lines on March 31, 2019. The contract renewal included new pricing terms, some of which became effective upon contract signing and others that were tied to the product re-launch. These pricing changes, as well as changes in the expense classification of certain benefits associated with the re-launch, resulted in offsetting increases to Marketing and business development and decreases to both Card Member rewards and Card Member services expenses, as compared to the prior year.

Marketing and business development expense was relatively flat for the three month period and decreased for the nine month period. Both periods reflected decreases due to a reduction in proactive marketing for Card Member acquisitions as well as decreases in corporate client incentives and network partner payments due to lower billed business. The decreases in the three month period were offset, and the decreases in the nine month period were partially offset, by incremental investments in enhancements to our Card Member value proposition, as well as expenses related to our Shop Small campaign and the Delta changes described above.

Card Member rewards expense decreased for both the three and nine month periods. Membership Rewards and cash back rewards decreased $375 million and $1,329 million and cobrand rewards decreased $235 million and $643 million for the three and nine month periods, respectively. These decreases were primarily driven by lower billed business as a result of the impacts of the COVID-19 pandemic. In addition, changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the COVID-19 pandemic contributed to a decrease in the Membership Rewards weighted average cost per reward point and expense in both periods. Cobrand rewards expense also reflected the impact of the discontinuation of certain cobrand benefits, as well as the Delta changes described above.

The Membership Rewards URR for current program participants was 96 percent (rounded up) at both September 30, 2020 and 2019.

Card Member services expense decreased for both the three and nine month periods, primarily due to lower usage of travel-related benefits as a result of the impacts of the COVID-19 pandemic, as well as the Delta changes described above.

Salaries and employee benefits expense decreased for both the three and nine month periods. The decrease in the three month period was primarily driven by lower incentive compensation expenses, partially offset by higher deferred compensation expenses. The decrease in the nine month period was primarily driven by lower incentive and deferred compensation expenses, partially offset by increased payroll costs due to higher year-over-year headcount.

Other expenses decreased for both the three and nine month periods, primarily driven by lower professional services expense, lower employee-related operating costs and lower fraud expense. Additionally, the decrease in the nine month period reflected a prior year litigation-related charge and a higher gain in the current year related to our strategic investments portfolio.

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Income Taxes

The effective tax rate was 21.3 percent and 22.6 percent for the three months ended September 30, 2020 and 2019, respectively, and 30.4 percent and 21.4 percent for the nine months ended September 30, 2020 and 2019, respectively. The decline in the effective tax rate for the three month period primarily reflected changes in the level and geographic mix of pretax income. The increase in the effective tax rate for the nine month period primarily reflected the impact of discrete tax charges in the current period related to the realizability of certain foreign deferred tax assets.

Table 5: Selected Card-Related Statistical Information


	As of or for the Three Months Ended September 30,								Change 2020 vs. 2019				As of or for the Nine Months Ended September 30,						Change 2020 vs. 2019
	2020			2019								2020				2019
Billed business: (billions)
U.S.	$	170.9		$	206.2		(17)	%	$	503.0			$	610.9			(18)	%
Outside the U.S.	77.8			102.0			(24)		230.1				304.7				(24)
Total	$	248.7		$	308.2		(19)		$	733.1			$	915.6			(20)
Proprietary	$	213.6		$	266.2		(20)		$	631.0			$	788.9			(20)
GNS	35.1			42.0			(17)		102.1				126.7				(19)
Total	$	248.7		$	308.2		(19)		$	733.1			$	915.6			(20)
Cards-in-force: (millions)
U.S.	53.6			54.3			(1)		53.6				54.3				(1)
Outside the U.S.	57.9			60.2			(4)		57.9				60.2				(4)
Total	111.5			114.5			(3)		111.5				114.5				(3)
Proprietary	68.8			69.9			(2)		68.8				69.9				(2)
GNS	42.7			44.6			(4)		42.7				44.6				(4)
Total	111.5			114.5			(3)		111.5				114.5				(3)
Basic cards-in-force: (millions)
U.S.	42.0			42.7			(2)		42.0				42.7				(2)
Outside the U.S.	48.8			50.3			(3)		48.8				50.3				(3)
Total	90.8			93.0			(2)		90.8				93.0				(2)
Average proprietary basic Card Member spending: (dollars)
U.S.	$	4,486		$	5,366		(16)		$	13,110			$	15,889			(17)
Outside the U.S.	2,989			4,027			(26)		8,776				12,023				(27)
Worldwide Average	$	4,041		$	4,964		(19)		$	11,814			$	14,737			(20)
Average discount rate	2.27		%	2.39		%			2.29		%		2.38		%
Average fee per card (dollars)^(a)	$	69		$	59		17	%	$	66			$	57			16	%

(a)Average fee per card is computed based on proprietary net card fees divided by average proprietary total cards-in-force.

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Table 6: Billed Business-Related Statistical Information


	Three Months Ended September 30, 2020
	Year over Year Percentage Increase (Decrease)		Year over Year Percentage Increase (Decrease) Assuming No Changes in FX Rates ^(a)
Worldwide
Proprietary
Proprietary consumer	(17)	%	(18)	%
Proprietary commercial	(23)		(23)
Total Proprietary	(20)		(20)
GNS	(17)		(16)
Worldwide Total	(19)		(20)
T&E-related volume (12% of Worldwide Total) ^(b)	(69)		(69)
Non-T&E-related volume (88% of Worldwide Total) ^(b)	1		1
Airline-related volume (1% of Worldwide Total) ^(b)	(92)		(92)

U.S.
Proprietary
Proprietary consumer	(16)
Proprietary commercial	(19)
Total Proprietary	(17)
U.S. Total	(17)
T&E-related volume (11% of U.S. Total) ^(b)	(66)
Non-T&E-related volume (89% of U.S. Total) ^(b)	2
Airline-related volume (1% of U.S. Total) ^(b)	(90)

Outside the U.S.
Proprietary
Proprietary consumer	(21)		(23)
Proprietary commercial	(37)		(37)
Total Proprietary	(27)		(29)
Outside the U.S. Total	(24)		(24)
Japan, Asia Pacific & Australia	(15)		(17)
Latin America & Canada	(37)		(31)
Europe, the Middle East & Africa	(30)		(32)

(a)The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current period apply to the corresponding prior year period against which such results are being compared).

(b)Based on billed business from merchants we acquire or merchants acquired by third parties on our behalf (e.g., OptBlue merchants).

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Table 7: Billed Business-Related Statistical Information


	Nine Months Ended September 30, 2020
			Year over Year Percentage Increase (Decrease)			Year over Year Percentage Increase (Decrease) Assuming No Changes in FX Rates ^(a)
Worldwide
Proprietary
Proprietary consumer	(19)	%		(18)	%
Proprietary commercial	(22)			(21)
Total Proprietary	(20)			(20)
GNS	(19)			(17)
Worldwide Total	(20)			(19)
T&E-related volume (16% of Worldwide Total) ^(b)	(59)			(59)
Non-T&E-related volume (84% of Worldwide Total) ^(b)	(3)			(3)
Airline-related volume (3% of Worldwide Total) ^(b)	(74)			(74)

U.S.
Proprietary
Proprietary consumer	(17)
Proprietary commercial	(19)
Total Proprietary	(18)
U.S. Total	(18)
T&E-related volume (14% of U.S. Total) ^(b)	(56)
Non-T&E-related volume (86% of U.S. Total) ^(b)	(3)
Airline-related volume (2% of U.S. Total) ^(b)	(72)

Outside the U.S.
Proprietary
Proprietary consumer	(23)			(22)
Proprietary commercial	(32)			(31)
Total Proprietary	(27)			(25)
Outside the U.S. Total	(24)			(23)
Japan, Asia Pacific & Australia	(18)			(16)
Latin America & Canada	(33)			(26)
Europe, the Middle East & Africa	(31)			(30)

(b)Based on billed business from merchants we acquire or merchants acquired by third parties on our behalf (e.g., OptBlue merchants).

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Table 8: Selected Credit-Related Statistical Information


	As of or for the Three Months Ended September 30,								Change 2020 vs. 2019				As of or for the Nine Months Ended September 30,						Change 2020 vs. 2019
(Millions, except percentages and where indicated)	2020			2019								2020				2019
Worldwide Card Member loans: ^(a)
Card Member loans: (billions)
U.S.	$	61.4		$	73.2		(16)	%	$	61.4			$	73.2			(16)
Outside the U.S.	8.2			10.5			(22)		8.2				10.5				(22)
Total	$	69.6		$	83.7		(17)		$	69.6			$	83.7			(17)
Credit loss reserves:
Beginning balance ^(b)	$	5,628		$	2,168		#		$	4,027			$	2,134			89
Provisions - principal, interest and fees	$	571		$	604		(5)		3,416				1,732				97
Net write-offs — principal less recoveries	$	(432)		$	(447)		(3)		(1,449)				(1,367)				6
Net write-offs — interest and fees less recoveries	$	(91)		$	(91)		—		(301)				(277)				9
Other ^(c)	$	12		$	(2)		#		(5)				10				#
Ending balance	$	5,688		$	2,232		#		$	5,688			$	2,232			#
% of loans	8.2		%	2.7		%			8.2		%		2.7		%
% of past due	679		%	176		%			679		%		176		%
Average loans (billions)	$	69.9		$	83.3		(16)		$	75.4			$	81.9			(8)
Net write-off rate — principal only ^(d)	2.5		%	2.1		%			2.6		%		2.2		%
Net write-off rate — principal, interest and fees ^(d)	3.0			2.6					3.1				2.7
30+ days past due as a % of total	1.2		%	1.5		%			1.2		%		1.5		%

Worldwide Card Member receivables: ^(a)
Card Member receivables: (billions)
U.S.	$	29.2		$	39.0		(25)		$	29.2			$	39.0			(25)
Outside the U.S.	11.6			17.6			(34)		11.6				$	17.6			(34)
Total	$	40.8		$	56.6		(28)		$	40.8			$	56.6			(28)
Credit loss reserves:
Beginning balance ^(b)	$	519		$	616		(16)		$	126			$	573			(78)
Provisions - principal and fees	$	117		$	238		(51)		1,069				715				50
Net write-offs - principal and fees less recoveries	$	(219)		$	(231)		(5)		(776)				(657)				18
Other ^(c)	$	5		$	(8)		#		3				(16)				#
Ending balance	$	422		$	615		(31)	%	$	422			$	615			(31)	%
% of receivables	1.0		%	1.1		%			1.0		%		1.1		%
Net write-off rate — principal and fees ^(d)(e)	2.2		%	1.6		%			2.3		%		1.6		%

# Denotes a variance greater than 100 percent

(a)Refer to Table 3 for Other loans and Other receivables.

(b)Includes an increase of $1,643 million and decrease of $493 million to the beginning reserve balances for Card Member loans and receivables, respectively, as of January 1, 2020, related to the adoption of the CECL methodology. Refer to Note 3 to the "Consolidated Financial Statements" for further information.

(c)Other includes foreign currency translation adjustments.

(d)We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, as our practice is to include uncollectible interest and/or fees as part of our total provision for credit losses, a net write-off rate including principal, interest and/or fees is also presented.

(e)Refer to Tables 11 and 14 for Net write-off rate - principal only and 30+ days past due metrics for Global Consumer Services Group (GCSG) and Global Small Business Services (GSBS) receivables, respectively. A net write-off rate based on principal losses only for Global Corporate Payments (GCP), which reflects global, large and middle market corporate accounts, is not available due to system constraints.

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Table 9: Net Interest Yield on Average Card Member Loans

Effective for the first quarter of 2020, we made certain enhancements to our methodology related to the allocation of certain funding costs primarily related to our Card Member loan and Card Member receivable portfolios. These enhancements resulted in a change to the interest expense not attributable to our Card Member loan portfolio and therefore also on our Net Interest Yield on Average Card Member loans. Prior period amounts have been revised to conform to the current period presentation.


	Three Months Ended September 30,									Nine Months Ended September 30,
(Millions, except percentages and where indicated)	2020			2019			2020			2019
Net interest income	$	1,874		$	2,203		$	6,088		$	6,336
Exclude:
Interest expense not attributable to our Card Member loan portfolio ^(a)	296			461			1,041			1,412
Interest income not attributable to our Card Member loan portfolio^(b)	(137)			(308)			(557)			(955)
Adjusted net interest income ^(c)	$	2,033		$	2,356		$	6,572		$	6,793
Average Card Member loans (billions)	$	69.9		$	83.3		$	75.4		$	81.9
Net interest income divided by average Card Member loans ^(c)	10.7		%	10.6		%	10.8		%	10.3		%
Net interest yield on average Card Member loans ^(c)	11.6		%	11.2		%	11.6		%	11.1		%

(a)Primarily represents interest expense attributable to maintaining our corporate liquidity pool and funding Card Member receivables.

(b)Primarily represents interest income attributable to Other loans, interest-bearing deposits and the fixed income investment portfolios.

(c)Adjusted net interest income and net interest yield on average Card Member loans are non-GAAP measures. Refer to “Glossary of Selected Terminology” for the definitions of these terms. We believe adjusted net interest income is useful to investors because it represents the interest expense and interest income attributable to our Card Member loan portfolio and is a component of net interest yield on average Card Member loans, which provides a measure of profitability of our Card Member loan portfolio. Net interest yield on average Card Member loans reflects adjusted net interest income divided by average Card Member loans, computed on an annualized basis. Net interest income divided by average Card Member loans, computed on an annualized basis, a GAAP measure, includes elements of total interest income and total interest expense that are not attributable to the Card Member loan portfolio, and thus is not representative of net interest yield on average Card Member loans.

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Business Segment Results of Operations

Effective for the first quarter of 2020, we made certain enhancements to our transfer pricing methodology related to the sharing of revenues among our card issuing, network and merchant businesses, and our methodology related to the allocation of certain funding costs primarily related to our Card Member loan and Card Member receivable portfolios. These enhancements resulted in certain changes to Non-interest revenues and Interest expense within Total revenues net of interest expense and Operating expenses within Total expenses across our reportable operating segments.

The enhancements related to the allocation of certain funding costs also resulted in a change to our Net interest income divided by Average Card Member loans metric and Net Interest Yield on Average Card Member loans, a non-GAAP measure, within our reportable operating segments.

For all of the above referenced changes, prior period amounts have been revised to conform to the current period presentation.

Global Consumer Services Group

Table 10: GCSG Selected Income Statement Data


	Three Months Ended September 30,								Change								Nine Months Ended September 30,				Change
(Millions, except percentages)	2020			2019			2020 vs. 2019							2020			2019		2020 vs. 2019
Revenues
Non-interest revenues	$	3,517		$	4,226		$	(709)	(17)	%	$	10,343		$	12,331		$	(1,988)	(16)	%
Interest income	1,916			2,402			(486)		(20)		6,298			6,971			(673)		(10)
Interest expense	242			437			(195)		(45)		842			1,318			(476)		(36)
Net interest income	1,674			1,965			(291)		(15)		5,456			5,653			(197)		(3)
Total revenues net of interest expense	5,191			6,191			(1,000)		(16)		15,799			17,984			(2,185)		(12)
Provisions for credit losses	412			653			(241)		(37)		3,108			1,855			1,253		68
Total revenues net of interest expense after provisions for credit losses	4,779			5,538			(759)		(14)		12,691			16,129			(3,438)		(21)
Expenses
Marketing, business development, and Card Member rewards and services	2,504			3,042			(538)		(18)		6,929			8,898			(1,969)		(22)
Salaries and employee benefits and other operating expenses	1,177			1,233			(56)		(5)		3,606			3,649			(43)		(1)
Total expenses	3,681			4,275			(594)		(14)		10,535			12,547			(2,012)		(16)
Pretax segment income	1,098			1,263			(165)		(13)		2,156			3,582			(1,426)		(40)
Income tax provision	243			272			(29)		(11)		573			756			(183)		(24)
Segment income	$	855		$	991		$	(136)	(14)	%	$	1,583		$	2,826		$	(1,243)	(44)	%
Effective tax rate	22.1		%	21.5		%					26.6		%	21.1		%

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 for both the three and nine month periods, primarily driven by lower discount revenue and other fees and commissions, partially offset by higher net card fees.

Discount revenue decreased 20 percent and 21 percent for the three and nine month periods, respectively, reflecting decreases in proprietary consumer billed business of 17 percent and 19 percent for the three and nine month periods, respectively.

See Tables 5, 6, 7 and 11 for more details on billed business performance.

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Other fees and commissions decreased 48 percent and 39 percent for the three and nine month periods, respectively, primarily due to the impacts of travel restrictions related to the COVID-19 pandemic, which resulted in lower travel commissions and fees from our consumer travel business and lower foreign exchange conversion revenue related to decreased cross-border spending, as well as a decline in late fees due to lower delinquencies.

Net card fees increased 16 percent and 17 percent for the three and nine month periods, respectively, driven by year-over-year increases in the average fee per card of our premium card products.

Net interest income decreased for the three and nine month periods, primarily due to lower average Card Member loan volumes and a reduction in benchmark interest rates, partially offset by lower cost of funds.

Card Member loans and receivables provisions for credit losses decreased for the three month period, primarily driven by slightly lower net-write offs and a reserve release in the current year, versus a reserve build in the prior year, due to improved credit performance, partially offset by further deterioration of the global macroeconomic outlook in the current year and greater weight placed on the downside scenario given the continued high levels of uncertainty regarding the pace of recovery.

Other loans provision for credit losses decreased for the three month period primarily due to lower balances of non-card loans.

Total provisions for credit losses increased for the nine month period, primarily driven by higher reserve builds reflecting the deterioration of the global macroeconomic outlook in the current year, including unemployment and GDP, and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables.

Marketing, business development, and Card Member rewards and services expenses decreased for both the three and nine month periods as a result of the impacts of the COVID-19 pandemic. The decreases in Card Member rewards expense were primarily driven by decreases in billed business. Additionally, the nine month period also included changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the COVID-19 pandemic. The decreases in Card Member services expense were primarily driven by lower usage of travel-related benefits. Those decreases were partially offset by increases in Marketing and business development expense for both the three and nine month periods, primarily due to incremental investments in enhancements to our Card Member value proposition, as well as expenses related to our Shop Small campaign, partially offset by a reduction in proactive marketing for Card Member acquisitions.

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Table 11: GCSG Selected Statistical Information


	As of or for the Three Months Ended September 30,								Change 2020 vs. 2019				As of or for the Nine Months Ended September 30,						Change 2020 vs. 2019
(Millions, except percentages and where indicated)	2020			2019								2020				2019
Proprietary billed business: (billions)
U.S.	$	83.9		$	99.9		(16)	%	$	242.9			$	292.9			(17)	%
Outside the U.S.	30.2			38.3			(21)		86.4				112.2				(23)
Total	$	114.1		$	138.2		(17)		$	329.3			$	405.1			(19)
Proprietary cards-in-force:
U.S.	37.5			37.7			(1)		37.5				37.7				(1)
Outside the U.S.	16.8			17.4			(3)		16.8				17.4				(3)
Total	54.3			55.1			(1)		54.3				55.1				(1)
Proprietary basic cards-in-force:
U.S.	26.5			26.8			(1)		26.5				26.8				(1)
Outside the U.S.	11.7			12.0			(3)		11.7				12.0				(3)
Total	38.2			38.8			(2)		38.2				38.8				(2)
Average proprietary basic Card Member spending: (dollars)
U.S.	$	3,162		$	3,719		(15)		$	9,080			$	10,861			(16)
Outside the U.S.	$	2,555		$	3,189		(20)		$	7,209			$	9,425			(24)
Average	$	2,975		$	3,555		(16)		$	8,501			$	10,421			(18)
Total segment assets (billions)	$	81.3		$	99.4		(18)		$	81.3			$	99.4			(18)
Card Member loans:
Total loans (billions)
U.S.	$	49.8		$	59.7		(17)		$	49.8			$	59.7			(17)
Outside the U.S.	7.7			10.1			(24)		7.7				10.1				(24)
Total	$	57.5		$	69.8		(18)		$	57.5			$	69.8			(18)
Average loans (billions)
U.S.	$	50.0		$	59.7		(16)		$	53.8			$	59.0			(9)
Outside the U.S.	7.8			10.0			(22)		8.6				9.8				(12)
Total	$	57.8		$	69.7		(17)	%	$	62.4			$	68.8			(9)	%

U.S.
Net write-off rate - principal only ^(a)	2.4		%	2.2		%			2.6		%		2.3		%
Net write-off rate - principal, interest and fees ^(a)	2.9			2.6					3.1				2.8
30+ days past due as a % of total	1.1			1.5					1.1				1.5
Outside the U.S.
Net write-off rate - principal only ^(a)	3.3			2.4					3.2				2.4
Net write-off rate - principal, interest and fees ^(a)	4.1			3.0					4.0				2.9
30+ days past due as a % of total	1.8			1.7					1.8				1.7
Total
Net write-off rate – principal only ^(a)	2.5			2.2					2.7				2.3
Net write-off rate – principal, interest and fees ^(a)	3.1			2.7					3.2				2.8
30+ days past due as a % of total	1.2		%	1.6		%			1.2		%		1.6		%

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	As of or for the Three Months Ended September 30,								Change 2020 vs. 2019				As of or for the Nine Months Ended September 30,						Change 2020 vs. 2019
(Millions, except percentages and where indicated)	2020			2019								2020				2019
Card Member receivables: (billions)
U.S.	$	10.3		$	12.9		(20)	%	$	10.3			$	12.9			(20)	%
Outside the U.S.	5.8			7.8			(26)		5.8				7.8				(26)
Total receivables	$	16.1		$	20.7		(22)	%	$	16.1			$	20.7			(22)	%

U.S.
Net write-off rate – principal only ^(a)	1.0		%	1.3		%			1.6		%		1.3		%
Net write-off rate – principal and fees ^(a)	1.1			1.4					1.7				1.5
30+ days past due as a % of total	0.6			1.3					0.6				1.3
Outside the U.S.
Net write-off rate – principal only ^(a)	2.8			2.4					2.9				2.3
Net write-off rate – principal and fees ^(a)	3.1			2.6					3.1				2.4
30+ days past due as a % of total	1.2			1.4					1.2				1.4
Total
Net write-off rate – principal only ^(a)	1.7			1.7					2.0				1.7
Net write-off rate – principal and fees ^(a)	1.8			1.9					2.2				1.8
30+ days past due as a % of total	0.8		%	1.4		%			0.8		%		1.4		%

(a)Refer to Table 8 footnote (d).

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Table 12: GCSG Net Interest Yield on Average Card Member Loans


	Three Months Ended September 30,									Nine Months Ended September 30,
(Millions, except percentages and where indicated)	2020			2019			2020			2019
U.S.
Net interest income	$	1,470		$	1,707		$	4,732		$	4,910
Exclude:
Interest expense not attributable to our Card Member loan portfolio ^(a)	81			67			224			203
Interest income not attributable to our Card Member loan portfolio ^(b)	(42)			(55)			(156)			(161)
Adjusted net interest income ^(c)	$	1,509		$	1,719		$	4,800		$	4,952
Average Card Member loans (billions)	$	50.0		$	59.7		$	53.8		$	59.0
Net interest income divided by average Card Member loans^(c)	11.8		%	11.4		%	11.7		%	11.1		%
Net interest yield on average Card Member loans ^(c)	12.0		%	11.4		%	11.9		%	11.2		%
Outside the U.S.
Net interest income	$	203		$	258		$	723		$	743
Exclude:
Interest expense not attributable to our Card Member loan portfolio^(a)	34			22			69			63
Interest income not attributable to our Card Member loan portfolio ^(b)	(2)			(4)			(9)			(10)
Adjusted net interest income ^(c)	$	235		$	276		$	783		$	796
Average Card Member loans (billions)	$	7.8		$	10.0		$	8.6		$	9.8
Net interest income divided by average Card Member loans^(c)	10.4		%	10.3		%	11.2		%	10.1		%
Net interest yield on average Card Member loans^(c)	11.9		%	11.0		%	12.2		%	10.8		%
Total
Net interest income	$	1,674		$	1,965		$	5,456		$	5,653
Exclude:
Interest expense not attributable to our Card Member loan portfolio^(a)	115			89			292			266
Interest income not attributable to our Card Member loan portfolio ^(b)	(45)			(59)			(165)			(171)
Adjusted net interest income ^(c)	$	1,744		$	1,995		$	5,583		$	5,748
Average Card Member loans (billions)	$	57.8		$	69.7		$	62.4		$	68.8
Net interest income divided by average Card Member loans^(c)	11.6		%	11.3		%	11.7		%	11.0		%
Net interest yield on average Card Member loans^(c)	12.0		%	11.4		%	12.0		%	11.2		%

(a)Refer to Table 9 footnote (a).

(b)Refer to Table 9 footnote (b).

(c)Refer to Table 9 footnote (c).

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Global Commercial Services

Table 13: GCS Selected Income Statement Data


	Three Months Ended September 30,								Change 2020 vs. 2019									Nine Months Ended September 30,					Change 2020 vs. 2019
(Millions, except percentages)	2020			2019													2020			2019
Revenues
Non-interest revenues	$	2,327		$	3,070		$	(743)	(24)	%	$	7,129		$	9,055			$	(1,926)		(21)	%
Interest income	351			485			(134)		(28)		1,252			1,407				(155)			(11)
Interest expense	139			262			(123)		(47)		493			787				(294)			(37)
Net interest income	212			223			(11)		(5)		759			620				139			22
Total revenues net of interest expense	2,539			3,293			(754)		(23)		7,888			9,675				(1,787)			(18)
Provisions for credit losses	250			222			28		13		1,657			682				975			#
Total revenues net of interest expense after provisions for credit losses	2,289			3,071			(782)		(25)		6,231			8,993				(2,762)			(31)
Expenses
Marketing, business development, and Card Member rewards and services	1,221			1,562			(341)		(22)		3,653			4,596				(943)			(21)
Salaries and employee benefits and other operating expenses	796			796			—		—		2,309			2,342				(33)			(1)
Total expenses	2,017			2,358			(341)		(14)		5,962			6,938				(976)			(14)
Pretax segment income	272			713			(441)		(62)		269			2,055				(1,786)			(87)
Income tax provision	52			145			(93)		(64)		71			414				(343)			(83)
Segment income	$	220		$	568		$	(348)	(61)	%	$	198		$	1,641			$	(1,443)		(88)	%
Effective tax rate	19.1		%	20.3		%					26.4		%	20.1		%

# Denotes a variance greater than 100 percent

GCS primarily issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products.

Non-interest revenues decreased for both the three and nine month periods, primarily driven by lower discount revenue and other fees and commissions.

Discount revenue decreased 26 percent and 23 percent for the three and nine month periods, respectively, reflecting decreases in commercial billed business of 23 percent and 22 percent, respectively.

See Tables 5, 6, 7 and 14 for more details on billed business performance.

Other fees and commissions decreased 47 percent and 29 percent for the three and nine month periods, respectively, primarily due to the impacts of travel restrictions related to the COVID-19 pandemic, which resulted in lower foreign exchange conversion revenue related to decreased cross-border spending, as well as a decline in late fees due to lower delinquencies.

Net interest income decreased for the three month period and increased for the nine month period. The three month period decreased, primarily due to a reduction in benchmark interest rates and lower average Card Member loans, partially offset by lower cost of funds. The increase in the nine month period was primarily driven by the lower cost of funds, partially offset by a reduction in benchmark interest rates.

Card Member receivables provision for credit losses decreased for the three month period, driven by a higher reserve release due to improved credit performance, partially offset by slightly higher net write-offs.

Card Member loans provision for credit losses increased for the three month period, driven by slightly higher net write-offs and a higher reserve build, reflecting the further deterioration of the global macroeconomic outlook in the current year and greater weight placed on the downside scenario given the continued high levels of uncertainty regarding pace of recovery.

Other loans provision for credit losses decreased for the three month period, primarily due to lower balances of non-card loans.

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Total provisions for credit losses increased in the nine month period, primarily driven by higher reserve builds, reflecting the deterioration of the global macroeconomic outlook in the current year, including unemployment and GDP, and a shift in the mix of loans and receivables, partially offset by a decline in the outstanding balance of loans and receivables.

Marketing, business development, and Card Member rewards and services expenses decreased for both the three and nine month periods as a result of the impacts of the COVID-19 pandemic. The decreases in Card Member rewards expense were primarily driven by decreases in billed business. Additionally, the nine month period also included changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the COVID-19 pandemic. The decreases in Marketing and business development expense were primarily due to a decrease in corporate client incentives and a reduction in proactive marketing for Card Member acquisitions, partially offset by incremental investments in enhancements to our Card Member value proposition.

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Table 14: GCS Selected Statistical Information


	As of or for the Three Months Ended September 30,								Change 2020 vs 2019				As of or for the Nine Months Ended September 30,						Change 2020 vs 2019
(Millions, except percentages and where indicated)	2020			2019								2020				2019
Proprietary billed business (billions)	$	98.5		$	127.3		(23)	%	$	297.4			$	380.3			(22)	%
Proprietary cards-in-force	14.5			14.8			(2)		14.5				14.8				(2)
Average Card Member spending (dollars)	$	6,776		$	8,627		(21)		$	20,268			$	25,947			(22)
Total segment assets (billions)	$	39.9		$	53.7		(26)		$	39.9			$	53.7			(26)
GSBS Card Member loans:
Total loans (billions)	$	12.0		$	13.8		(13)		$	12.0			$	13.8			(13)
Average loans (billions)	$	12.1		$	13.6		(11)		$	13.0			$	13.1			(1)
Net write-off rate - principal only ^(a)	2.2		%	1.8		%			2.1		%		1.8		%
Net write-off rate - principal, interest and fees ^(a)	2.5		%	2.1		%			2.4		%		2.1		%
30+ days past due as a % of total	1.1		%	1.3		%			1.1		%		1.3		%
Calculation of Net Interest Yield on Average Card Member Loans:
Net interest income	$	212		$	223				$	759			$	620
Exclude:
Interest expense not attributable to our Card Member loan portfolio^(b)	111			195					375				588
Interest income not attributable to our Card Member loan portfolio ^(c)	(34)			(56)					(145)				(163)
Adjusted net interest income ^(d)	$	289		$	362				$	989			$	1,045
Average Card Member loans (billions)	$	12.1		$	13.6				$	13.1			$	13.1
Net interest income divided by average Card Member loans^(d)	7.0		%	6.6		%			7.7		%		6.3		%
Net interest yield on average Card Member loans^(d)	9.5		%	10.5		%			10.1		%		10.6		%
Card Member receivables:
Total receivables (billions)	$	24.7		$	35.9		(31)		$	24.7			35.9				(31)
Net write-off rate - principal and fees ^(a)(e)	2.5		%	1.5		%			2.4		%		1.4		%
GCP Card Member receivables:
Total receivables (billions)	$	10.4		$	18.5		(44)		$	10.4			$	18.5			(44)
90+ days past billing as a % of total ^(e)	0.6		%	0.7		%			0.6		%		0.7		%
Net write-off rate - principal and fees ^{(a) (e)}	2.4		%	0.9		%			2.2		%		0.8		%
GSBS Card Member receivables:
Total receivables (billions)	$	14.3		$	17.4		(18)	%	$	14.3			$	17.4			(18)	%
Net write-off rate - principal only ^(a)	2.3		%	1.9		%			2.3		%		1.9		%
Net write-off rate - principal and fees ^(a)	2.5		%	2.1		%			2.6		%		2.1		%
30+ days past due as a % of total	1.0		%	1.7		%			1.0		%		1.7		%

(a)Refer to Table 8 footnote (d).

(b)Refer to Table 9 footnote (a).

(c)Refer to Table 9 footnote (b).

(d)Refer to Table 9 footnote (c).

(e)For GCP Card Member receivables, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if we initiate collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. GCP delinquency data for periods other than 90+ days past billing and the net write-off rate based on principal losses only are not available due to system constraints.

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Global Merchant and Network Services

Table 15: GMNS Selected Income Statement and Other Data


	Three Months Ended September 30,								Change 2020 vs. 2019									Nine Months Ended September 30,					Change 2020 vs. 2019
(Millions, except percentages and where indicated)	2020			2019													2020			2019
Revenues
Non-interest revenues	$	1,111		$	1,471		$	(360)	(24)	%	$	3,376		$	4,398			$	(1,022)		(23)	%
Interest income	4			6			(2)		(33)		14			22				(8)			(36)
Interest expense	(18)			(74)			56		(76)		(60)			(241)				181			(75)
Net interest income	22			80			(58)		(73)		74			263				(189)			(72)
Total revenues net of interest expense	1,133			1,551			(418)		(27)		3,450			4,661				(1,211)			(26)
Provisions for credit losses	2			4			(2)		(50)		75			11				64			#
Total revenues net of interest expense after provisions for credit losses	1,131			1,547			(416)		(27)		3,375			4,650				(1,275)			(27)
Expenses
Marketing, business development, and Card Member rewards and services	340			365			(25)		(7)		913			1,005				(92)			(9)
Salaries and employee benefits and other operating expenses	440			480			(40)		(8)		1,357			1,429				(72)			(5)
Total expenses	780			845			(65)		(8)		2,270			2,434				(164)			(7)
Pretax segment income	351			702			(351)		(50)		1,105			2,216				(1,111)			(50)
Income tax provision	88			179			(91)		(51)		359			558				(199)			(36)
Segment income	$	263		$	523		$	(260)	(50)		$	746		$	1,658			$	(912)		(55)
Effective tax rate	25.1		%	25.5		%					32.5		%	25.2		%
Total segment assets (billions)	$	12.3		$	17.2				(28)	%	$	12.3		$	17.2						(28)	%

# Denotes a variance greater than 100 percent

GMNS operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging our global integrated network. GMNS manages our partnership relationships with third-party card issuers, merchant acquirers and a prepaid reloadable and gift card program manager, licensing the American Express brand and extending the reach of the global network. GMNS also manages loyalty coalition businesses in certain countries.

Non-interest revenues decreased for both the three and nine month periods, primarily driven by lower discount revenue due to lower worldwide billed business and a decline in the average discount rate, primarily due to a shift in spend mix to non-T&E categories, as well as decreases in other fees and commissions, due to lower foreign exchange conversion revenue related to decreased cross-border spending as a result of the impacts of the COVID-19 pandemic. For a detailed discussion on billed business and the average discount rate, please refer to the “Consolidated Results of Operations.”

Net interest income decreased for both the three and nine month periods, reflecting a lower interest expense credit relating to internal transfer pricing, which results in a net benefit for GMNS due to its merchant payables.

Marketing, business development, and Card Member rewards and services expenses decreased for both the three and nine month periods, primarily driven by lower Marketing and business development expense, which reflected decreased network partner payments due to lower spend volumes as a result of the impacts of the COVID-19 pandemic, as well as a reduction in proactive marketing for Card Member acquisitions, partially offset by incremental investments in enhancements to our Card Member value proposition, specifically related to our Shop Small campaign.

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Corporate & Other

Corporate functions and certain other businesses are included in Corporate & Other.

Corporate & Other net loss was $265 million for the three months ended September 30, 2020, compared to $327 million in the same period a year ago, and $830 million for the nine months ended September 30, 2020, compared to $1,059 million in the same period a year ago. The decrease in net loss for the three month period was primarily driven by lower incentive compensation, partially offset by a net loss in the current year as compared to net income in the prior year, related to the GBT JV. The decrease in net loss for the nine month period was driven by a prior year litigation-related charge and lower incentive compensation in the current year, partially offset by a net loss in the current year as compared to a net income in the prior year, related to the GBT JV.

CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY

Our balance sheet management objectives are to maintain:

•A solid and flexible equity capital profile;

•A broad, deep and diverse set of funding sources to finance our assets and meet operating requirements; and

•Liquidity programs that enable us to continuously meet expected future financing obligations and business requirements for at least a twelve-month period in the event we are unable to continue to raise new funds under our traditional funding programs during a substantial weakening in economic conditions.

We are closely monitoring the rapidly changing macroeconomic environment and actively managing our balance sheet to reflect evolving circumstances. Our objective is to remain financially strong against a backdrop of a highly uncertain operating environment and outlook.

Capital

Our principal objective is to maintain a strong and flexible capital profile, and finance such capital in a cost efficient manner. We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements while considering expectations from all stakeholders (including rating agencies), specifically within a 10 to 11 percent target range for American Express' Common Equity Tier 1 risk-based capital ratio.

Our primary source of equity capital has been the generation of net income. Capital generated through net income and other sources, such as the exercise of stock options by employees, is used to maintain a strong balance sheet, support asset growth and engage in acquisitions, with excess available for distribution to shareholders through dividends and share repurchases.

We maintain certain flexibility to shift capital across our businesses as appropriate. For example, we may infuse additional capital into subsidiaries to maintain capital at targeted levels in consideration of debt ratings and regulatory requirements. These infused amounts can affect the capital profile and liquidity levels at the American Express parent company level.

The following table presents our regulatory risk-based capital and leverage ratios and those of our significant bank subsidiary, American Express National Bank (AENB), as of September 30, 2020.

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Table 16: Regulatory Risk-Based Capital and Leverage Ratios


	Basel III Minimum		Ratios as of September 30, 2020
Risk-Based Capital
Common Equity Tier 1	7.0	%
American Express Company			13.9	%
American Express National Bank			16.1
Tier 1	8.5
American Express Company			15.1
American Express National Bank			16.1
Total	10.5
American Express Company			16.7
American Express National Bank			18.3
Tier 1 Leverage	4.0	%
American Express Company			10.8
American Express National Bank			10.1	%

Table 17: Regulatory Risk-Based Capital Components and Risk Weighted Assets


American Express Company ($ in Billions)	September 30, 2020
Risk-Based Capital
Common Equity Tier 1	$	18.3
Tier 1 Capital	19.9
Tier 2 Capital	2.2
Total Capital	22.1

Risk-Weighted Assets	131.9
Average Total Assets to calculate the Tier 1 Leverage Ratio	$	185.3

The following are definitions for our regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance:

Risk-Weighted Assets — Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. Off-balance sheet exposures comprise a minimal part of the total risk-weighted assets.

Common Equity Tier 1 Risk-Based Capital Ratio — Calculated as Common Equity Tier 1 capital (CET1), divided by risk-weighted assets. CET1 is the sum of common shareholders’ equity, adjusted for ineligible goodwill and intangible assets, certain deferred tax assets, as well as certain other comprehensive income items as follows: net unrealized gains/losses on securities, foreign currency translation adjustments and net unrealized pension and other postretirement benefit/losses, all net of tax. CET1 is also adjusted for the CECL interim final rule discussed below.

Tier 1 Risk-Based Capital Ratio — Calculated as Tier 1 capital divided by risk-weighted assets. Tier 1 capital is the sum of CET1, our perpetual preferred stock and third-party non-controlling interests in consolidated subsidiaries, adjusted for capital held by insurance subsidiaries. The minimum requirement for the Tier 1 risk-based capital ratio is 1.5 percent higher than the minimum for the CET1 risk-based capital ratio. We have $1.6 billion of preferred shares outstanding to help address a portion of the Tier 1 capital requirements in excess of common equity requirements.

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Total Risk-Based Capital Ratio — Calculated as the sum of Tier 1 capital and Tier 2 capital, divided by risk-weighted assets. Tier 2 capital is the sum of the allowance for loan and receivable losses (limited to 1.25 percent of risk-weighted assets) and $480 million of eligible subordinated notes, adjusted for capital held by insurance subsidiaries. The $480 million of eligible subordinated notes reflect a 20 percent, or $120 million, reduction of Tier 2 capital credit for the $600 million subordinated debt issued in December 2014.

Tier 1 Leverage Ratio — Calculated by dividing Tier 1 capital by our average total consolidated assets for the most recent quarter.

In December 2018, federal banking regulators issued a final rule that provides an optional three-year phase-in period for the adverse regulatory capital effects of adopting the CECL methodology pursuant to new accounting guidance for the recognition of credit losses on certain financial instruments, effective January 1, 2020. In March 2020, the federal banking regulators issued an interim final rule that provides banking organizations with an alternative option to temporarily delay for two years the estimated impact of the adoption of the CECL methodology on regulatory capital, followed by the three-year phase-in period. The cumulative amount that is not recognized in regulatory capital will be phased in at 25 percent per year beginning January 1, 2022. In the first quarter of 2020, we elected to adopt the March 2020 interim final rule. As of September 30, 2020, our reported regulatory capital excluded the $0.9 billion impact to retained earnings upon the adoption of the CECL methodology and 25 percent of the impact of the $2.2 billion increase in reserves for credit losses from January 1, 2020 to September 30, 2020.

On March 4, 2020, the Federal Reserve issued a final rule to replace the 2.5 percent capital conservation buffer with a dynamic stress capital buffer (SCB), which has a floor of 2.5 percent. Under the rule, the stress capital buffer equals (i) the difference between a banking organization’s starting and minimum projected Common Equity Tier 1 capital ratios under the supervisory severely adverse stress testing scenario, plus (ii) one year of planned common stock dividends as a percentage of risk-weighted assets. On August 10, the Federal Reserve announced our SCB requirement of 2.5 percent, and resulting Common Equity Tier 1 capital requirement of 7.0 percent. Failure to maintain minimum regulatory capital levels at American Express or AENB could affect our status as a financial holding company and cause the regulatory agencies with oversight of American Express or AENB to take actions that could limit our business operations.

In light of the COVID-19 pandemic and its impact on the economy, the Federal Reserve is requiring all banking organizations participating in Comprehensive Capital Analysis and Review (CCAR), including us, to resubmit capital plans by November 2, 2020 to reflect changes in financial markets and the macroeconomic outlook.

Share Repurchases and Dividends

We return capital to common shareholders through dividends and share repurchases. The share repurchases reduce common shares outstanding and generally more than offset the issuance of new shares as part of employee compensation plans.

During the three and nine months ended September 30, 2020, we returned $0.3 billion and $1.9 billion, respectively, to our shareholders in the form of common stock dividends of $0.3 billion and $1.0 billion, respectively, and share repurchases of nil and $0.9 billion, respectively.

In addition, during the three and nine months ended September 30, 2020, we paid $16 million and $65 million, respectively, in dividends on non-cumulative perpetual preferred shares outstanding.

Our decisions on capital distributions will depend on various factors, including: our capital levels and regulatory capital requirements; actual and forecasted business results; economic and market conditions; revisions to, or revocation of, the Federal Reserve’s authorization of our capital plan; and the CCAR process.

Due to the uncertain business environment, we have suspended share repurchases since March 2020 to maintain financial strength. Since then, the Federal Reserve has announced that it is prohibiting share repurchases in the third and fourth quarters for all banking organizations participating in CCAR and will allow them to pay common stock dividends provided (a) they do not increase the amount of the dividend and (b) they do not exceed the average of a firm's net income for the four preceding calendar quarters.

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Funding Strategy

Our principal funding objective is to maintain broad and well-diversified funding sources to allow us to meet our maturing obligations, cost-effectively finance current and future asset growth in our global businesses as well as to maintain a strong liquidity profile.

We meet our funding needs through a variety of sources, including direct and third-party distributed deposits and debt instruments, such as senior unsecured debt, asset securitizations, borrowings through secured borrowing facilities and a committed bank credit facility. While we seek to diversify our funding sources by maintaining scale and relevance in unsecured debt, asset securitizations and deposits, we currently expect that direct deposits, such as the Personal Savings program, will become a larger proportion of our funding over time.

Given the significant reductions in our business volumes and changes in growth outlook, we do not currently expect to have meaningful unsecured or secured term debt issuances for the remainder of 2020.

Summary of Consolidated Debt

We had the following consolidated debt and customer deposits outstanding as of September 30, 2020 and December 31, 2019:

Table 18: Summary of Consolidated Debt and Customer Deposits


(Billions)	September 30, 2020		December 31, 2019
Short-term borrowings	$	1.7	$	6.4
Long-term debt	44.8		57.8
Total debt	46.5		64.2
Customer deposits	85.5		73.3
Total debt and customer deposits	$	132.0	$	137.5

We may redeem from time to time certain debt securities within 31 days prior to the original contractual maturity dates in accordance with the optional redemption provisions of those debt securities.

Our equity capital and funding strategies are designed, among other things, to maintain appropriate and stable unsecured debt ratings from the major credit rating agencies: Moody’s Investor Services (Moody’s), Standard & Poor’s (S&P) and Fitch Ratings (Fitch). Such ratings help support our access to cost-effective unsecured funding as part of our overall funding strategy. Our asset securitization activities are rated separately.

Table 19: Unsecured Debt Ratings

Credit Agency

American Express Entity

Short-Term Ratings

Long-Term Ratings

Outlook

Fitch

All rated entities

Negative

Moody’s

American Express Travel Related Services Company, Inc.

N/A

Negative

Moody's

American Express Credit Corporation

Prime-1

Negative

Moody's

American Express National Bank

Prime-1

Negative

Moody's

American Express Company

N/A

Negative

S&P

American Express Travel Related Services Company, Inc.

N/A

A-

Stable

S&P

American Express Credit Corporation and American Express National Bank

A-2

A-

Stable

S&P

American Express Company

A-2

BBB+

Stable

Downgrades in the ratings of our unsecured debt or asset securitization program securities could result in higher funding costs, as well as higher fees related to borrowings under our unused lines of credit. Declines in credit ratings could also reduce our borrowing capacity in the unsecured debt and asset securitization capital markets. We believe our funding mix, including the proportion of U.S. retail deposits insured by the Federal Deposit Insurance Corporation (FDIC) to total funding, should reduce the impact that credit rating downgrades would have on our funding capacity and costs.

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Liquidity Management

Our liquidity objective is to maintain access to a diverse set of on- and off-balance sheet liquidity sources. We seek to maintain liquidity sources in amounts sufficient to meet our expected future financial obligations and business requirements for liquidity for a period of at least twelve months in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions.

Our liquidity management strategy includes a number of elements, including, but not limited to:

•Maintaining diversified funding sources (refer to the “Funding Strategy” section for more details);

•Maintaining unencumbered liquid assets and off-balance sheet liquidity sources;

•Projecting cash inflows and outflows under a variety of economic and market scenarios;

•Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements; and

•Incorporating liquidity risk management as appropriate into our capital adequacy framework.

The amount and type of liquidity resources we maintain can vary over time, based upon the results of stress scenarios required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as additional stress scenarios required under our liquidity risk policy.

We believe that we currently maintain sufficient liquidity to meet all internal and regulatory liquidity requirements. As of September 30, 2020, we had Cash and cash equivalents of $33.0 billion. The increase of $9.1 billion from $23.9 billion as of December 31, 2019 was primarily driven by the decline in the balances of our Card Member loans and receivables.

The net interest expense to maintain these liquidity resources depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment yields. As the amount of our liquidity resources has increased, the level of future net interest expense to maintain these resources is expected to be significant, as the investment income is less than the cost of funding.

Securitized Borrowing Capacity

As of September 30, 2020, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2022, which gives us the right to sell up to $3.0 billion face amount of eligible AAA notes from the American Express Issuance Trust II (the Charge Trust). As the balance of Card Member receivables in the Charge Trust fluctuates over time in line with business volumes, our capacity to draw on the Charge Trust facility may be reduced when volumes decline. We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 15, 2022, which gives us the right to sell up to $2.0 billion face amount of eligible AAA certificates from the American Express Credit Account Master Trust (the Lending Trust). Both facilities are used in the ordinary course of business to fund working capital needs, as well as to further enhance our contingent funding resources. As of September 30, 2020, no amounts were drawn on the Charge Trust facility or the Lending Trust facility.

Federal Reserve Discount Window

As an insured depository institution, AENB may borrow from the Federal Reserve Bank of San Francisco, subject to the amount of qualifying collateral that it may pledge. The Federal Reserve has indicated that both credit and charge card receivables are a form of qualifying collateral for secured borrowings made through the discount window. Whether specific assets will be considered qualifying collateral and the amount that may be borrowed against the collateral remain at the discretion of the Federal Reserve.

We had approximately $61.7 billion as of September 30, 2020 in U.S. credit card loans and charge card receivables that could be sold over time through our securitization trusts or pledged in return for secured borrowings to provide further liquidity, subject in each case to applicable market conditions and eligibility criteria.

Committed Bank Credit Facility

In addition to the secured borrowing facilities described above, we maintained a committed syndicated bank credit facility as of September 30, 2020 of $3.5 billion, with a maturity date of October 15, 2022. As of September 30, 2020, no amounts were drawn on this facility.

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Unused Credit Outstanding and Certain Contractual Obligations

As of September 30, 2020, we had approximately $313 billion of unused credit available to Card Members as part of established lending product agreements. Total unused credit available to Card Members does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. Our charge card products generally have no pre-set spending limit and therefore are not reflected in unused credit available to Card Members.

We provide Card Member protection that covers losses associated with purchased goods and services. See Note 7 to the Consolidated Financial Statements for further information.

Cash Flows

The following table summarizes our cash flow activity for the nine months ended September 30:

Table 20: Cash Flows


(Billions)	2020		2019
Total cash provided by (used in):
Operating activities	$	2.1	$	10.4
Investing activities	17.2		(11.3)
Financing activities	(8.4)		(1.9)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash	0.3		0.3
Net increase (decrease) in cash, cash equivalents and restricted cash	$	11.2	$	(2.5)

Cash Flows from Operating Activities

Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions for credit losses, depreciation and amortization, deferred taxes and stock-based compensation and (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.

The decrease in net cash provided by operating activities over the periods of comparison was primarily driven by the significant decline in billed business, resulting in lower accounts payable and other liabilities, and purchases of loyalty program points from certain of our cobrand partners, which resulted in an increase in Other assets. These points are held as prepaid assets until they are used for rewards, promotions and incentives.

Cash Flows from Investing Activities

Our cash flows from investing activities primarily include changes in Card Member loans and receivables, as well as changes in our available-for-sale investment securities portfolio.

The increase in net cash provided by investing activities over the periods of comparison was primarily driven by a decline in the balances outstanding from Card Member loans and receivables as Card Members continued to pay down outstanding balances, combined with a significant decline in Card Member spending during the period due to the continued impacts of the COVID-19 pandemic and the resulting containment measures, partially offset by a net increase in the investment securities portfolio.

Cash Flows from Financing Activities

Our cash flows from financing activities primarily include changes in customer deposits, long-term debt and short-term borrowings, as well as dividend payments and share repurchases.

The increase in net cash used in financing activities over the periods of comparison was primarily driven by higher net repayment of debt, partially offset by higher growth in customer deposits and the suspension of the share repurchase program.

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OTHER MATTERS

Certain Legislative, Regulatory and Other Developments

Supervision & Regulation

We are subject to extensive government regulation and supervision in jurisdictions around the world, and the costs of compliance are substantial. In recent years, the financial services industry has been subject to rigorous scrutiny, high regulatory expectations, an increasing range of regulations, and a stringent and unpredictable enforcement environment.

Governmental authorities have focused, and we believe will continue to focus, considerable attention on reviewing compliance by financial services firms with laws and regulations, and as a result, we continually work to evolve and improve our risk management framework, governance structures, practices and procedures. Reviews to assess compliance with laws and regulations by governmental authorities, as well as our own internal reviews, have resulted in, and are likely to continue to result in, changes to our products, practices and procedures, restitution to our customers and increased costs related to regulatory oversight, supervision and examination. We have also been subject to regulatory actions and may continue to be the subject of such actions, including governmental inquiries, investigations, enforcement proceedings and the imposition of fines or civil money penalties, in the event of noncompliance or alleged noncompliance with laws or regulations.

Please see the “Supervision and Regulation” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K) for further information.

Government Responses to COVID-19 Pandemic

In response to the COVID-19 pandemic, authorities around the world have implemented numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. In addition to these measures, which have substantially curtailed household and business activity, fiscal and monetary policy measures have been deployed for the stated purpose of attempting to mitigate the adverse effects on the economy. In the United States, this has included the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and a number of emergency lending and liquidity facilities established by the Federal Reserve.

Among other things, the CARES Act created a new loan guarantee program in which we participated called the Paycheck Protection Program, designed to provide small businesses with support to cover payroll and certain other expenses. The CARES Act also provides financial institutions with the option to temporarily suspend (i) certain requirements under U.S. GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be treated as troubled debt restructurings and (ii) any determination that a loan modified as a result of the COVID-19 pandemic is a troubled debt restructuring (including impairment for accounting purposes).

There have also been various governmental actions taken or proposed to provide forms of relief, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees.

Governmental actions taken in response to the COVID-19 pandemic have not always been coordinated or consistent across jurisdictions but, in general, have been expanding in scope and intensity. The efficacy and ultimate effect of these actions is not known. We continue to monitor federal, state and international regulatory developments in relation to the COVID-19 pandemic and their potential impact on our operations.

Payments Regulation

Legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through antitrust actions, legislation and regulations to change certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, to establish broad and ongoing regulatory oversight regimes for payment systems.

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The European Union, Australia and other jurisdictions have focused on interchange fees (that is, the fee paid by the bankcard merchant acquirer to the card issuer in payment networks like Visa and Mastercard), as well as the rules, contract terms and practices governing merchant card acceptance. Regulation and other governmental actions relating to pricing or practices could affect all networks directly or indirectly, as well as adversely impact consumers and merchants. Among other things, regulation of bankcard fees has negatively impacted, and may continue to negatively impact, the discount revenue we earn, including as a result of downward pressure on our discount rate from decreases in competitor pricing in connection with caps on interchange fees. In some cases, regulations also extend to certain aspects of our business, such as network and cobrand arrangements or the terms of card acceptance for merchants. There is uncertainty as to when or how interchange fee caps and other provisions of the EU payments legislation might apply when we work with cobrand partners and agents in the EU. Given differing interpretations by regulators and participants in cobrand arrangements, we are subject to regulatory action, penalties and the possibility we will not be able to maintain our existing cobrand and agent relationships in the EU.

Broad regulatory oversight over payment systems can also include, in some cases, requirements for international card networks to localize aspects of their operations, such as processing infrastructure and data storage, which could increase our costs and diminish the value of our closed loop. The development and enforcement of payment system regulatory regimes generally continue to grow and may adversely affect our ability to compete effectively and maintain and extend our global network.

For more information on payments regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2019 Form 10-K.

Surcharging

In various countries, such as certain Member States in the EU and Australia, merchants are permitted by law to surcharge card purchases. In addition, the laws of a number of states in the United States that prohibit surcharging have been challenged in litigation brought by merchant groups and some such laws have been overturned. Surcharging is an adverse customer experience and could have a material adverse effect on us if it becomes widespread, particularly where it only or disproportionately impacts our business. In addition, other steering practices that are permitted by regulation in some countries could also have a material adverse effect on us if they become widespread.

For more information on the potential impacts of surcharging and other actions that could impair the Card Member experience, please see the “Risk Factors” section of the 2019 Form 10-K.

Consumer Financial Products Regulation

In the United States, our marketing, sale and servicing of consumer financial products and our compliance with certain federal consumer financial laws are supervised and examined by the CFPB, which has broad rulemaking and enforcement authority over providers of credit, savings and payment services and products and authority to prevent “unfair, deceptive or abusive” acts or practices. In addition, a number of U.S. states have significant consumer credit protection, disclosure and other laws (in certain cases more stringent than U.S. federal laws). U.S. federal law also regulates abusive debt collection practices, which along with bankruptcy and debtor relief laws, can affect our ability to collect amounts owed to us or subject us to regulatory scrutiny.

For more information on consumer financial products regulation, as well as the potential impacts on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2019 Form 10-K.

Community Reinvestment Act

AENB is subject to the Community Reinvestment Act of 1977 (CRA), which imposes affirmative, ongoing obligations on depository institutions to meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. In May 2020, the Office of the Comptroller of the Currency issued a final rule intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; and (iii) change the methods for CRA measurement, data collection, recordkeeping and reporting. The final rule retains the current community development test for limited purpose banks, such as AENB. It will also require banks to designate additional deposit-based assessment areas. AENB must comply with the final rule by January 1, 2023.

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China

During the third quarter of 2020, our joint venture with Lianlian DigiTech Co., Ltd, a Chinese fintech services company, began processing transactions pursuant to a network clearing license in mainland China. There can be no assurance that we will be able to successfully compete in China with domestic payment card networks and alternative payment providers.

Antitrust Litigation

The U.S. Department of Justice and certain states’ attorneys general brought an action against us in 2010 alleging that the provisions in our card acceptance agreements with merchants that prohibit merchants from engaging in various actions to discriminate against our card products violate the U.S. antitrust laws. On June 25, 2018, the Supreme Court found in favor of American Express in that case. We continue to vigorously defend similar antitrust claims initiated by merchants. See Note 7 to the "Consolidated Financial Statements" for descriptions of the cases. It is possible that actions impairing the Card Member experience, or the resolution of one or any combination of these merchant claims for damages, could have a material adverse effect on our business. For more information on the potential impacts of an adverse decision in the merchant litigations on our business, please see the “Risk Factors” section of the 2019 Form 10-K.

Privacy, Data Protection, Information and Cyber Security

Regulatory and legislative activity in the areas of privacy, data protection and information and cyber security continues to increase worldwide. We have established, and continue to maintain, policies and a governance framework to comply with applicable laws, meet evolving customer expectations and support and enable business innovation and growth. Global financial institutions like us, as well as our customers, colleagues, regulators, vendors and other third parties, have experienced a significant increase in information and cyber security risk in recent years and will likely continue to be the target of increasingly sophisticated cyber attacks, including computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing, impersonation and identity takeover attempts), corporate espionage, hacking, website defacement, denial-of-service attacks and other attacks and similar disruptions from the misconfiguration or unauthorized use of or access to computer systems. For more information on privacy, data protection and information and cyber security regulation and the potential impacts of a major information or cyber security incident on our results of operations and business, please see the “Supervision and Regulation” and “Risk Factors” sections of the 2019 Form 10-K.

Glossary of Selected Terminology

Adjusted net interest income — A non-GAAP measure that represents net interest income attributable to our Card Member loans (which includes, on a GAAP basis, interest that is deemed uncollectible), excluding the impact of interest expense and interest income not attributable to our Card Member loans.

Airline-related volume — Represents spend at airlines as a merchant.

Asset securitizations — Asset securitization involves the transfer and sale of loans or receivables to a special-purpose entity created for the securitization activity, typically a trust. The trust, in turn, issues securities, commonly referred to as asset-backed securities that are secured by the transferred loans and receivables. The trust uses the proceeds from the sale of such securities to pay the purchase price for the transferred loans or receivables. The securitized loans and receivables of our Lending Trust and Charge Trust (collectively, the Trusts) are reported as assets and the securities issued by the Trusts are reported as liabilities on our Consolidated Balance Sheets.

Average discount rate — This calculation is generally designed to reflect the average pricing at all merchants accepting American Express cards and represents the percentage of proprietary and GNS billed business retained by us from merchants we acquire, or from merchants acquired by third parties on our behalf, net of amounts retained by such third parties. The average discount rate, together with billed business, drive our discount revenue.

Billed business — Represents transaction volumes (including cash advances) on cards and other payment products issued by American Express (proprietary billed business) and cards issued under network partnership agreements with banks and other institutions, including joint ventures (GNS billed business). In-store spending activity within GNS retail cobrand portfolios, from which we earn no revenue, is not included in billed business. Billed business is reported as inside the United States or outside the United States based on the location of the issuer. Billed business, together with the average discount rate, drive our discount revenue.

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Capital ratios — Represents the minimum standards established by regulatory agencies as a measure to determine whether the regulated entity has sufficient capital to absorb on- and off-balance sheet losses beyond current loss accrual estimates. Refer to the Capital section under “Consolidated Capital Resources and Liquidity” for further related definitions under Basel III.

Cards-in-force — Represents the number of cards that are issued and outstanding by American Express (proprietary cards-in-force) and cards issued and outstanding under network partnership agreements with banks and other institutions, including joint ventures (GNS cards-in-force), except for GNS retail cobrand cards that had no out-of-store spending activity during the prior twelve months. Basic cards-in-force excludes supplemental cards issued on consumer accounts. Cards-in-force is useful in understanding the size of our Card Member base.

Card Member — The individual holder of an issued American Express-branded card.

Card Member loans — Represents the outstanding amount due from Card Members for charges made on their American Express credit cards, as well as any interest charges and card-related fees. Card Member loans also include revolving balances on certain American Express charge card products.

Card Member receivables — Represents the outstanding amount due from Card Members for charges made on their American Express charge cards, as well as any card-related fees, other than revolving balances on certain American Express charge cards with Pay Over Time features. Such revolving balances are included within Card Member loans.

Charge cards — Represents cards that generally carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge Card Members generally must pay the full amount billed each month. No finance charges are assessed on charge cards. Each charge card transaction is authorized based on its likely economics reflecting a Card Member’s most recent credit information and spend patterns. Some charge cards have additional Pay Over Time feature(s) that allow revolving of certain charges.

Cobrand cards — Cards issued under cobrand agreements with selected commercial partners. Pursuant to the cobrand agreements, we make payments to our cobrand partners, which can be significant, based primarily on the amount of Card Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. The partner is then liable for providing rewards to the Card Member under the cobrand partner’s own loyalty program.

Credit cards — Represents cards that have a range of revolving payment terms, grace periods, and rate and fee structures.

Discount revenue — Primarily represents the amount earned on transactions occurring at merchants that have entered into a card acceptance agreement with us, a GNS partner or other third-party merchant acquirer, for facilitating transactions between the merchants and Card Members.

Interest expense — Includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs. Interest expense is divided principally into two categories: (i) deposits, which primarily relates to interest expense on deposits taken from customers and institutions, and (ii) debt, which primarily relates to interest expense on our long-term financing and short-term borrowings, (e.g., commercial paper, federal funds purchased, bank overdrafts and other short-term borrowings), as well as the realized impact of derivatives hedging interest rate risk on our long-term debt.

Interest income — Includes (i) interest on loans, (ii) interest and dividends on investment securities and (iii) interest income on deposits with banks and other.

Interest on loans — Assessed using the average daily balance method for Card Member loans. Unless the loan is classified as non-accrual, interest is recognized based upon the principal amount outstanding in accordance with the terms of the applicable account agreement until the outstanding balance is paid or written off.

Interest and dividends on investment securities — Primarily relates to our performing fixed-income securities. Interest income is recognized using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so a constant rate of return is recognized on the outstanding balance of the related investment security throughout its term. Amounts are recognized until securities are in default or when it is likely that future interest payments will not be made as scheduled.

Interest income on deposits with banks and other — Primarily relates to the placement of cash in excess of near-term funding requirements in interest-bearing time deposits, overnight sweep accounts, and other interest-bearing demand and call accounts.

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Loyalty Coalitions — Programs that enable consumers to earn rewards points and use them to save on purchases from a variety of participating merchants through multi-category rewards platforms. Merchants in these programs generally fund the consumer offers and are responsible to us for the cost of rewards points; we earn revenue from operating the loyalty platform and by providing marketing support.

Net card fees — Represents the card membership fees earned during the period recognized as revenue over the covered card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation and deferred acquisition costs.

Net interest yield on average Card Member loans — A non-GAAP measure that is computed by dividing adjusted net interest income by average Card Member loans, computed on an annualized basis. Reserves and net write-offs related to uncollectible interest are recorded through provision for credit losses and are thus not included in the net interest yield calculation.

Net write-off rate — principal only — Represents the amount of proprietary consumer or small business Card Member loans or receivables written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage of the average loan or receivable balance during the period.

Net write-off rate — principal, interest and fees — Includes, in the calculation of the net write-off rate, amounts for interest and fees in addition to principal for Card Member loans, and fees in addition to principal for Card Member receivables.

Operating expenses — Represents salaries and employee benefits, professional services, occupancy and equipment, and other expenses.

Reserve build (release) — Represents the portion of the provisions for credit losses for the period related to increasing or decreasing reserves for credit losses as a result of, among other things, changes in volumes, macroeconomic outlook, portfolio composition and credit quality of portfolios. Reserve build represents the amount by which the provision for credit losses exceeds net write-offs, while reserve release represents the amount by which net write-offs exceed the provision for credit losses.

Return on average equity — Calculated by dividing one-year period net income by one-year average total shareholders’ equity.

T&E-related volume — Represents spend on travel and entertainment, which primarily includes airline, cruise, lodging and dining merchant categories. Non-T&E-related volume includes spend in all other merchant categories.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. The forward-looking statements, which address our current expectations regarding business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue,” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements, include, but are not limited to, the following:

•uncertainty regarding the duration, extent and severity of the pandemic; a further deterioration in global economic and business conditions and consumer and business spending generally; an inability or unwillingness of Card Members to pay amounts owed to us; insufficient governmental stimulus and relief programs to address the impact of the pandemic; prolonged measures to contain the spread of COVID-19 or premature easing of such containment measures, both of which could further exacerbate the effects on business activity and our Card Members, partners and merchants; health concerns associated with the pandemic continuing to affect consumer behavior, spending levels and preferences, and travel patterns and demand even after government restrictions are lifted and economies reopen; our inability to manage risk in an uncertain environment; market volatility, changes in capital and credit market conditions and the availability and cost of capital; issues impacting brand perceptions and our reputation; and an inability of business partners to meet their obligations to us and our customers due to slowdowns or disruptions in their businesses, bankruptcy or liquidation, or otherwise;

•future credit performance, which will depend in part on macroeconomic factors such as unemployment rates, GDP and the volume of bankruptcies; collections capabilities; the enrollment in, and effectiveness of, hardship programs and troubled debt restructurings; the availability of government stimulus programs for borrowers; and governmental actions that provide forms of relief with respect to certain loans and fees, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance;

•net interest income and the amount of loans outstanding being higher or lower than current expectations, which will depend on the behavior of Card Members and their actual spending and borrowing patterns, our ability to manage risk and enhance the Card Member value propositions, and changes in interest rates and our cost of funds;

•the actual amount to be spent on marketing, which will be based in part on continued changes in macroeconomic conditions and business performance; management’s assessment of competitive opportunities; and the receptivity of Card Members and prospective customers to advertising initiatives; and management’s ability to realize efficiencies and optimize investment spending;

•the actual amount to be spent on Card Member rewards and services and business development, and the relationship of these variable customer engagement costs to revenues, which could be impacted by Card Members’ interest in the value propositions we offer; further enhancements to product benefits to make them attractive to Card Members, potentially in a manner that is not cost effective; Card Member behavior as it relates to their spending patterns (including the level of spend in bonus categories) and the redemption of rewards and offers (including travel redemptions); the costs related to reward point redemptions; and new and renegotiated contractual obligations with business partners;

•our ability to control our operating expenses, which could be impacted by, among other things, an inability to balance expense control and investments in the business; management’s decision to increase or decrease spending in such areas as technology, business and product development, sales force, premium servicing and digital capabilities depending on overall business performance; an inability to innovate efficient channels of customer interactions, such as chat supported by artificial intelligence; restructuring activity; higher-than-expected cyber, fraud or compliance expenses or consulting, legal and other professional fees, including as a result of increased litigation or internal and regulatory reviews; the level of M&A activity and related expenses; the payment of civil money penalties, disgorgement, restitution, non-income tax assessments and litigation-related settlements; impairments of goodwill or other assets; the impact of changes in foreign currency exchange rates on costs; and greater than expected inflation;

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•net card fees not growing consistent with current expectations, which could be impacted by, among other things, the further deterioration in macroeconomic conditions impacting the ability and desire of Card Members to pay card fees; higher attrition rates; Card Members continuing to be attracted to our premium card products and the pace of Card Member acquisition activity; and an inability to address competitive pressures and implement our strategies and business initiatives, including introducing new and enhanced benefits and services that are designed for the current environment;

•a further decline of the average discount rate, including as a result of further changes in the mix of spending by location and industry, merchant negotiations (including merchant incentives, concessions and volume-related pricing discounts), competition, pricing regulation (including regulation of competitors’ interchange rates) and other factors;

•changes in the substantial and increasing worldwide competition in the payments industry, including competitive pressure that may materially impact the prices we charge merchants that accept American Express cards, competition for new and existing cobrand relationships, competition from new and non-traditional competitors and the success of marketing, promotion and rewards programs;

•changes affecting our plans regarding the return of capital to shareholders, including our intention to maintain our current quarterly common share dividend for the fourth quarter of 2020, subject to approval by the Board of Directors, which will depend on factors such as our capital levels and regulatory capital ratios; changes in the stress testing and capital planning process and approval of our capital plans by the Federal Reserve; our results of operations and financial condition; our credit ratings and rating agency considerations; and the economic environment and market conditions in any given period;

•a failure in or breach of our operational or security systems, processes or infrastructure, or those of third parties, including as a result of cyberattacks, which could compromise the confidentiality, integrity, privacy and/or security of data, disrupt our operations, reduce the use and acceptance of American Express cards and lead to regulatory scrutiny, litigation, remediation and response costs, and reputational harm;

•further changes in capital and credit market conditions, which may significantly affect our ability to meet our liquidity needs, expectations regarding capital and liquidity ratios, access to capital and cost of capital, including changes in interest rates; changes in market conditions affecting the valuation of our assets; or any reduction in our credit ratings or those of our subsidiaries, which could materially increase the cost and other terms of our funding or restrict our access to the capital markets;

•legal and regulatory developments, which could affect the profitability of our business activities; limit our ability to pursue business opportunities; require changes to business practices or alter our relationships with Card Members, partners, merchants and other third parties, including our ability to continue certain cobrand and agent relationships in the EU; exert further pressure on the average discount rate and GNS volumes; result in increased costs related to regulatory oversight, litigation-related settlements, judgments or expenses, restitution to Card Members or the imposition of fines or civil money penalties; materially affect our capital or liquidity requirements, results of operations or ability to pay dividends; or result in harm to the American Express brand;

•changes in the financial condition and creditworthiness of our business partners, such as bankruptcies, restructurings or consolidations, including merchants that represent a significant portion of our business, such as the airline industry, or our partners in GNS or financial institutions that we rely on for routine funding and liquidity, which could materially affect our financial condition or results of operations; and

•factors beyond our control such as resurgences of COVID-19 cases, severe weather conditions, natural and man-made disasters, power loss, disruptions in telecommunications, or terrorism, any of which could significantly affect demand for and spending on American Express cards, delinquency rates, loan and receivable balances and other aspects of our business and results of operations or disrupt our global network systems and ability to process transactions.

A further description of these uncertainties and other risks can be found in the 2019 Form 10-K, the Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2020, and other reports filed with the Securities and Exchange Commission.

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ITEM 1. FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


Three Months Ended September 30 (Millions, except per share amounts)	2020		2019
Revenues
Non-interest revenues
Discount revenue	$	4,999	$	6,566
Net card fees	1,191		1,033
Other fees and commissions	478		825
Other	209		362
Total non-interest revenues	6,877		8,786
Interest income
Interest on loans	2,266		2,885
Interest and dividends on investment securities	33		53
Deposits with banks and other	25		142
Total interest income	2,324		3,080
Interest expense
Deposits	202		401
Long-term debt and other	248		476
Total interest expense	450		877
Net interest income	1,874		2,203
Total revenues net of interest expense	8,751		10,989
Provisions for credit losses
Card Member receivables	117		238
Card Member loans	571		604
Other	(23)		37
Total provisions for credit losses	665		879
Total revenues net of interest expense after provisions for credit losses	8,086		10,110
Expenses
Marketing and business development	1,822		1,821
Card Member rewards	2,004		2,614
Card Member services	259		558
Salaries and employee benefits	1,408		1,499
Other, net	1,229		1,352
Total expenses	6,722		7,844
Pretax income	1,364		2,266
Income tax provision	291		511
Net income	$	1,073	$	1,755
Earnings per Common Share (Note 14)^(a)
Basic	$	1.31	$	2.09
Diluted	$	1.30	$	2.08
Average common shares outstanding for earnings per common share:
Basic	804		825
Diluted	805		827

(a)Represents net income less (i) earnings allocated to participating share awards of $7 million and $11 million for the three months ended September 30, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $16 million and $21 million for the three months ended September 30, 2020 and 2019, respectively.

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


Nine Months Ended September 30 (Millions, except per share amounts)	2020		2019
Revenues
Non-interest revenues
Discount revenue	$	14,852	$	19,338
Net card fees	3,442		2,965
Other fees and commissions	1,647		2,465
Other	707		1,087
Total non-interest revenues	20,648		25,855
Interest income
Interest on loans	7,543		8,374
Interest and dividends on investment securities	98		138
Deposits with banks and other	155		487
Total interest income	7,796		8,999
Interest expense
Deposits	788		1,206
Long-term debt and other	920		1,457
Total interest expense	1,708		2,663
Net interest income	6,088		6,336
Total revenues net of interest expense	26,736		32,191
Provisions for credit losses
Card Member receivables	1,069		715
Card Member loans	3,416		1,732
Other	356		102
Total provisions for credit losses	4,841		2,549
Total revenues net of interest expense after provisions for credit losses	21,895		29,642
Expenses
Marketing and business development	4,889		5,172
Card Member rewards	5,745		7,717
Card Member services	923		1,671
Salaries and employee benefits	4,152		4,288
Other, net	3,748		4,351
Total expenses	19,457		23,199
Pretax income	2,438		6,443
Income tax provision	741		1,377
Net income	$	1,697	$	5,066
Earnings per Common Share (Note 14)^(a)
Basic	$	2.01	$	5.97
Diluted	$	2.01	$	5.95
Average common shares outstanding for earnings per common share:
Basic	805		833
Diluted	806		835

(a)Represents net income less (i) earnings allocated to participating share awards of $10 million and $35 million for the nine months ended September 30, 2020 and 2019, respectively, and (ii) dividends on preferred shares of $65 million and $61 million for the nine months ended September 30, 2020 and 2019, respectively.

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Net income	$	1,073	$	1,755	$	1,697	$	5,066
Other comprehensive income (loss):
Net unrealized debt securities (losses) gains, net of tax	(9)		3		43		46
Foreign currency translation adjustments, net of tax	40		(59)		(159)		(87)
Net unrealized pension and other postretirement benefits, net of tax	8		1		(19)		(23)
Other comprehensive income (loss)	39		(55)		(135)		(64)
Comprehensive income	$	1,112	$	1,700	$	1,562	$	5,002

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Millions, except share data)	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents
Cash and due from banks	$	2,105	$	3,402
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2020, $304; 2019, $87)	30,817		20,392
Short-term investment securities	108		138
Total cash and cash equivalents	33,030		23,932
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2020, $4,247; 2019, $8,284), less reserves for credit losses: 2020, $422; 2019, $619	40,389		56,794
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2020, $25,219; 2019, $32,230), less reserves for credit losses: 2020, $5,688; 2019, $2,383	63,918		84,998
Other loans, less reserves for credit losses: 2020, $370; 2019, $152	3,144		4,626
Investment securities	22,443		8,406
Premises and equipment, less accumulated depreciation and amortization: 2020, $7,470; 2019, $6,562	4,835		4,834
Other assets (includes restricted cash of consolidated variable interest entities: 2020, $2,065; 2019, $85), less reserves for credit losses: 2020, $85; 2019, $27	19,500		14,731
Total assets	$	187,259	$	198,321
Liabilities and Shareholders’ Equity
Liabilities
Customer deposits	$	85,461	$	73,287
Accounts payable	8,232		12,738
Short-term borrowings	1,716		6,442
Long-term debt (includes debt issued by consolidated variable interest entities: 2020, $14,582; 2019, $19,668)	44,777		57,835
Other liabilities	25,204		24,948
Total liabilities	$	165,390	$	175,250
Contingencies (Note 7)
Shareholders’ Equity
Preferred shares, $1.66^2/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of September 30, 2020 and December 31, 2019	—		—
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 805 million shares as of September 30, 2020 and 810 million shares as of December 31, 2019	161		163
Additional paid-in capital	11,818		11,774
Retained earnings	12,762		13,871
Accumulated other comprehensive loss
Net unrealized debt securities gains, net of tax of: 2020, $24; 2019, $11	76		33
Foreign currency translation adjustments, net of tax of: 2020, $(242); 2019, $(319)	(2,348)		(2,189)
Net unrealized pension and other postretirement benefits, net of tax of: 2020, $(198); 2019, $(208)	(600)		(581)
Total accumulated other comprehensive loss	(2,872)		(2,737)
Total shareholders’ equity	21,869		23,071
Total liabilities and shareholders’ equity	$	187,259	$	198,321

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Nine Months Ended September 30 (Millions)	2020		2019
Cash Flows from Operating Activities
Net income	$	1,697	$	5,066
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for credit losses	4,841		2,549
Depreciation and amortization	1,115		883
Deferred taxes and other	79		619
Stock-based compensation	175		217
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Other assets	(1,432)		(43)
Accounts payable & other liabilities	(4,384)		1,145
Net cash provided by operating activities	2,091		10,436
Cash Flows from Investing Activities
Sale of investment securities	58		—
Maturities and redemptions of investment securities	4,881		5,072
Purchase of investments	(18,977)		(8,917)
Net decrease (increase) in Card Member loans and receivables, and other loans	32,262		(6,071)
Purchase of premises and equipment, net of sales: 2020, $1; 2019, $41	(1,042)		(1,214)
Acquisitions/dispositions, net of cash acquired	—		(270)
Other investing activities	7		148
Net cash provided by (used in) investing activities	17,189		(11,252)
Cash Flows from Financing Activities
Net increase in customer deposits	12,158		3,346
Net decrease in short-term borrowings	(4,737)		(285)
Proceeds from long-term debt	—		12,710
Payments of long-term debt	(13,699)		(13,279)
Issuance of American Express common shares	34		77
Repurchase of American Express common shares and other	(1,026)		(3,463)
Dividends paid	(1,112)		(1,048)
Net cash used in financing activities	(8,382)		(1,942)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash	283		304
Net increase (decrease) in cash, cash equivalents and restricted cash	11,181		(2,454)
Cash, cash equivalents and restricted cash at beginning of period	24,446		27,808
Cash, cash equivalents and restricted cash at end of period	$	35,627	$	25,354


Supplemental cash flow information

Cash, cash equivalents and restricted cash reconciliation	Sep-20		Dec-19		Sep-19		Dec-18
Cash and cash equivalents per Consolidated Balance Sheets	$	33,030	$	23,932	$	24,266	$	27,445
Restricted cash included in Other assets per Consolidated Balance Sheets	2,597		514		1,088		363
Total cash, cash equivalents and restricted cash	$	35,627	$	24,446	$	25,354	$	27,808

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


Three months ended September 30, 2020 (Millions, except per share amounts)	Total		Preferred Shares		Common Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings
Balances as of June 30, 2020	$	21,062	$	—	$	161	$	11,760	$	(2,911)	$	12,052

Net income	1,073		—		—		—		—		1,073
Other comprehensive income	39		—		—		—		39		—

Other changes, primarily employee plans	59		—		—		58		—		1
Cash dividends declared preferred Series B, $9.98 per share	(7)		—		—		—		—		(7)
Cash dividends declared preferred Series C, $9.20 per share	(9)		—		—		—		—		(9)
Cash dividends declared common, $0.43 per share	(348)		—		—		—		—		(348)
Balances as of September 30, 2020	$	21,869	$	—	$	161	$	11,818	$	(2,872)	$	12,762


Nine months ended September 30, 2020 (Millions, except per share amounts)	Total		Preferred Shares		Common Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings
Balances as of December 31, 2019	$	23,071	$	—	$	163	$	11,774	$	(2,737)	$	13,871
Cumulative effect of change in accounting principle - Reserve for Credit Losses^(a)	(882)		—		—		—		—		(882)
Net income	1,697		—		—		—		—		1,697
Other comprehensive loss	(135)		—		—		—		(135)		—
Repurchase of common shares	(875)		—		(2)		(105)		—		(768)
Other changes, primarily employee plans	102		—		—		149		—		(47)
Cash dividends declared preferred Series B, $36.44 per share	(27)		—		—		—		—		(27)
Cash dividends declared preferred Series C, $43.99 per share	(38)		—		—		—		—		(38)
Cash dividends declared common, $1.29 per share	(1,044)		—		—		—		—		(1,044)
Balances as of September 30, 2020	$	21,869	$	—	$	161	$	11,818	$	(2,872)	$	12,762

(a)Represents $1,170 million, net of tax of $288 million, related to the impact as of January 1, 2020 of adopting the new accounting guidance for the recognition of credit losses on certain financial instruments.

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


Three months ended September 30, 2019 (Millions, except per share amounts)	Total		Preferred Shares		Common Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings
Balances as of June 30, 2019	$	23,092	$	—	$	167	$	11,980	$	(2,606)	$	13,551
Net income	1,755		—		—		—		—		1,755
Other comprehensive loss	(55)		—		—		—		(55)		—
Repurchase of common shares	(1,450)		—		(2)		(170)		—		(1,278)
Other changes, primarily employee plans	58		—		—		59		—		(1)
Cash dividends declared preferred Series C, $24.50 per share	(21)		—		—		—		—		(21)
Cash dividends declared common, $0.43 per share	(354)		—		—		—		—		(354)
Balances as of September 30, 2019	$	23,025	$	—	$	165	$	11,869	$	(2,661)	$	13,652


Nine months ended September 30, 2019 (Millions, except per share amounts)	Total		Preferred Shares		Common Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings
Balances of December 31, 2018	$	22,290	$	—	$	170	$	12,218	$	(2,597)	$	12,499
Net income	5,066		—		—		—		—		5,066
Other comprehensive loss	(64)		—		—		—		(64)		—
Repurchase of common shares	(3,325)		—		(6)		(517)		—		(2,802)
Other changes, primarily employee plans	127		—		1		168		—		(42)
Cash dividends declared preferred Series B, $26.00 per share	(19)		—		—		—		—		(19)
Cash dividends declared preferred Series C, $49.00 per share	(42)		—		—		—		—		(42)
Cash dividends declared common, $1.21 per share	(1,008)		—		—		—		—		(1,008)
Balances as of September 30, 2019	$	23,025	$	—	$	165	$	11,869	$	(2,661)	$	13,652

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The Company

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. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel. 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.

The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. If not materially different, certain note disclosures included therein have been omitted from these Consolidated Financial Statements.

The interim Consolidated Financial Statements included in this report have not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim Consolidated Financial Statements, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.

Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

Recently Adopted Accounting Standards

Effective January 1, 2020, we adopted the new credit reserving methodology, applicable to certain financial instruments, known as the Current Expected Credit Loss (CECL) methodology under a modified retrospective transition. The CECL methodology requires measurement of expected credit losses for the estimated life of the financial instrument, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. Upon implementation, total loan reserves increased by $1,663 million and total receivable reserves decreased by $493 million, along with the associated current and deferred tax impact of $288 million, and an offset to the opening balance of retained earnings, net of tax, of $882 million. There were no material changes to our business processes or internal controls as a result of adopting the new guidance. Refer to Note 3 for additional information on how management estimates reserves for credit losses in accordance with the CECL methodology.

In addition, for available-for-sale debt securities, the new methodology replaces the other-than-temporary impairment model and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. There was no financial impact related to this implementation. Refer to Note 4 for additional information.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Loans and Card Member Receivables

Our lending and charge payment card products result in the generation of Card Member loans and Card Member receivables. We also extend credit to consumer and commercial customers through non-card financing products, resulting in Other loans. Reserves 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.

Card Member loans by segment and Other loans as of September 30, 2020 and December 31, 2019 consisted of:


(Millions)	2020		2019
Global Consumer Services Group ^(a)	$	57,538	$	73,266
Global Commercial Services	12,068		14,115
Card Member loans	69,606		87,381
Less: Reserve for credit losses	5,688		2,383
Card Member loans, net	$	63,918	$	84,998
Other loans, net ^(b)	$	3,144	$	4,626

(a)Includes approximately $25.2 billion and $32.2 billion of gross Card Member loans available to settle obligations of a consolidated variable interest entity (VIE) as of September 30, 2020 and December 31, 2019, respectively.

(b)Other loans represent consumer and commercial non-card financing products, and Small Business Administration Paycheck Protection Program (PPP) loans. There were $0.7 billion of gross PPP loans as of September 30, 2020. Other loans are presented net of reserves for credit losses of $370 million and $152 million as of September 30, 2020 and December 31, 2019, respectively.

Card Member receivables by segment as of September 30, 2020 and December 31, 2019 consisted of:


(Millions)	2020		2019
Global Consumer Services Group ^(a)	$	16,093	$	22,844
Global Commercial Services ^(b)	24,718		34,569
Card Member receivables	40,811		57,413
Less: Reserve for credit losses	422		619
Card Member receivables, net	$	40,389	$	56,794

(a)Includes nil and $8.3 billion of gross Card Member receivables available to settle obligations of a consolidated VIE as of September 30, 2020 and December 31, 2019, respectively.

(b)Includes $4.2 billion and nil of gross Card Member receivables available to settle obligations of a consolidated VIE as of September 30, 2020 and December 31, 2019, respectively.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Card Member Loans and Receivables Aging

Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of September 30, 2020 and December 31, 2019:


2020 (Millions)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total
Card Member Loans:
Global Consumer Services Group	$	56,833	$	174	$	141	$	390	$	57,538
Global Commercial Services
Global Small Business Services	11,880		30		25		77		12,012
Global Corporate Payments ^(a)	(b)		(b)		(b)		—		56
Card Member Receivables:
Global Consumer Services Group	15,963		36		27		67		16,093
Global Commercial Services
Global Small Business Services	$	14,171	$	35	$	26	$	77	$	14,309
Global Corporate Payments ^(a)	(b)		(b)		(b)		$	67	$	10,409


2019 (Millions)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total
Card Member Loans:
Global Consumer Services Group	$	72,101	$	322	$	253	$	590	$	73,266
Global Commercial Services
Global Small Business Services	13,898		56		40		85		14,079
Global Corporate Payments ^(a)	(b)		(b)		(b)		—		36
Card Member Receivables:
Global Consumer Services Group	22,560		86		58		140		22,844
Global Commercial Services
Global Small Business Services	$	17,113	$	99	$	58	$	134	$	17,404
Global Corporate Payments ^(a)	(b)		(b)		(b)		$	136	$	17,165

(a)Global Corporate Payments (GCP) reflects global, large and middle market corporate accounts. Delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if we initiate collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member loan or receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes. See also (b).

(b)Delinquency data for periods other than 90+ days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit Quality Indicators for Card Member Loans and Receivables

The following tables present the key credit quality indicators as of or for the nine months ended September 30:


	2020															2019
			Net Write-Off Rate												Net Write-Off Rate
			Principal Only^(a)			Principal, Interest & Fees^(a)			30+ Days Past Due as a % of Total			Principal Only^(a)			Principal, Interest & Fees^(a)			30+ Days Past Due as a % of Total
Card Member Loans:
Global Consumer Services Group	2.7	%		3.2	%		1.2	%		2.3	%		2.8	%		1.6	%
Global Small Business Services	2.1	%		2.4	%		1.1	%		1.8	%		2.1	%		1.3	%
Card Member Receivables:
Global Consumer Services Group	2.0	%		2.2	%		0.8	%		1.7	%		1.8	%		1.4	%
Global Small Business Services	2.3	%		2.6	%		1.0	%		1.9	%		2.1	%		1.7	%
Global Corporate Payments	(b)			2.2	%		(c)			(b)			(d)			(c)

(a)We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because we consider uncollectible interest and/or fees in estimating our reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented.

(b)Net write-off rate based on principal losses only is not available due to system constraints.

(c)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 0.6% and 0.7% for the periods ended September 30, 2020 and 2019, respectively.

(d)Net loss ratio was the credit quality indicator for GCP Card Member receivables for prior periods and represents the ratio of GCP Card Member receivables write-offs, consisting of principal (resulting from authorized transactions) and fee components, less recoveries, on Card Member receivables expressed as a percentage of gross amounts billed to corporate Card Members. The net loss ratio for the nine months ended September 30, 2019 was 0.08%.

Refer to Note 3 for additional indicators, including external environmental qualitative factors, management considers in its evaluation process for reserves for credit losses.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Impaired Loans and Receivables

Impaired loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that we will be unable to collect all amounts due according to the original contractual terms of the customer agreement. We consider impaired loans and receivables to include (i) loans over 90 days past due still accruing interest, (ii) nonaccrual loans and (iii) loans and receivables modified as troubled debt restructurings (TDRs).

In instances where the customer is experiencing financial difficulty, we may modify, through various financial relief programs, loans and receivables with the intention to minimize losses and improve collectability, while providing customers with temporary or permanent financial relief. We have classified loans and receivables in these modification programs as TDRs and continue to classify customer accounts that have exited a modification program as a TDR, with such accounts identified as “Out of Program TDRs.”

Such modifications to the loans and receivables primarily include (i) temporary interest rate reductions (possibly as low as zero percent, in which case the loan is characterized as non-accrual in our TDR disclosures), (ii) placing the customer on a fixed payment plan not to exceed 60 months and (iii) suspending delinquency fees until the customer exits the modification program. Upon entering the modification program, the customer’s ability to make future purchases is either limited, canceled, or in certain cases suspended until the customer successfully exits from the modification program. In accordance with the modification agreement with the customer, loans and/or receivables may revert back to the original contractual terms (including the contractual interest rate where applicable) when the customer exits the modification program, which is (i) when all payments have been made in accordance with the modification agreement or (ii) when the customer defaults out of the modification program.

Reserves for modifications deemed TDRs are measured individually and incorporate a discounted cash flow model. All changes in the impairment measurement are included within provisions for credit losses.

In response to the COVID-19 pandemic, the United States introduced the Coronavirus Aid, Relief, and Economic Security Act, which among other things provides financial institutions with the option to temporarily suspend (i) certain requirements under U.S. GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be treated as TDRs and (ii) any determination that a loan modified as a result of the COVID-19 pandemic is a TDR (including impairment for accounting purposes). Based on the nature of our programs, we have not elected the accounting and reporting relief afforded by this guidance and continue to report modifications as TDRs.

In the first quarter of 2020, we created a Customer Pandemic Relief (CPR) program for customers who have been impacted by the COVID-19 pandemic to provide a concession in the form of payment deferrals and waivers of certain fees and interest. We assessed the CPR program and determined that eligible loan modifications were temporary in nature, for example, less than three months, and not considered TDRs. Our short-term CPR programs are no longer widely available with immaterial balances remaining in the program as of September 30, 2020.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables provide additional information with respect to our impaired loans and receivables as of September 30, 2020 and December 31, 2019:


	As of September 30, 2020
							Accounts Classified as a TDR ^(c)
2020 (Millions)	Over 90 days Past Due & Accruing Interest^(a)		Non- Accruals^(b)		In Program^(d)		Out of Program^(e)		Total Impaired Balance		Reserve for Credit Losses - TDRs
Card Member Loans:
Global Consumer Services Group	$	243	$	186	$	1,479	$	209	$	2,117	$	825
Global Commercial Services	37		45		473		56		611		297
Card Member Receivables:
Global Consumer Services Group	—		—		232		22		254		38
Global Commercial Services	—		—		605		57		662		105
Other Loans^(f)	4		1		283		3		291		101
Total	$	284	$	232	$	3,072	$	347	$	3,935	$	1,366


	As of December 31, 2019
					Accounts Classified as a TDR ^(c)
2019 (Millions)	Over 90 days Past Due & Accruing Interest^(a)		Non- Accruals^(b)		In Program^(d)		Out of Program^(e)		Total Impaired Balance		Reserve for Credit Losses - TDRs
Card Member Loans:
Global Consumer Services Group	$	384	$	284	$	500	$	175	$	1,343	$	137
Global Commercial Services	44		54		97		38		233		22
Card Member Receivables:
Global Consumer Services Group	—		—		56		16		72		3
Global Commercial Services	—		—		109		30		139		6
Total	$	428	$	338	$	762	$	259	$	1,787	$	168

(a)Our policy is generally to accrue interest through the date of write-off (typically 180 days past due). We establish reserves for interest that we believe will not be collected. Amounts presented exclude loans classified as a TDR.

(b)Non-accrual loans not in modification programs primarily include certain loans placed with outside collection agencies for which we have ceased accruing interest. Amounts presented exclude loans classified as TDRs.

(c)Accounts classified as a TDR include $31 million and $26 million that are over 90 days past due and accruing interest and $9 million and $10 million that are non-accruals as of September 30, 2020 and December 31, 2019, respectively.

(d)In Program TDRs include accounts that are currently enrolled in a modification program.

(e)Out of Program TDRs include $256 million and $188 million of accounts that have successfully completed a modification program and $91 million and $72 million of accounts that were not in compliance with the terms of the modification programs as of September 30, 2020 and December 31, 2019, respectively.

(f)Other loans primarily represent consumer and commercial non-card financing products. Prior period balances were not significant.

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Loans and Receivables Modified as TDRs

The following table provides additional information with respect to loans and receivables modified as TDRs for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30, 2020									Nine Months Ended September 30, 2020
	Number of Accounts (thousands)	Outstanding Balances (millions)^(a)		Average Interest Rate Reduction (% Points)	Average Payment Term Extensions (# of Months)	Number of Accounts (thousands)	Outstanding Balances (millions)^(a)		Average Interest Rate Reduction (% Points)	Average Payment Term Extension (# of Months)
Troubled Debt Restructurings:
Card Member Loans	76	$	649	14	(b)	216	$	1,947	14	(b)
Card Member Receivables	13	231		(c)	18	38	1,049		(c)	19
Other Loans^(d)	3	$	165	3	17	8	$	319	3	16
Total	92	$	1,045			262	$	3,315


	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019
	Number of Accounts (thousands)	Outstanding Balances (millions)^(a)		Average Interest Rate Reduction (% Points)	Average Payment Term Extensions (# of Months)	Number of Accounts (thousands)	Outstanding Balances (millions)^(a)		Average Interest Rate Reduction (% Points)	Average Payment Term Extension (# of Months)
Troubled Debt Restructurings:
Card Member Loans	21	$	160	13	(b)	55	$	425	13	(b)
Card Member Receivables	2	54		(c)	27	6	144		(c)	27
Total	23	$	214			61	$	569

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

(b)For Card Member loans, there have been no payment term extensions.

(c)We do not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.

(d)Other loans primarily represent consumer and commercial non-card financing products. Prior period balances were not significant.

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The following table provides information with respect to loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A customer can miss up to three payments before being considered in default, depending on the terms of the modification program. For all customers that defaulted from a modification program, the probability of default is factored into the reserves for loans and receivables.


	Three Months Ended September 30, 2020							Nine Months Ended September 30, 2020
		Number of Accounts (thousands)			Aggregated Outstanding Balances Upon Default (millions)^(a)		Number of Accounts (thousands)			Aggregated Outstanding Balances Upon Default (millions)^(a)
Troubled Debt Restructurings That Subsequently Defaulted:
Card Member Loans	4		$	32		11		$	84
Card Member Receivables	1		16			3		34
Other Loans ^(b)	1		1			2		2
Total	6		$	49		16		$	120


	Three Months Ended September 30, 2019							Nine Months Ended September 30, 2019
		Number of Accounts (thousands)			Aggregated Outstanding Balances Upon Default (millions)^(a)		Number of Accounts (thousands)			Aggregated Outstanding Balances Upon Default (millions)^(a)
Troubled Debt Restructurings That Subsequently Defaulted:
Card Member Loans	4		$	23		9		$	59
Card Member Receivables	1		5			3		13
Total	5		$	28		12		$	72

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

(b)Other loans primarily represent consumer and commercial non-card financing products. Prior period balances were not significant.

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3. Reserves for Credit Losses

Reserves for 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. We make various judgments combined with historical loss experience to calculate a reserve rate that is applied to the outstanding loan or receivable balance to produce a reserve for expected credit losses.

We use a combination of statistically-based models that incorporate current and future economic conditions throughout the R&S Period. The process of estimating expected credit losses is based on several key models: Probability of Default (PD), Exposure at Default (EAD), and future recoveries for each month of the R&S Period. Beyond the R&S Period, we estimate expected credit losses using our historical loss rates.

•PD models are used to estimate the likelihood an account will be written-off.

•EAD models are used to estimate the balance of an account at the time of write-off. This includes balances less expected repayments based on historical payment and revolve behavior, which vary by customer. Due to the nature of revolving loan portfolios, the EAD models are complex and involve assumptions regarding the relationship between future spend and payment behaviors.

•Recovery models are used to estimate amounts that are expected to be received from Card Members after default occurs, typically as a result of collection efforts. Future recoveries are estimated taking into consideration the time of default, time elapsed since default and macroeconomic conditions.

We also estimate the likelihood and magnitude of recovery of previously written off accounts considering how long ago the account was written off and future economic conditions. Our models are developed using historical loss experience covering the economic cycle and consider the impact of account characteristics on expected losses.

Future economic conditions that are incorporated over the R&S Period include multiple macroeconomic scenarios provided to us by an independent third party. Management reviews these economic scenarios quarterly and uses their judgment to weight them in order to reflect the uncertainty surrounding these scenarios. These macroeconomic scenarios contain certain variables, including unemployment rates and real gross domestic product, that are significant to our models.

We also evaluate whether to include qualitative reserves to cover losses that are expected but, in our assessment, may not be adequately represented in the quantitative methods or the economic assumptions. We consider whether to adjust the quantitative reserves (higher or lower) to address possible limitations within the models or factors not included within the models, such as external conditions, emerging portfolio trends, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due accounts, or management risk actions.

Lifetime losses for most of our loans and receivables are evaluated at an appropriate level of granularity, including assessment on a pooled basis where financial assets share similar risk characteristics, such as past spend and remittance behaviors, credit bureau scores where available, delinquency status, tenure of balance outstanding, amongst others. Credit losses on accrued interest are measured and presented as part of Reserves for credit losses on the Consolidated Balance Sheets and within the Provisions for credit losses in the Consolidated Statements of Income, rather than reversing interest income. Separate models are used for accounts deemed a troubled debt restructuring, which are measured individually using a discounted cash flow model. See Note 2 for information on troubled debt restructurings.

Loans and receivable balances are written off when we consider amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due for pay in full or revolving loans and 120 days past due for term loans. Loans and receivables in bankruptcy or owed by deceased individuals are generally written off upon notification.

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.

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Changes in Card Member Loans Reserve for Credit Losses

Card Member loans reserve for credit losses increased for the three months ended September 30, 2020, primarily driven by further deterioration of the global macroeconomic outlook and greater weight placed on the downside scenario given continued high levels of uncertainty regarding the pace of recovery, partially offset by improved credit performance.

Card Member loans reserve for credit losses increased for the nine months ended September 30, 2020, primarily driven by deterioration of the global macroeconomic outlook, including unemployment and GDP, and changes in portfolio mix, partially offset by a decline in outstanding balances.

The following table presents changes in the Card Member loans reserve for credit losses for the three and nine months ended September 30:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Beginning Balance ^(a)	$	5,628	$	2,168	$	4,027	$	2,134
Provisions ^(b)	571		604		3,416		1,732
Net write-offs ^(c)
Principal	(432)		(447)		(1,449)		(1,367)
Interest and fees	(91)		(91)		(301)		(277)
Other ^(d)	12		(2)		(5)		10
Ending Balance	$	5,688	$	2,232	$	5,688	$	2,232

(a)For the nine months ended September 30, 2020, beginning balance includes an increase of $1,643 million as of January 1, 2020, related to the adoption of the CECL methodology.

(b)Provisions for principal, interest and fee reserve components. Provisions for credit losses includes reserve build (release) and replenishment for net write-offs.

(c)Principal write-offs are presented less recoveries of $142 million and $135 million for the three months ended September 30, 2020 and 2019, respectively, and $421 million and $389 million for the nine months ended September 30, 2020 and 2019, respectively. Recoveries of interest and fees were not significant. Amounts include net (write-offs) recoveries from TDRs of $(35) million and $(20) million for the three months September 30, 2020 and 2019, respectively, and $(98) million and $(53) million for the nine months ended September 30, 2020 and 2019, respectively.

(d)Primarily includes foreign currency translation adjustments of $13 million and $(6) million for the three months ended September 30, 2020 and 2019, respectively, and $(4) million and $(3) million for the nine months ended September 30, 2020 and 2019, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Changes in Card Member Receivables Reserve for Credit Losses

Card Member receivables reserve for credit losses decreased for the three months ended September 30, 2020, primarily driven by improved credit performance.

Card Member receivables reserve for credit losses increased for the nine months ended September 30, 2020, primarily driven by deterioration of the global macroeconomic outlook, including unemployment and GDP, partially offset by a decline in outstanding balances.

The following table presents changes in the Card Member receivables reserve for credit losses for the three and nine months ended September 30:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Beginning Balance ^(a)	$	519	$	616	$	126	$	573
Provisions ^(b)	117		238		1,069		715
Net write-offs ^(c)	(219)		(231)		(776)		(657)
Other ^(d)	5		(8)		3		(16)
Ending Balance	$	422	$	615	$	422	$	615

(a)For the nine months ended September 30, 2020, beginning balance includes a decrease of $493 million as of January 1, 2020, related to the adoption of the CECL methodology.

(b)Provisions for principal and fee reserve components. Provisions for credit losses includes reserve build (release) and replenishment for net write-offs.

(c)Net write-offs are presented less recoveries of $103 million and $94 million for the three months ended September 30, 2020 and 2019, respectively, and $283 million and $278 million for the nine months ended September 30, 2020 and 2019, respectively. Amounts include net (write-offs) recoveries from TDRs of $(15) million and $(5) million for the three months ended September 30, 2020 and 2019, respectively, and $(31) million and $(11) million, for the nine months ended September 30, 2020 and 2019, respectively.

(d)Primarily includes foreign currency translation adjustments of $3 million and $(6) million for the three months ended September 30, 2020 and 2019, respectively, and $2 million and $(3) million for the nine months ended September 30, 2020 and 2019, respectively.

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4. Investment Securities

Investment securities principally include available-for-sale debt securities carried at fair value on the Consolidated Balance Sheets. The CECL methodology, which became effective January 1, 2020, requires us to estimate lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position. Comparative information continues to be reported in accordance with the methodology in effect for prior periods. When estimating a security’s probability of default and the recovery rate, we assess the security’s credit indicators, including credit ratings. If our assessment indicates that an expected credit loss exists, we determine the portion of the unrealized loss attributable to credit deterioration and record an allowance for the expected credit loss through the Consolidated Statements of Income in Other loans Provision for credit losses. Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in the Consolidated Statements of Comprehensive Income, net of tax. We had accrued interest on our available-for-sale debt securities totaling $54 million and $20 million, as of September 30, 2020 and December 31, 2019, respectively, presented as Other assets on the Consolidated Balance Sheets.

Investment securities also include equity securities carried at fair value on the Consolidated Balance Sheets with unrealized gains and losses recorded in the Consolidated Statements of Income as Other, net expense.

Realized gains and losses are recognized upon disposition of the securities using the specific identification method.

The following is a summary of investment securities as of September 30, 2020 and December 31, 2019:


	2020														2019
Description of Securities (Millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale debt securities:
State and municipal obligations	$	173	$	7	$	—	$	180	$	236	$	8	$	(1)	$	243
U.S. Government agency obligations	8		—		—		8		9		—		—		9
U.S. Government treasury obligations	21,431		89		—		21,520		7,395		35		(1)		7,429
Corporate debt securities	24		—		—		24		27		—		—		27
Mortgage-backed securities ^(a)	31		3		—		34		39		2		—		41
Foreign government bonds and obligations	577		1		—		578		578		1		—		579
Equity securities ^(b)	57		44		(2)		99		55		25		(2)		78
Total	$	22,301	$	144	$	(2)	$	22,443	$	8,339	$	71	$	(4)	$	8,406

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

(b)Equity securities comprise investments in common stock, exchange-traded funds and mutual funds.

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(Unaudited)

The following table provides information about our available-for-sale debt securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019. There were no available-for-sale debt securities with gross unrealized losses as of September 30, 2020.


	2019
	Less than 12 months						12 months or more
Description of Securities (Millions)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
State and municipal obligations	$	18	$	(1)	$	—	$	—
U.S. Government treasury obligations	—		—		324		(1)
Total	$	18	$	(1)	$	324	$	(1)

The following table summarizes the gross unrealized losses by ratio of fair value to amortized cost as of December 31, 2019. There were no available-for-sale debt securities with gross unrealized losses as of September 30, 2020.


	Less than 12 months								12 months or more							Total
Ratio of Fair Value to Amortized Cost (Dollars in millions)	Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses



2019:
90%–100%	2	$	18	$	(1)	3	$	324	$	(1)	5	$	342	$	(2)
Total as of December 31, 2019	2	$	18	$	(1)	3	$	324	$	(1)	5	$	342	$	(2)

Contractual maturities for investment securities with stated maturities as of September 30, 2020 were as follows:


(Millions)	Cost		Estimated Fair Value
Due within 1 year	$	14,313	$	14,326
Due after 1 year but within 5 years	7,618		7,680
Due after 5 years but within 10 years	181		201
Due after 10 years	132		137
Total	$	22,244	$	22,344

The expected payments on state and municipal obligations, U.S. government agency obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.

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(Unaudited)

5. Asset Securitizations

We periodically securitize Card Member loans and receivables arising from our card businesses through the transfer of those assets to securitization trusts, American Express Credit Account Master Trust (the Lending Trust) and American Express Issuance Trust II (the Charge Trust and together with the Lending Trust, the Trusts). The Trusts then issue debt securities collateralized by the transferred assets to third-party investors.

The Trusts are considered VIEs as they have insufficient equity at risk to finance their activities, which are to issue debt securities that are collateralized by the underlying Card Member loans and receivables. We perform the servicing and key decision making for the Trusts, and therefore have the power to direct the activities that most significantly impact the Trusts’ economic performance, which are the collection of the underlying Card Member loans and receivables. In addition, we hold all of the variable interests in both Trusts, with the exception of the debt securities issued to third-party investors. As of September 30, 2020 and December 31, 2019, our ownership of variable interests was $10.9 billion and $12.9 billion, respectively, for the Lending Trust and $4.3 billion and $8.3 billion, respectively, for the Charge Trust. These variable interests held by us provide us with the right to receive benefits and the obligation to absorb losses, which could be significant to both the Lending Trust and the Charge Trust. Based on these considerations, we are the primary beneficiary of the Trusts and therefore consolidate the Trusts.

The following table provides information on the restricted cash held by the Trusts as of September 30, 2020 and December 31, 2019, included in Other assets on the Consolidated Balance Sheets:


(Millions)	2020		2019
Lending Trust	$	2,065	$	85
Charge Trust	—		—
Total	$	2,065	$	85

These amounts relate to collections of Card Member loans and receivables to be used by the Trusts to fund future expenses and obligations, including interest on debt securities, credit losses and upcoming debt maturities.

Under the respective terms of the Lending Trust and the Charge Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each Trust could result in payment of trust expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of debt securities. During the nine months ended September 30, 2020 and the year ended December 31, 2019, no such triggering events occurred.

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6. Customer Deposits

As of September 30, 2020 and December 31, 2019, customer deposits were categorized as interest-bearing or non-interest-bearing as follows:


(Millions)	2020		2019
U.S.:
Interest-bearing	$	83,963	$	72,445
Non-interest-bearing (includes Card Member credit balances of: 2020, $701; 2019, $389)	726		415
Non-U.S.:
Interest-bearing	20		23
Non-interest-bearing (includes Card Member credit balances of: 2020, $749; 2019, $401)	752		404
Total customer deposits	$	85,461	$	73,287

Customer deposits by deposit type as of September 30, 2020 and December 31, 2019 were as follows:


(Millions)	2020		2019
U.S. retail deposits:
Savings accounts – Direct	$	60,370	$	46,394
Certificates of deposit:
Direct	2,592		1,854
Third-party (brokered)	6,899		8,076
Sweep accounts – Third-party (brokered)	14,102		16,121
Other deposits:
U.S. non-interest bearing deposits	25		26
Non-U.S. deposits	23		26
Card Member credit balances ― U.S. and non-U.S.	1,450		790
Total customer deposits	$	85,461	$	73,287

The scheduled maturities of certificates of deposit as of September 30, 2020 were as follows:


(Millions)	U.S.		Non-U.S.		Total
2020	$	1,612	$	3	$	1,615
2021	3,744		5		3,749
2022	3,013		1		3,014
2023	644		—		644
2024	274		—		274
After 5 years	204		—		204
Total	$	9,491	$	9	$	9,500

As of September 30, 2020 and December 31, 2019, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:


(Millions)	2020		2019
U.S.	$	966	$	622
Non-U.S.	1		4
Total	$	967	$	626

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7. Contingencies

In the ordinary course of business, we and our subsidiaries are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings).

Based on our current knowledge, and taking into consideration our litigation-related liabilities, we do not believe we are a party to, nor are any of our properties the subject of, any legal proceeding that would have a material adverse effect on our consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, including the fact that some pending legal proceedings are at preliminary stages or seek an indeterminate amount of damages, it is possible that the outcome of legal proceedings could have a material impact on our results of operations. Certain legal proceedings involving us or our subsidiaries are described below.

A putative merchant class action in the Eastern District of New York, consolidated in 2011 and collectively captioned In re: American Express Anti-Steering Rules Antitrust Litigation (II), alleged that provisions in our merchant agreements prohibiting merchants from differentially surcharging our cards or steering a customer to use another network’s card or another type of general-purpose card (“anti-steering” and “non-discrimination” contractual provisions) violate U.S. antitrust laws. On January 15, 2020, our motion to compel arbitration of claims brought by merchants who accept American Express and to dismiss claims of merchants who do not was granted. Plaintiffs have appealed part of this decision.

On February 25, 2020, we were named as a defendant in a case filed in the Superior Court of California, Los Angeles County, captioned Laurelwood Cleaners LLC v. American Express Co., et al., in which the plaintiff seeks a public injunction prohibiting American Express from enforcing its anti-steering and non-discrimination provisions and from requiring merchants “to offer the service of Amex-card acceptance for free.” We intend to vigorously defend the case.

In July 2004, we were named as a defendant in another putative class action filed in the Southern District of New York and subsequently transferred to the Eastern District of New York, captioned The Marcus Corporation v. American Express Co., et al., in which the plaintiffs allege an unlawful antitrust tying arrangement between certain of our charge cards and credit cards in violation of various state and federal laws. The plaintiffs in this action seek injunctive relief and an unspecified amount of damages.

On March 8, 2016, plaintiffs B&R Supermarket, Inc. d/b/a Milam’s Market and Grove Liquors LLC, on behalf of themselves and others, filed a suit, captioned B&R Supermarket, Inc. d/b/a Milam’s Market, et al. v. Visa Inc., et al., for violations of the Sherman Antitrust Act, the Clayton Antitrust Act, California’s Cartwright Act and unjust enrichment in the United States District Court for the Northern District of California, against American Express Company, other credit and charge card networks, other issuing banks and EMVCo, LLC. Plaintiffs allege that the defendants, through EMVCo, conspired to shift liability for fraudulent, faulty and otherwise rejected consumer credit card transactions from themselves to merchants after the implementation of EMV chip payment terminals. Plaintiffs seek damages and injunctive relief. An amended complaint was filed on July 15, 2016. On September 30, 2016, the court denied our motion to dismiss as to claims brought by merchants who do not accept American Express cards, and on May 4, 2017, the California court transferred the case to the United States District Court for the Eastern District of New York. On August 28, 2020, the court granted plaintiffs' motion for class certification.

We are being challenged in a number of countries regarding our application of value-added taxes (VAT) to certain of our international transactions, which are in various stages of audit, or are being contested in legal actions. While we believe we have complied with all applicable tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional VAT. In certain jurisdictions where we are contesting the assessments, we were required to pay the VAT assessments prior to contesting.

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Our legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members to governmental proceedings. These legal proceedings involve various lines of business and a variety of claims (including, but not limited to, common law tort, contract, application of tax laws, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against us specify the damages sought, many seek an unspecified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against us are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to estimate an amount of loss or a range of possible loss, while other matters have progressed sufficiently such that we are able to estimate an amount of loss or a range of possible loss.

We have accrued for certain of our outstanding legal proceedings. An accrual is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the accrual. We evaluate, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the accrual that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable.

For those disclosed material legal proceedings where a loss is reasonably possible in future periods, whether in excess of a recorded accrual for legal or tax contingencies, or where there is no such accrual, and for which we are able to estimate a range of possible loss, the current estimated range is zero to $200 million in excess of any accruals related to those matters. This range represents management’s estimate based on currently available information and does not represent our maximum loss exposure; actual results may vary significantly. As such legal proceedings evolve, we may need to increase our range of possible loss or recorded accruals. In addition, it is possible that significantly increased merchant steering or other actions impairing the Card Member experience as a result of an adverse resolution in one or any combination of the disclosed merchant cases could have a material adverse effect on our business.

In addition, we face exposure associated with Card Member purchases of goods and services, including with respect to the following:

•Return Protection — refunds the price of qualifying purchases made with eligible cards, where the merchant will not accept the return, for up to 90 days from the date of purchase; and

•Merchant Protection — protects Card Members primarily against non-delivery of goods and services, usually in the event of the bankruptcy or liquidation of a merchant. When this occurs, the Card Member may dispute the transaction for which we will generally credit the Card Member’s account. If we are unable to collect the amount from the merchant, we may bear the loss for the amount credited to the Card Member. The largest component of the exposure relates to Card Member transactions associated with travel-related merchants, primarily through business arrangements where we have remitted payment to such merchants for a Card Member travel purchase that has not yet been used or “flown.”

We have an accrual of $17 million related to these exposures as of September 30, 2020. To date, we have not experienced significant losses related to these exposures; however, our historical experience may not be representative in the current environment given the economic and financial disruptions caused by the COVID-19 pandemic and resulting containment measures. A reasonable possible loss related to these exposures in excess of the recorded accrual cannot be quantified as the Card Member purchases that may include or result in claims are not sufficiently estimable, although we believe our risk of loss has increased in the current environment.

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8. Derivatives and Hedging Activities

We use derivative financial instruments to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rates, foreign exchange rates, and an equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of our market risk management. We do not transact in derivatives for trading purposes.

In relation to our credit risk, certain of our bilateral derivative agreements include provisions that allow our counterparties to terminate the agreement in the event of a downgrade of our debt credit rating below investment grade and settle the outstanding net liability position. As of September 30, 2020, these derivatives were not in a significant net liability position. Based on our assessment of the credit risk of our derivative counterparties and our own credit risk as of September 30, 2020 and December 31, 2019, no credit risk adjustment to the derivative portfolio was required.

A majority of our derivative assets and liabilities as of September 30, 2020 and December 31, 2019 are subject to master netting agreements with our derivative counterparties. We present derivative assets and liabilities subject to enforceable netting arrangements with the same counterparty on a net basis on the Consolidated Balance Sheets.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 2020 and December 31, 2019:


	Other Assets Fair Value						Other Liabilities Fair Value
(Millions)	2020		2019		2020		2019
Derivatives designated as hedging instruments:
Fair value hedges - Interest rate contracts ^(a)	$	565	$	185	$	—	$	—
Net investment hedges - Foreign exchange contracts	150		24		134		186
Total derivatives designated as hedging instruments	715		209		134		186
Derivatives not designated as hedging instruments:
Foreign exchange contracts	164		134		182		254
Total derivatives, gross	879		343		316		440
Derivative asset and derivative liability netting ^(b)	(158)		(90)		(158)		(90)
Cash collateral netting ^(c)(d)	(566)		(185)		(17)		(9)
Total derivatives, net	$	155	$	68	$	141	$	341

(a)For our centrally cleared derivatives, variation margin payments are legally characterized as settlement payments as opposed to collateral.

(b)Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.

(c)Represents the offsetting of the fair value of bilateral interest rate contracts and certain foreign exchange contracts with the right to cash collateral held from the counterparty or cash collateral posted with the counterparty.

(d)We posted $42 million and $47 million as of September 30, 2020 and December 31, 2019, respectively, as initial margin on our centrally cleared interest rate swaps; such amounts are recorded within Other assets on the Consolidated Balance Sheets and are not netted against the derivative balances.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Hedges

We are exposed to interest rate risk associated with our fixed-rate debt obligations. At the time of issuance, certain fixed-rate long-term debt obligations are designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest rate. We have $15.8 billion and $22.6 billion of fixed-rate debt obligations designated in fair value hedging relationships as of September 30, 2020 and December 31, 2019, respectively.

The following table presents the gains and losses recognized in Interest expense on the Consolidated Statements of Income associated with the fair value hedges of our fixed-rate long-term debt for the three and nine months ended September 30:


	Gains (losses)
	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Fixed-rate long-term debt	$	96	$	(123)	$	(497)	$	(563)
Derivatives designated as hedging instruments	(97)		127		504		571
Total	$	(1)	$	4	$	7	$	8

The carrying values of the hedged liabilities, recorded within Long-term debt on the Consolidated Balance Sheets, were $16.5 billion and $22.7 billion as of September 30, 2020 and December 31, 2019, respectively, including the cumulative amount of fair value hedging adjustments of $714 million and $217 million for the respective periods.

We recognized a net decrease of $81 million and a net increase of $28 million in Interest expense on Long-term debt for the three months ended September 30, 2020 and 2019, respectively, and a net decrease of $183 million and a net increase of $102 million for the nine months ended September 30, 2020, and 2019, respectively, primarily related to the net settlements (interest accruals) on our interest rate derivatives designated as fair value hedges.

Net Investment Hedges

We had notional amounts of approximately $10.1 billion and $9.8 billion of foreign currency derivatives designated as net investment hedges as of September 30, 2020 and December 31, 2019, respectively. The gain or loss on net investment hedges, net of taxes, recorded in AOCI as part of the cumulative translation adjustment, was a loss of $170 million and a gain of $138 million for the three months ended September 30, 2020 and 2019, respectively, and gains of $223 million and $63 million for the nine months ended September 30, 2020 and 2019, respectively. Net investment hedge reclassifications out of AOCI into the Consolidated Statements of Income associated with the sale or liquidation of a business, net of taxes, were nil for both the three months ended September 30, 2020 and 2019, a gain of $1 million and nil for the nine months ended September 30, 2020 and 2019, respectively.

Derivatives Not Designated as Hedges

The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in net gains of $4 million and $25 million for the three months ended September 30, 2020 and 2019, respectively, and net gains of $22 million and $52 million for the nine months ended September 30, 2020 and 2019, respectively, that are recognized in Other, net expenses in the Consolidated Statements of Income.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Fair Values

Financial Assets and Financial Liabilities Carried at Fair Value

The following table summarizes our financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s fair value hierarchy, as of September 30, 2020 and December 31, 2019


	2020														2019
(Millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Investment securities: ^(a)
Equity securities	$	99	$	98	$	1	$	—	$	78	$	77	$	1	$	—
Debt securities	22,344		—		22,344		—		8,328		—		8,328		—
Derivatives, gross ^(a)	879		—		879		—		343		—		343		—
Total Assets	23,322		98		23,224		—		8,749		77		8,672		—
Liabilities:
Derivatives, gross ^(a)	316		—		316		—		440		—		440		—
Total Liabilities	$	316	$	—	$	316	$	—	$	440	$	—	$	440	$	—

(a)Refer to Note 4 for the fair values of investment securities and to Note 8 for the fair values of derivative assets and liabilities, on a further disaggregated basis.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Assets and Financial Liabilities Carried at Other Than Fair Value

The following table summarizes the estimated fair values of our financial assets and financial liabilities that are measured at amortized cost, and not required to be carried at fair value on a recurring basis, as of September 30, 2020 and December 31, 2019. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of September 30, 2020 and December 31, 2019, and require management’s judgment. These figures may not be indicative of future fair values, nor can the fair value of American Express be estimated by aggregating the amounts presented.


	Carrying Value		Corresponding Fair Value Amount
2020 (Billions)					Total			Level 1			Level 2			Level 3
Financial Assets:
Financial assets for which carrying values equal or approximate fair value
Cash and cash equivalents ^(a)	$	33	$	33		$	32		$	1		$	—
Other financial assets ^(b)	45		45			—			45			—
Financial assets carried at other than fair value
Card Member and Other loans, less reserves ^(c)	67		72			—			—			72

Financial Liabilities:
Financial liabilities for which carrying values equal or approximate fair value	95		95			—			95			—
Financial liabilities carried at other than fair value
Certificates of deposit ^(d)	9		10			—			10			—
Long-term debt ^(c)	$	45	$	47		$	—		$	47		$	—


	Carrying Value		Corresponding Fair Value Amount
2019 (Billions)					Total			Level 1			Level 2			Level 3
Financial Assets:
Financial assets for which carrying values equal or approximate fair value
Cash and cash equivalents ^(a)	$	24	$	24		$	23		$	1		$	—
Other financial assets ^(b)	60		60			—			60			—
Financial assets carried at other than fair value
Card Member and Other loans, less reserves ^(c)	90		91			—			—			91

Financial Liabilities:
Financial liabilities for which carrying values equal or approximate fair value	92		92			—			92			—
Financial liabilities carried at other than fair value
Certificates of deposit ^(d)	10		10			—			10			—
Long-term debt ^(c)	$	58	$	60		$	—		$	60		$	—

(a)Level 2 amounts reflect time deposits and short-term investments.

(b)Balances include Card Member receivables (including fair values of Card Member receivables of $4.2 billion and $8.2 billion held by a consolidated VIE as of September 30, 2020 and December 31, 2019, respectively), other receivables, restricted cash and other miscellaneous assets.

(c)Balances include amounts held by a consolidated VIE for which the fair values of Card Member loans were $25.1 billion and $32.0 billion as of September 30, 2020 and December 31, 2019, respectively, and the fair values of Long-term debt were $14.9 billion and $19.8 billion as of September 30, 2020 and December 31, 2019, respectively.

(d)Presented as a component of Customer deposits on the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements

We have certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if they are determined to be impaired or where there are observable price changes for equity investments without readily determinable fair values. During the nine months ended September 30, 2020 and the year ended December 31, 2019, we did not have any material assets that were measured at fair value due to impairment and there were no material fair value adjustments for equity investments without readily determinable fair values.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. Guarantees

The maximum potential undiscounted future payments and related liability resulting from guarantees and indemnifications provided by us in the ordinary course of business were $1 billion and $23 million, respectively, as of September 30, 2020, and $1 billion and $29 million, respectively, as of December 31, 2019, all of which were primarily related to our real estate and business dispositions.

To date, we have not experienced any significant losses related to guarantees or indemnifications. Our recognition of these instruments is at fair value. In addition, we establish reserves when a loss is probable and the amount can be reasonably estimated.

11. Changes in Accumulated Other Comprehensive Income

AOCI is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component for the three and nine months ended September 30, 2020 and 2019 were as follows:


Three Months Ended September 30, 2020 (Millions), net of tax	Net Unrealized Gains (Losses) on Debt Securities		Foreign Currency Translation Adjustment Gains (Losses)		Net Unrealized Pension and Other Postretirement Benefit Gains (Losses)		Accumulated Other Comprehensive (Loss) Income
Balances as of June 30, 2020	$	85	$	(2,388)	$	(608)	$	(2,911)
Net unrealized losses	(9)		—		—		(9)
Net translation gains on investments in foreign operations	—		210		—		210
Net losses related to hedges of investments in foreign operations	—		(170)		—		(170)
Pension and other postretirement benefits	—		—		8		8
Net change in accumulated other comprehensive (loss) income	(9)		40		8		39
Balances as of September 30, 2020	$	76	$	(2,348)	$	(600)	$	(2,872)


Nine Months Ended September 30, 2020 (Millions), net of tax	Net Unrealized Gains (Losses) on Debt Securities		Foreign Currency Translation Adjustment Gains (Losses)		Net Unrealized Pension and Other Postretirement Benefit Gains (Losses)		Accumulated Other Comprehensive (Loss) Income
Balances as of December 31, 2019	$	33	$	(2,189)	$	(581)	$	(2,737)
Net unrealized gains	43		—		—		43
Decrease due to amounts reclassified into earnings	—		(3)		—		(3)
Net translation losses on investments in foreign operations	—		(379)		—		(379)
Net gains related to hedges of investments in foreign operations	—		223		—		223
Pension and other postretirement benefits	—		—		(19)		(19)
Net change in accumulated other comprehensive income (loss)	43		(159)		(19)		(135)
Balances as of September 30, 2020	$	76	$	(2,348)	$	(600)	$	(2,872)

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Three Months Ended September 30, 2019 (Millions), net of tax	Net Unrealized Gains (Losses) on Debt Securities		Foreign Currency Translation Adjustment Gains (Losses)		Net Unrealized Pension and Other Postretirement Benefit Gains (Losses)		Accumulated Other Comprehensive (Loss) Income
Balances as of June 30, 2019	$	35	$	(2,161)	$	(480)	$	(2,606)
Net unrealized gains	3		—		—		3
Net translation losses on investments in foreign operations	—		(197)		—		(197)
Net gains related to hedges of investments in foreign operations	—		138		—		138
Pension and other postretirement benefits	—		—		1		1
Net change in accumulated other comprehensive income (loss)	3		(59)		1		(55)
Balances as of September 30, 2019	$	38	$	(2,220)	$	(479)	$	(2,661)


Nine Months Ended September 30, 2019 (Millions), net of tax	Net Unrealized Gains (Losses) on Debt Securities		Foreign Currency Translation Adjustment Gains (Losses)		Net Unrealized Pension and Other Postretirement Benefit Gains (Losses)		Accumulated Other Comprehensive (Loss) Income
Balances as of December 31, 2018	$	(8)	$	(2,133)	$	(456)	$	(2,597)
Net unrealized gains	46		—		—		46
Net translation losses on investments in foreign operations	—		(150)		—		(150)
Net gains related to hedges of investments in foreign operations	—		63		—		63
Pension and other postretirement benefits	—		—		(23)		(23)
Net change in accumulated other comprehensive income (loss)	46		(87)		(23)		(64)
Balances as of September 30, 2019	$	38	$	(2,220)	$	(479)	$	(2,661)

The following table shows the tax impact for the three and nine months ended September 30 for the changes in each component of AOCI presented above:


	Tax expense (benefit)
	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Net unrealized debt securities	$	(3)	$	1	$	13	$	14
Net translation on investments in foreign operations	(14)		(4)		10		11
Net hedges on investments in foreign operations	(57)		45		67		23
Pension and other postretirement benefits	(1)		2		10		(5)
Total tax impact	$	(75)	$	44	$	100	$	43

Reclassifications out of AOCI into the Consolidated Statements of Income associated with the sale or liquidation of a business, net of taxes, were nil for both the three months ended September 30, 2020 and 2019, and a gain of $3 million and nil for the nine months ended September 30, 2020 and 2019, respectively.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. Other Fees and Commissions and Other Expenses

The following is a detail of Other fees and commissions for the three and nine months ended September 30:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Fees charged to Card Members:
Delinquency fees	$	159	$	257	$	615	$	763
Foreign currency conversion fee revenue	86		252		336		732
Other customer fees:
Loyalty coalition-related fees	112		106		309		329
Travel commissions and fees	19		108		84		337
Service fees and other ^(a)	102		102		303		304
Total Other fees and commissions	$	478	$	825	$	1,647	$	2,465

(a)Other includes Membership Rewards program fees that are not related to contracts with customers.

Revenue expected to be recognized in future periods related to contracts that have an original expected duration of one year or less and contracts with variable consideration (e.g. discount revenue) are not required to be disclosed. Non-interest revenue expected to be recognized in future periods through remaining contracts with customers is not material.

The following is a detail of Other expenses for the three and nine months ended September 30:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2020		2019		2020		2019
Occupancy and equipment	$	577	$	544	$	1,690	$	1,569
Professional services	421		491		1,266		1,497
Other ^(a)	231		317		792		1,285
Total Other expenses	$	1,229	$	1,352	$	3,748	$	4,351

(a)Other expense primarily includes general operating expenses, unrealized gains and losses on certain equity investments, communication expenses, Card Member and merchant-related fraud losses, non-income taxes, foreign currency-related gains and losses, and litigation expenses.

13. Income Taxes

We are under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which we have significant business operations. The tax years under examination and open for examination vary by jurisdiction. We are currently under examination by the IRS for the 2017 and 2018 tax years.

We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $106 million, principally as a result of potential resolutions of prior years’ tax items with various taxing authorities. The prior years’ tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $106 million of unrecognized tax benefits, approximately $90 million relates to amounts that, if recognized, would impact the effective tax rate in a future period.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. Earnings Per Common Share (EPS)

The computations of basic and diluted EPS for the three and nine months ended September 30 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions, except per share amounts)	2020		2019		2020		2019
Numerator:
Basic and diluted:
Net income	$	1,073	$	1,755	$	1,697	$	5,066
Preferred dividends	(16)		(21)		(65)		(61)
Net income available to common shareholders	$	1,057	$	1,734	$	1,632	$	5,005
Earnings allocated to participating share awards ^(a)	(7)		(11)		(10)		(35)
Net income attributable to common shareholders	$	1,050	$	1,723	$	1,622	$	4,970
Denominator: ^(a)
Basic: Weighted-average common stock	804		825		805		833
Add: Weighted-average stock options ^(b)	1		2		1		2
Diluted	805		827		806		835

Basic EPS	$	1.31	$	2.09	$	2.01	$	5.97
Diluted EPS	$	1.30	$	2.08	$	2.01	$	5.95

(a)Our unvested restricted stock awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.

(b)The dilutive effect of unexercised stock options excludes from the computation of EPS 0.9 million and nil of options for the three months ended September 30, 2020 and 2019, respectively, and 0.6 million and 0.3 million of options for the nine months ended September 30, 2020 and 2019, respectively, because inclusion of the options would have been anti-dilutive.

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15. Reportable Operating Segments

Effective for the first quarter of 2020, we made certain enhancements to our transfer pricing methodology related to the sharing of revenues between 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, Interest expense and operating expenses across our reportable operating segments. Prior period amounts have been revised to conform to the current period presentation. These changes had no impact on our Consolidated Results of Operations.

The following table presents certain selected financial information for our reportable operating segments and Corporate & Other as of or for the three and nine months ended September 30:


Three Months Ended September 30, 2020 (Millions, except where indicated)	GCSG		GCS		GMNS		Corporate & Other ^(a)		Consolidated
Total non-interest revenues	$	3,517	$	2,327	$	1,111	$	(78)	$	6,877
Revenue from contracts with customers ^(b)	2,364		1,969		1,053		(6)		5,380
Interest income	1,916		351		4		53		2,324
Interest expense	242		139		(18)		87		450
Total revenues net of interest expense	5,191		2,539		1,133		(112)		8,751
Net income (loss)	$	855	$	220	$	263	$	(265)	$	1,073
Total assets (billions)	$	81	$	40	$	12	$	54	$	187


Nine Months Ended September 30, 2020 (Millions, except where indicated)	GCSG		GCS		GMNS		Corporate & Other ^(a)		Consolidated
Total non-interest revenues	$	10,343	$	7,129	$	3,376	$	(200)	$	20,648
Revenue from contracts with customers ^(b)	6,893		5,993		3,168		(21)		16,033
Interest income	6,298		1,252		14		232		7,796
Interest expense	842		493		(60)		433		1,708
Total revenues net of interest expense	15,799		7,888		3,450		(401)		26,736
Net income (loss)	$	1,583	$	198	$	746	$	(830)	$	1,697
Total assets (billions)	$	81	$	40	$	12	$	54	$	187


Three Months Ended September 30, 2019 (Millions, except where indicated)	GCSG		GCS		GMNS		Corporate & Other ^(a)		Consolidated
Total non-interest revenues	$	4,226	$	3,070	$	1,471	$	19	$	8,786
Revenue from contracts with customers ^(b)	3,047		2,668		1,337		(1)		7,051
Interest income	2,402		485		6		187		3,080
Interest expense	437		262		(74)		252		877
Total revenues net of interest expense	6,191		3,293		1,551		(46)		10,989
Net income (loss)	$	991	$	568	$	523	$	(327)	$	1,755
Total assets (billions)	$	99	$	54	$	17	$	24	$	194


Nine Months Ended September 30, 2019 (Millions, except where indicated)	GCSG		GCS		GMNS		Corporate & Other ^(a)		Consolidated
Total non-interest revenues	$	12,331	$	9,055	$	4,398	$	71	$	25,855
Revenue from contracts with customers ^(b)	8,931		7,874		4,017		5		20,827
Interest income	6,971		1,407		22		599		8,999
Interest expense	1,318		787		(241)		799		2,663
Total revenues net of interest expense	17,984		9,675		4,661		(129)		32,191
Net income (loss)	$	2,826	$	1,641	$	1,658	$	(1,059)	$	5,066
Total assets (billions)	$	99	$	54	$	17	$	24	$	194

(a)Corporate & Other includes adjustments and eliminations for intersegment activity.

(b)Includes discount revenue, certain other fees and commissions and other revenues from customers.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. Our market risk exposures include (i) interest rate risk due to changes in the relationship between the interest rates on our assets (such as loans, receivables and investment securities) and the interest rates on our liabilities (such as debt and deposits); and (ii) foreign exchange risk related to transactions, funding, investments and earnings in currencies other than the U.S. dollar.

Interest Rate Risk

We analyze a variety of interest rate scenarios in response to changes in balance sheet composition, market conditions, and other factors. As of September 30, 2020, the composition of the balance sheet shifted substantially compared to December 31, 2019. There was a substantial net reduction in total fixed rate assets within Card Member loans, Card Member receivables and investment securities, and an increase in floating rate assets such as cash and cash equivalents. Largely as a result of this change in balance sheet composition, the adverse impact of changes in market interest rates on our net interest income has been significantly lowered since December 31, 2019. A hypothetical, immediate 100 basis point increase or decrease in market interest rates would have a detrimental effect of no greater than $70 million on our annual net interest income, based on the balance sheet as of September 30, 2020. The detrimental impact from rate changes is measured by instantaneously increasing or decreasing the anticipated future interest rates by 100 basis points, using a static asset liability gapping model. Our estimated repricing risk assumes that our interest-rate sensitive assets and liabilities that reprice within the twelve-month horizon generally reprice by the same magnitude as benchmark rate changes, and these benchmark rates do not fall below zero percent. It is further assumed that, within our interest-rate sensitive liabilities, certain deposits reprice at lower magnitudes than benchmark rate movements, and the magnitude of this repricing in turn depends on, among other factors, the direction of rate movements. These assumptions are consistent with historical deposit repricing experience in the industry and within our own portfolio. Actual changes in our net interest income will depend on many factors, and therefore may differ from our estimated risk to changes in market interest rates.

Foreign Exchange Risk

With respect to earnings denominated in foreign currencies, the adverse impact of a hypothetical 10 percent strengthening of the U.S. dollar would have been approximately $38 million and $173 million on our pretax income for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information that updates the disclosures set forth under Part I, Item 3. “Legal Proceedings” in our 2019 Form 10-K, refer to Note 7 to the “Consolidated Financial Statements” in this Form 10-Q.

ITEM 1A. RISK FACTORS

For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K) and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the First Quarter Form 10-Q). The information included in the "Risk Factors" section of the First Quarter Form 10-Q is incorporated by reference herein. The risks and uncertainties that we face are not limited to those set forth in the 2019 Form 10-K, as supplemented and updated in the First Quarter Form 10-Q. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment and stimulus measures, continued outbreaks and increasing rates of infection, and the related impacts to economic and operating conditions.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth the information with respect to purchases of our common stock made by or on behalf of us during the three months ended September 30, 2020.


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ^(c)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1-31, 2020
Repurchase program^(a)	—	$	—	—	102,171,653
Employee transactions^(b)	—	—		N/A	N/A

August 1-31, 2020
Repurchase program^(a)	—	$	—	—	102,171,653
Employee transactions^(b)	11,983	$94.65		N/A	N/A

September 1-30, 2020
Repurchase program^(a)	—	$	—	—	102,171,653
Employee transactions^(b)	—	—		N/A	N/A

Total
Repurchase program^(a)	—	$	—	—	102,171,653
Employee transactions^(b)	11,983	$94.65		N/A	N/A

(a)On September 23, 2019, the Board of Directors authorized the repurchase of up to 120 million common shares from time to time, subject to market conditions and in accordance with our capital plans. This authorization replaced the prior repurchase authorization and does not have an expiration date. See “MD&A – Consolidated Capital Resources and Liquidity” for additional information regarding share repurchases.

(b)Includes: (i) shares surrendered by holders of employee stock options who exercised options (granted under our incentive compensation plans) in satisfaction of the exercise price and/or tax withholding obligation of such holders and (ii) restricted shares withheld (under the terms of grants under our incentive compensation plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. Our incentive compensation plans provide that the value of the shares delivered or attested to, or withheld, be based on the price of our common stock on the date the relevant transaction occurs.

(c)Share purchases under publicly announced programs are made pursuant to open market purchases or privately negotiated transactions (including employee benefit plans) as market conditions warrant and at prices we deem appropriate.

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ITEM 5. OTHER INFORMATION

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the Exchange Act), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted outside the United States by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

In 2020, we became aware of credit card accounts opened with American Express International, Inc. (Hong Kong branch) by the Acting Consul General of the Iranian Consulate in Hong Kong, and his predecessor, the now-former Consul General. We believe these cards were used only for personal expenses. The Acting Consul General had two cards, both of which were opened in 2018 and one of which was closed by client request on or about April 3, 2019, and the other of which was cancelled by us on or about June 16, 2020. The former Consul General’s card was issued in January 2019 and cancelled by us on or about March 13, 2019. We had negligible gross revenues and net profits attributable to these accounts. As all of the accounts were cancelled, we do not intend to continue to engage in this activity.

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ITEM 6. EXHIBITS

The following exhibits are filed as part of this Quarterly Report:


Exhibit			Description
31.1			Certification of Stephen J. Squeri pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2			Certification of Jeffrey C. Campbell pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1			Certification of Stephen J. Squeri pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Jeffrey C. Campbell pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AMERICAN EXPRESS COMPANY
	(Registrant)

Date: October 23, 2020	By	/s/ Jeffrey C. Campbell
		Jeffrey C. Campbell Chief Financial Officer

Date: October 23, 2020	By	/s/ Jessica Lieberman Quinn
		Jessica Lieberman Quinn Executive Vice President and Corporate Controller (Principal Accounting Officer)